FINM7008 Applied Investments
Lecture 1: The Investment Process I
Administration I
Lecturer for the semester:
Dr. Alexander Vadilyev
[email protected]
Office Phone: 6125-4723 (or x54723 on campus)
Office: 4.19 CBE Building 26C
Consultation Tim

FINM7008
Applied Investments
Course Description
This course allows students to acquire and apply the skills needed to design investment
portfolios. It covers duties to clients, types of investment products, explores links between
investment risk and retur

FINM7008 Applied Investments
Lecture 2: The Investment Process II
This Lecture.
Today, we will continue our discussion of the
investment process. More specifically, we will
consider:
The investment management process;
Issues associated with managing ind

FINM7008 Applied Investments
Lecture 7: Arbitrage Pricing and
Multifactor Models
This Lecture.
We will spend todays lecture discussing:
Multifactor asset pricing models including
Arbitrage Pricing Theory (APT); and,
The empirical evidence that exists in

George Athanassakos is a Professor of Finance and holds the Ben Graham Chair in Value
Investing at the Richard Ivey School of Business, University of Western Ontario
Value investors such as Warren Buffett and Prem Watsa are vastly successful, so why dont

Solutions to Tutorial 6 Questions
Problems Sets
2.
If the securitys correlation coefficient with the market portfolio doubles (with all other
variables such as variances unchanged), then beta, and therefore the risk premium, will
also double. The current

Solutions to Tutorial 5 Questions
Problems Sets
1. The advantage of the index model, compared to the Markowitz procedure, is the vastly
reduced number of estimates required. In addition, the large number of estimates required for the
Markowitz procedure c

Solutions to Tutorial 4 Questions
Chapter 6: CFA Problems
1.
Utility for each investment = E(r) 0.5 4 2
We choose the investment with the highest utility value, Investment 3.
Expected
return
Investment E(r)
1
0.12
2
0.15
3
0.21
4
0.24
Standard
deviation
0

Solutions to Tutorial 3 Questions
Problem Set
1.
The Fisher equation predicts that the nominal rate will equal the equilibrium real rate
plus the expected inflation rate. Hence, if the inflation rate increases from 3% to 5%
while there is no change in the

Solutions to Tutorial 2 Questions
Problem Set
3.
a.
George Mores expected accumulation at age 65:
n
i
PV
PMT
Fixed income
25
3%
$100,000
$1,500
Common stocks 25
6%
$100,000
$1,500
Expected retirement annuity:
n
i
PV
Fixed income
15
3%
$264,067
Common st

Solutions to Tutorial 1 Questions
Chapter 3
1.
Stop-loss order: allows a stock to be sold if the price falls below a predetermined
level. Limit sell order: sells stock when the price rises above a predetermined level.
Market order: either a buy or sell or

What is Naked Short Selling?
Naked short selling or naked shorting is an illegal stock trading practice, in which investors
sell a particular stock which they do not possess and cannot borrow. In capital markets, this
practice is called Fail to Deliver (F

The First and Second Derivatives
The Meaning of the First Derivative
At the end of the last lecture, we knew how to dierentiate any polynomial function. Polynomial functions are the rst functions we studied for which we did not talk about the shape of the

Chi-X launch - what does it mean for the Australian market?
Source: http:/theconversation.com/chi-x-launch-what-does-it-mean-for-the-australian-market3900 (31 October 2011)
Today for the first time in its history, the Australian Securities Exchange will f

CODE OF ETHICS
AND STANDARDS OF
PROFESSIONAL CONDUCT
PREAMBLE
The CFA Institute Code of Ethics and Standards of Professional Conduct are fundamental to the values of CFA Institute and essential to achieving
its mission to lead the investment profession gl

Quiz1 Multiple Choice Questions (one correct answer)
1. A debt security pays
A. a fixed level of income for the life of the owner.
B. a variable level of income for owners on a fixed income.
C. a fixed or variable income stream at the option of the owner.

Solutions to Tutorial 9 Questions
Chapter 14: Problems Sets
2.
The bond callable at 105 should sell at a lower price because the call provision is
more valuable to the firm. Therefore, its yield to maturity should be higher.
3.
Zero coupon bonds provide n

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APPENDICES
A
Quantitative Review
B
References to CFA Questions
C
Glossary
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A
P
P
E
N
D
I
X
A
QUANTITATIVE REVIEW
Students in management and investment courses typ

FINM7008 Week 3 Tutorial Questions
Chapter 5: Problems Sets 7 9 10 13.
7. Suppose your expectations regarding the stock price are as follows:
State of the Market
Boom
Normal growth
Recession
Probability Ending Price
0.35
140
0.3
110
0.35
80
HPR (including

FINM7008 Week 4 Tutorial Questions
Chapter 6: Problems Sets 13, 15-19, 23-26.
Use these inputs for Problems 13 through 19: You manage a risky portfolio with expected rate of
return of 18% and standard deviation of 28%. The T-bill rate is 8%.
E (rp ) 18% ,

FINM7008 Week 2 Tutorial Questions
Chapter 1: Problem Sets 1, 4, 5, 6, 15 and 17.
1
Financial engineering has been disparaged as nothing more than paper shuffling. Critics argue
that resources used for rearranging wealth (that is, bundling and unbundling

FINM7008 Week 5 Tutorial Questions
Chapter 7: Problems Sets 1, 2, 6, 7, 9-11, 17-19.
1. Which of the following factors reflect pure market risk for a given corporation?
a. Increased short-term interest rates.
b. Fire in the corporate warehouse.
c. Increas

Chapter Ten
Arbitrage Pricing Theory
(Multifactor Models)
INVESTMENTS | BODIE, KANE, MARCUS
Arbitrage Pricing Theory
Arbitrage Pricing Theory (APT)
Factor Models + No Arbitrage Condition
Compared with CAPM:
APTs advantage: Factor models explain actual