Econ 252 Spring 2011
Problem Set 3
Econ 252 - Financial Markets
Professor Robert Shiller
Spring 2011
Professor Robert Shiller
Problem Set 3
Question 1
Consider a standard coupon bond that matures 25 years from today. The principal value of
the contract is
Economics 252 Financial Markets
Spring 2011
Lecture 3: Technology and Invention in Finance
January 19, 2011
Multiple Choice Questions
Question 3.1
What does the Central Limit Theorem state about appropriately scaled averages of
independent and identically
Economics 252 Financial Markets
Spring 2011
Lecture 2: Risk and Financial Crises
January 14, 2011
Multiple Choice Questions
Question 2.1
What does correlation measure?
(a) It is a measure of the central tendency of a random variable.
(b) It measures the r
Lecture 18: Exchanges, Brokers,
Dealers, Clearinghouses
Economics 252, Spring 2011
Prof. Robert Shiller, Yale University
Hypothetical Limit Order Book - MSFT
Lecture 17: Professional Money
Managers and their Influence
Economics 252, Spring 2011
Prof. Robert Shiller, Yale University
Assets of US Households & Nonprofits
(Table B-100)
2010-IV in $Billions
Real estate $18187
Pension funds $13025
Equity in noncorp
Lecture 14: Options Markets
Economics 252, Spring 2011
Prof. Robert Shiller, Yale University
Black-Scholes Formula
C = SN (d1 ) e rT EN(d 2 )
where
S
ln( ) + rT + 2T / 2
E
d1 =
T
S
ln( ) + rT 2T / 2
E
d2 =
T
Implied and Actual Volatility
Monthly Jan 1986-
Lecture 13: Forwards and Futures
Markets
Economics 252, Spring 2011
Prof. Robert Shiller, Yale University
CME Group Rough Rice Futures as of
March 2011
CME Group Soft Red Winter Wheat
Futures as of March 2011
CME Light Sweet Crude Oil Futures
As of March
Lecture 14: Options Markets
Economics 252, Spring 2011
Prof. Robert Shiller, Yale University
Black-Scholes Formula
C = SN (d1 ) e rT EN(d 2 )
where
S
ln( ) + rT + 2T / 2
E
d1 =
T
S
ln( ) + rT 2T / 2
E
d2 =
T
Put-Call Parity
In discrete time:
E
C+
T = S +
Lecture 8: Corporate Stocks
Economics 252, Spring 2011
Prof. Robert Shiller, Yale University
Market Cap of Listed Companies, 2008
from World Bank
http:/econ.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/0,contentMDK:20394793~
menuPK:1192714~pagePK:64133150
Lecture 4: Portfolio
Diversification and Supporting
Financial Institutions
Economics 252, Spring 2011
Prof. Robert Shiller, Yale University
A Portfolio of a Risky and
Riskless Asset
r = xr1 + (1 x )rf
x 2 var(return1 )
A Portfolio of Two Risky Assets
Put
Lecture 2: Risk and Financial Crises
Economics 252, Spring 2011
Prof. Robert Shiller, Yale University
Return
Expected Value, Mean, Average
E ( x) = x =
E ( x) = x =
prob( x = xi ) xi
i= 1
f ( x) xdx
x=
n
i= 1
n
xi / n
G( x) = ( xi )
i= 1
1/ n
Variance and
Econ 252 Spring 2011
Problem Set 6 Solution
Professor Robert Shiller
Econ 252 - Financial Markets
Spring 2011
Professor Robert Shiller
Problem Set 6 Solution
Question 1
(a) A futures contract is an obligation to trade at a future date at a price specified
Econ 252 Spring 2011
Problem Set 6
Econ 252 - Financial Markets
Professor Robert Shiller
Spring 2011
Professor Robert Shiller
Problem Set 6
Question 1
(a) How are futures and options different in terms of the risks they allow investors
to protect against?
Econ 252 Spring 2011
Problem Set 5 Solution
Professor Robert Shiller
Econ 252 - Financial Markets
Spring 2011
Professor Robert Shiller
Problem Set 5 Solution
Question 1
(a) In period 0, both the buyer and the seller have to post margin according to the
in
Econ 252 Spring 2011
Problem Set 5
Econ 252 - Financial Markets
Professor Robert Shiller
Spring 2011
Professor Robert Shiller
Problem Set 5
Question 1
Assume that futures on 50 bushels of wheat have an initial margin requirement of
$12 per contract and a
Econ 252 Spring 2011
Problem Set 4 Solution
Professor Robert Shiller
Econ 252 - Financial Markets
Spring 2011
Professor Robert Shiller
Problem Set 4 Solution
Question 1
(a) For applicant A,
For applicant B,
LTVA =
525,000
= 0.875 = 87.5%.
600,000
LTVB =
3
Econ 252 Spring 2011
Problem Set 4
Econ 252 - Financial Markets
Professor Robert Shiller
Spring 2011
Professor Robert Shiller
Problem Set 4
Question 1
Suppose a bank has to make a decision about two residential mortgage applications.
Applicant A wants to
Econ 252 Spring 2011
Problem Set 3 Solution
Econ 252 - Financial Markets
Spring 2011
Professor Robert Shiller
Problem Set 3 Solution
Question 1
The relevant formula for a coupon bond is
1
1 (1 + ) n
M
+
P = C
n,
(1 + )
with the following notation:
Prof
Econ 252 Spring 2011
Problem Set 2 - Solution
Professor Robert Shiller
Econ 252 - Financial Markets
Spring 2011
Professor Robert Shiller
Problem Set 2 Solution
Question 1
Denote the portfolio weight of asset A by w (implying that the weight on asset B is
Econ 252 Spring 2011
Problem Set 2
Econ 252 - Financial Markets
Professor Robert Shiller
Spring 2011
Professor Robert Shiller
Problem Set 2
Question 1
Consider the following three assets:
Asset As expected return is 5% and return standard deviation is 25%
Econ 252 Spring 2011
Problem Set 1 - Solution
Professor Robert Shiller
Econ 252 - Financial Markets
Spring 2011
Professor Robert Shiller
Problem Set 1 Solution
Question 1
(a) Denote the winnings from a single lottery ticket by L.
A single lottery ticket p
Econ 252 Spring 2011
Problem Set 1
Professor Robert Shiller
Econ 252 - Financial Markets
Spring 2011
Professor Robert Shiller
Problem Set 1
Question 1
A lottery sells 1 million tickets.
One of those tickets wins the grand prize of $1 million, 100 tickets
Econ 252 Spring 2011
Midterm Exam #2 - Practice Exam - Solution Professor Robert Shiller
Econ 252 - Financial Markets
Spring 2011
Professor Robert Shiller
Midterm Exam #2 Practice Exam
Suggested Solution
Part I.
1. Fabozzi et al., pp. 194-195.
The real ra
Econ 252 Spring 2011
Midterm Exam #2 Practice Exam
Professor Robert Shiller
Econ 252 - Financial Markets
Spring 2011
Professor Robert Shiller
Midterm Exam #2 Practice Exam
Instructions:
The exam consists of a total of seven pages including this coversheet
Econ 252 Spring 2011
Midterm Exam #2 - Solution
Econ 252 - Financial Markets
Professor Robert Shiller
Spring 2011
Professor Robert Shiller
Midterm Exam #2
Suggested Solution
Part I.
1. Fabozzi et al., pp. 465-468; Lecture 10 on Real Estate.
Fannie Mae is
Econ 252 Spring 2011
Midterm Exam #2
Econ 252 - Financial Markets
Professor Robert Shiller
Spring 2011
Professor Robert Shiller
Midterm Exam #2
Instructions:
The exam consists of a total of eight pages including this coversheet.
There are two parts to thi
Econ 252 Spring 2011 Midterm Exam #1 Practice Exam - Solution Professor Robert Shiller
Econ 252 - Financial Markets
Spring 2011
Professor Robert Shiller
Midterm Exam #1 Practice Exam
Suggested Solution
Part I.
1. Lecture 1 on Introduction and What This Co
Econ 252 Spring 2011
Midterm Exam #1 Practice Exam
Econ 252 - Financial Markets
Professor Robert Shiller
Spring 2011
Professor Robert Shiller
Midterm Exam #1 Practice Exam
Instructions:
The exam consists of a total of seven pages including this coversheet
Econ 252 Spring 2011
Midterm Exam #1 - Solution
Econ 252 - Financial Markets
Professor Robert Shiller
Spring 2011
Professor Robert Shiller
Midterm Exam #1
Suggested Solution
Part I.
1. Lecture 7 on Efficient Markets.
Financial theory suggests that day-to-