Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 22
Chapter 22: Problem 1
Although selling calls today would generate a positive cash flow for the client
now, the client wo

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 4
Chapter 4: Problem 1
A.
Expected return is the sum of each outcome times its associated
probability.
Expected return of A

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 11
Chapter 11: Problem 1
Cumulative Probability
Outcome
A
B
C
0.
4%
0.2
0
0.0
0.
5%
0.2
1
0.0
0.
6%
0.5
4
0.4
0.
7%
0.5
6
0

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 7
Chapter 7: Problem 1
We will illustrate the answers for stock A and the market portfolio (S&P 500);
the answers for stock

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 1
Chapter 1: Problem 1
A.
Opportunity Set
With one dollar, you can buy 500 red hots and no rock candies (point
A), or 100 r

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 8
Chapter 8: Problem 1
Given the correlation coefficient of the returns on a pair of securities i and j,
the securities cov

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 9
Chapter 9: Problem 1
In the table below, given that the riskless rate equals 5%, the securities are
ranked in descending

Financial Economics
Lecturer: Dr Ning Zeng
1
Readings:
Financial Theory and Corporate Policy (4th Edition), by Thomas E. Copeland , J. Fred
Weston, Kuldeep Shastri.
Financial Times
Wall Street Journal
2
Lecture 4
Equities
3
Critical Concepts
Industry Over

Financial Economics
Lecturer: Dr Ning Zeng
1
Readings:
Financial Theory and Corporate Policy (4th Edition), by Thomas E. Copeland , J. Fred
Weston, Kuldeep Shastri.
Financial Times
Wall Street Journal
2
Lecture 2
Present Value Relations
3
Critical Concept

Good morning everyone, now welcome to our presentation. The
name of this paper is One-child policy and family firms in China.
In terms of paper structure, there are 6 main parts, from
introduction to conclusion.
When we started to read a paper, we have to

Financial Economics
Lecturer: Dr Ning Zeng
1
Readings:
Financial Theory and Corporate Policy (4th Edition), by Thomas E. Copeland , J. Fred
Weston, Kuldeep Shastri.
Financial Times
Wall Street Journal
2
Lecture 6
Options
3
Critical Concepts
Motivation
Pay

Financial Economics
Lecturer: Dr Ning Zeng
1
Readings:
Financial Theory and Corporate Policy (4th Edition), by Thomas E. Copeland , J. Fred
Weston, Kuldeep Shastri.
Financial Times
Wall Street Journal
2
Lecture 3
Fixed-Income Securities
3
Critical Concept

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 21
Chapter 21: Problem 1
The duration formula shown in the text for annual payments can easily be
modified to reflect semi-

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 5
Chapter 5: Problem 1
From Problem 1 of Chapter 4, we know that:
R 1 = 12%
R 2 = 6%
21 = 8
R 3 = 14%
22 = 2
R 4 = 12%
23 =

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 14
Chapter 14: Problem 1
Given the zero-beta security market line in this problem, the return on the
zero-beta portfolio eq

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 24
Chapter 24: Problem 1
Using standard deviation as the measure for variability, the reward-tovariability ratio for a fund

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 15
Chapter 15: Problem 1
That is NOT a valid test of the theory, and the empirical evidence IS consistent
with the theory.

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 19
Chapter 19: Problem 1
If earnings follow a mean-reverting process, then it is appropriate to use
historical data to fore

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 23
Chapter 23: Problem 1
The no-arbitrage condition for stock-index futures appears in the text as:
F
P PV D
1 R
Given tha

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 20
Chapter 20: Problem 1
We can use the cash flows bonds A and B to replicate the cash flows of bond C.
Let YA be the fract

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 18
Chapter 18: Problem 1
Since the companys growth rate of 10% extends into the future indefinitely,
use the constant-growt

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 10
Chapter 10: Problem 1
Expected utility of investment A = 1/3 7.5 + 1/3 12.5 + 1/3 31.5 =
17.0
Expected utility of invest

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 6
Chapter 6: Problem 1
The simultaneous equations necessary to solve this problem are:
5 = 16Z1 + 20Z2 + 40Z3
7 = 20Z1 + 10

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 13
Chapter 13: Problem 1
The equation for the security market line is:
Ri RF Rm RF i
Thus, from the data in the problem we

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 12
Chapter 12: Problem 1
Equation (12.1) in the text can be used to answer this question:
R RF
RN RF
US
N,US
N
US
As is

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 16
Chapter 16: Problem 1
From the text we know that three points determine a plane. The APT equation
for a plane is:
Ri 0 1

Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 6th Edition
Solutions to Text Problems: Chapter 25
Chapter 25: Problem 1
A.
The points on a Predictive Realization Diagram would have the following
coordinates (where Pi =

Financial Economics
Lecturer: Dr Ning Zeng
1
Readings:
Financial Theory and Corporate Policy (4th Edition), by Thomas E. Copeland , J. Fred
Weston, Kuldeep Shastri.
Financial Times
Wall Street Journal
2
Lecture 5
Forward and Futures Contracts
3
Critical C