Solution Key to Problem Set 1 ECN 134 Finance Economics Part A: Investment Environment 1.a. Cash is a financial asset because it is the liability of the federal government. b. No. The cash does not directly add to the productive capacity of the economy. c
Solution to Problem Set 5 ECN 134 Finance Economics Part A: Optimal Risky Portfolio 1. a. Even though it seems that gold is dominated by stocks, gold might still be an attractive asset to hold as a part of a portfolio. If the correlation between gold and
Solution to Problem Set 4 ECN 134 Finance Economics Prof. Farshid Mojaver Risk and Return 1. You consider investing in one of three portfolios X, Y, or Z, for one year. The following matrix gives the means and standard deviations of annual returns in % fo
ECN 134, SSII09
Problem Set 6
3-You have $500 to invest. You decide to split it into two parts. The return on each $250 will be determined by a coin flip. If the coin comes up heads the investment will return 10%, and if it comes up tails the investment r
Problem Set 5 (ECN 134) Finance Economics Optimal Risky Portfolio part 1 Prof. Farshid Mojaver
1. Stocks offer an expected rat of return of 18%, with a SD of 22%. Gold offers an expected return of 10% with a SD of 30%. a. In light of the apparent ineffici
Problem Set 6
ECN 134
Financial Economics
Prof. Farshid Mojaver
On Financial Crisis
1- What was the role of deregulation in the financial crisis of 2008?
2- What is systemic risk? How did it happen during the financial crisis of 2008?
3- Why housing price
Solution Key to Problem Set 3 ECN 134 Finance Economics Prof. Farshid Mojaver Stock Valuation 1 1. We need to find the required return of the stock. Using the constant growth model, we can solve the equation for k. Doing so, we find: k = (D1 / P0) + g = (
Homework 5 - Economics 134
Due Date: May 25, 2017 (in lecture)
I. (Welch, Q9.41) The prevailing risk-free rate is 5% per annum. A competitor to
your own firm, though publicly traded, has been using an overall project cost
of capital of 12% per annum. The
Recap
Valuations of stocks and bonds
Annuities
Lecture 2
Madhav Chandrasekher
ECN 134 - UC Davis
Spring 2017
Bond valuation
Recap
Valuations of stocks and bonds
Annuities
Bond valuation
Announcements plus recap
1
Homework 1 on Canvas. Due Thursday, April
Announcements
CAPM
Lecture 8
Madhav Chandrasekher
ECN 134 - UC Davis
Spring 2017
Implications of CAPM
Announcements
CAPM
Implications of CAPM
Announcements
1
Exam 1 returned today (mean: 72%, median: 75%).
2
Last time: How should a firm (manager) choose t
Course preliminaries
Introduction
Lecture 1
Madhav Chandrasekher
ECN 134 - UC Davis
Spring 2017
Present value
Course preliminaries
Introduction
Present value
Welcome
1
This is ECN 134 (Financial Economics).
2
I am your instructor, Madhav Chandrasekher (ca
Announcements
Capital Budgeting Rules
Lecture 3
Madhav Chandrasekher
ECN 134 - UC Davis
Spring 2017
Examples
Announcements
Capital Budgeting Rules
Examples
Announcements
1
Homework 1 due Thursday, April 13 at the start of class.
Please hand in HW as you e
Practice Problems for Final Exam
I. You will be paid $100 in 5 years for sure. What is the present value of this $100
today if the annual interest rate is 10%?
II. A biotech company has a drug in development that will allow you to sell your
firm for $10 b
Announcements
More on the CAPM
Lecture 11
Madhav Chandrasekher
ECN 134 - UC Davis
Fall 2016
Using the CAPM - Examples
Announcements
More on the CAPM
Using the CAPM - Examples
Announcements
1
HW 5 up on SmartSite (due Wednesday).
2
Today: we review some ma
Announcements
Capital Budgeting Rules
Lecture 3
Madhav Chandrasekher
ECN 134 - UC Davis
Fall 2016
Examples
Announcements
Capital Budgeting Rules
Examples
Announcements
1
Welch book should be at UCD campus bookstore. To get by in
the meantime, check out on
Practice Problems for Exam 2
I. (Welch Q10.33) What are the perfect market assumptions?
II. Explain whether the following statements are either true or false. Provide brief
reasoning for your answer:
i. In a perfect capital market, expected returns on all
Announcements
Annuities
Lecture 2
Madhav Chandrasekher
ECN 134 - UC Davis
Fall 2016
Bond valuation
Announcements
Annuities
Bond valuation
Announcements
1
Welch book should be at UCD campus bookstore. To get by in
the meantime, check out online version on
Solutions to Homework 4
I. (Welch, Q8.25) You estimate your project to return -20% if the stock market
returns -10%, and +5% if the stock market returns +10%. What would you use as
the market beta estimate for your project?
Suggested Answer: The of a stoc
Selected Solutions to Homework 6
I. (Welch, Q15.17) Write down the payoff diagram1 for an insurance contract with
a deductible of $100,000, a coverage of 80% of the loss, and a maximum payout of
$1,000,000.
Suggested Answer: An insurance contract is an ex
Announcements
Present values
Lecture 1
Madhav Chandrasekher
ECN 134 - UC Davis
Fall 2016
Valuations of stocks and bonds
Announcements
Present values
Announcements
1
This is ECN 134 (Financial Economics).
Valuations of stocks and bonds
Announcements
Presen
Exam 2 Solutions - Economics 134
Professor Madhav Chandrasekher
Directions: This exam consists of 8 questions, with point allocations as noted.
Please write your answers in the provided space and also show work for your answers.
You have 80 minutes. Good
Announcements and Terminology
Bond pricing under uncertainty
Lecture 5
Madhav Chandrasekher
ECN 134 - UC Davis
Spring 2017
Debt vs. Equity
Announcements and Terminology
Bond pricing under uncertainty
Debt vs. Equity
Announcements
1
Homework 2 is up on Can
Announcements
CAPM discussion
Lecture 9
Madhav Chandrasekher
ECN 134 - UC Davis
Spring 2017
Using the CAPM - Examples
Announcements
CAPM discussion
Using the CAPM - Examples
Announcements
1
(uncurved) Exam 1 statistics:
Mean: 72%.
Median: 75%.
Available f
Solution Key to Problem Set 2 ECN 134 Finance Economics Mojaver Prof. Farshid
Part A: Financial Crisis The Fed cut rates too low for too long Easing of mortgage lending standards followed by tightening Expansion of credit through poorly underwritten and o
Problem Set 2 ECN 134 Financial Economics _ Prof. Farshid Mojaver Part A: 2008 Financial Crisis How did the 2008 financial crisis happen? Part B: Present Value and Bond Valuation 1. Whitney wants to put $100,000 down on a house five years from now. She pl
Solution to Problem Set 4 ECN 134 Finance Economics Prof. Farshid Mojaver Risk and Return 1. Let rx, ry, rz be returns of portfolios X,Y, and Z. (i) P(rx <0) = P(z<(0-5)/20) = P(z< -0.25) is greater than P(ry <0) = P(z<(0-7)/20) = P(z< -0.35), which in tu
Problem Set 4 ECN 134 Finance Economics Risk and Return Prof. Farshid Mojaver
1. You consider investing in one of three portfolios X, Y, or Z, for one year. The means and standard deviations of annual returns in % for the three portfolios are given by the
Financiad Economics ECN134 Midterm 1 Winter 2009 Prof. Farshid Mojaver * * [20 pts] 1- Some Financial Terms and Ideas i. What is securitization? ii. What is financial engineering? iii. What is Credit Default Swap (CDS)? iv. How might CDS have contributed