Economics 740
MSFA Program
Fall 2010
John Gonzales
Assignment #5
1.
The multifactor model applies to the following stock.
rA = 3% + rRF + .9F1 + 1.2F2 + .5F3
rRF = 5%
r1 = 10%
r2 = 8%
Fi = ri - rRF
r3 = 7%
At this moment the stock has an actual retur
Economics 740
MSFA Program
Summer 2010
John Gonzales
Assignment #5
1.
The multifactor model applies to the following stock.
rA = 3% + rRF + .9F1 + 1.2F2 + .5F3
rRF = 5%
r1 = 10%
r2 = 8%
Fi = ri - rRF
r3 = 7%
At this moment the stock has an actual ret
Economics 740
MSFA Program
Summer 2010
John Gonzales
Assignment #2
1.
Do problems 12 through 16, 18 and 19 on pages 140-141.
2.
Do Problems 8 through 12 on page 179. For these problems, construct the investment
opportunity set using increments of 10% (not
Economics 740
MSFA Program
Summer 2010
John Gonzales
Assignment #4
1.
Do Problems 23, 28 and 29 on pages 222-223.
2.
The multifactor model applies to three stocks.
RA = 3% + .9F1 + 1.2F2 + .5F3
e = 10% for A
RB = -2.0% + .8F1 + 2.2F2 + -.4F3
e = 8% fo
Economics 740
MSFA Program
Summer 2010
John Gonzales
Assignment #5 Answers
1.
The multifactor model applies to the following stock.
rA = 3% + rRF + .9F1 + 1.2F2 + .5F3
rRF = 5%
r1 = 10%
r2 = 8%
Fi = ri - rRF
r3 = 7%
At this moment the stock has an ac
Economics 740
MSFA Program
Summer 2010
John Gonzales
Assignment #1
1. An individual is considering investing in either the stock market, the bond market or a
fully-insured bank account (i.e. zero risk) which offers a return of 4%. The individual
has ident
Economics 740
MSFA Program
Spring 2010
John Gonzales
Assignment #4 Answers
1. Problem 23.
Since the beta for Portfolio F is zero, the expected return for
Portfolio F equals the risk-free rate.
For Portfolio A, the ratio of risk premium to beta is: (10% -
Economics 740
MSFA Program
Summer 2010
John Gonzales
Assignment #3
Note: questions 1 through 3 deal with the single index model.
1.
Suppose the index model is estimated using excess returns with the following results:
RA = 3% + .7RM + eA
A = 31.3%
RB =
Economics 740
MSFA Program
Summer 2010
John Gonzales
Assignment #3 Answers
1.
RA = 3% + .7RM + eA
RB = -2.0% + 1.2RM + eB
A = 31.3%
B = 69.28%
M = 20%
(a) For A, 2 A = 979.69. The systematic risk = 2A2 M = (.49)400 = 196.
The firm-specific risk = 979
Chapter 5, #16
(a) "My risky portfolio" has an expected return = 17% and a risk of 27%.
With 70% of their money in my risky portfolio, the client has an expected return of
14% and risk of 18.9%.
If money is switched to the passive portfolio,
the expected
Economics 740
MSFA Program
Summer 2010
John Gonzales
Assignment #2 Answers
3.
(a) E(rG) = rRF + wX[E(rX) - rRF].
20% = 4% + wX[22% - 4%], so wX = 89%.
(b) The standard deviation of G = wXX. 16% = (.89) X, so X = 18%. Alternatively,
the slope of the CAL =
Economics 740
MSFA Program
Fall 2010
John Gonzales
Assignment #2
1.
Do problems 12 through 16, 18 and 19 on pages 140-141 of the text.
2.
Do Problems 8 through 12 on page 179. For these problems, construct the
investment opportunity set using increments o
Problem 4
Stocks
16
16
16
16
sd
12
12
12
12
var
144
144
144
144
w
0.30
0.25
0.20
0.20
Portfolio
return
(in %)
Portfolio
variance
(in %)
89.61
112.89
83.17
120.43
9.47
10.63
9.12
10.97
h
i
j
k
17.10
15.80
16.30
104.59
82.87
83.81
10.23
9.10
9.15
e
f
g
0.09
MSFA 740 Assignment #1 Answers
Problem 1
EV(S)
risk(S)
7.55
3.46
EV(B)
risk(B)
5.55
1.96
covariance
bank = 4%: trade-off among the three investments
6.40
bank = 7%: bonds are eliminated; trade-off between bank and stocks
bank = 9%: choose the bank account