CHAPTER 9: THE CAPITAL ASSET PRICING MODEL
CHAPTER 9: THE CAPITAL ASSET PRICING MODEL
PROBLEM SETS
1.
E (rP ) = rf + P [ E (rM ) rf ]
.18 = .06 + P [.14 .06] P =
2.
.12
= 1.5
.08
If the securitys correlation coefficient with the market portfolio doubles (
CHAPTER 21: OPTION VALUATION
CHAPTER 21: OPTION VALUATION
PROBLEM SETS
1.
The value of a put option also increases with the volatility of the stock. We see
this from the put-call parity theorem as follows:
P = C S0 + PV(X) + PV(Dividends)
Given a value fo
Chapter 20 - Options Markets: Introduction
CHAPTER 20: OPTIONS MARKETS: INTRODUCTION
PROBLEM SETS 1. Options provide numerous opportunities to modify the risk profile of a portfolio. The simplest example of an option strategy that increases risk is invest
Chapter 19 - Financial Statement Analysis
CHAPTER 19: FINANCIAL STATEMENT ANALYSIS
PROBLEM SETS
1.
The major difference in approach of international financial reporting standards and
U.S. GAAP accounting stems from the difference between principles and ru
Chapter 18 - Equity Valuation Models
CHAPTER 18: EQUITY VALUATION MODELS
PROBLEM SETS
1.
Theoretically, dividend discount models can be used to value the stock of rapidly
growing companies that do not currently pay dividends; in this scenario, we would be
Chapter 17 - Macroeconomic and Industry Analysis
CHAPTER 17: MACROECONOMIC AND INDUSTRY ANALYSIS
PROBLEM SETS
1.
Expansionary (looser) monetary policy to lower interest rates would stimulate both
investment and expenditures on consumer durables. Expansion
Chapter 11 - The Efficient Market Hypothesis
CHAPTER 11: THE EFFICIENT MARKET HYPOTHESIS
PROBLEM SETS
1.
The correlation coefficient between stock returns for two non-overlapping periods
should be zero. If not, one could use returns from one period to pre
CHAPTER 10: ARBITRAGE PRICING THEORY AND MULTIFACTOR MODELS OF RISK AND
RETURN
CHAPTER 10: ARBITRAGE PRICING THEORY AND
MULTIFACTOR MODELS OF RISK AND RETURN
PROBLEM SETS
1.
The revised estimate of the expected rate of return on the stock would be the old
CHAPTER 7: OPTIMAL RISKY PORTFOLIOS
CHAPTER 7: OPTIMAL RISKY PORTFOLIOS
PROBLEM SETS
1.
(a) and (e).
2.
(a) and (c). After real estate is added to the portfolio, there are four asset classes
in the portfolio: stocks, bonds, cash and real estate. Portfolio
CHAPTER 6: RISK AVERSION AND
CAPITAL ALLOCATION TO RISKY ASSETS
CHAPTER 6: RISK AVERSION AND
CAPITAL ALLOCATION TO RISKY ASSETS
PROBLEM SETS
1.
(e)
2.
(b) A higher borrowing rate is a consequence of the risk of the borrowers default.
In perfect markets wi
Chapter 05 - Learning About Return and Risk from the Historical Record
CHAPTER 5: LEARNING ABOUT RETURN AND RISK
FROM THE HISTORICAL RECORD
PROBLEM SETS
1.
The Fisher equation predicts that the nominal rate will equal the equilibrium real rate
plus the ex
Chapter 03 - How Securities are Traded
CHAPTER 3: HOW SECURITIES ARE TRADED
PROBLEM SETS
1.
Answers to this problem will vary.
2.
The SuperDot system expedites the flow of orders from exchange members to the
specialists. It allows members to send computer
Chapter 02 - Asset Classes and Financial Instruments
CHAPTER 2: ASSET CLASSES AND
FINANCIAL INSTRUMENTS
PROBLEM SETS
1.
Preferred stock is like long-term debt in that it typically promises a fixed payment each
year. In this way, it is a perpetuity. Prefer