Finance 261 Practice Set 3 Supplementary Examples 1. Assume the risk free rate is 7%, the estimated return on the market is 12% and the standard deviation of the markets expected return is 21%. Calculate the expected return and risk (standard deviation) f

Finance 261 Practice Set 2 Supplementary Examples Solutions
1.
To realise a gross profit of $500 on 200 shares sold short at $7.50, the investor must cover (ignoring transaction costs): 200($7.50) = $1,500 $1,500 - X = $500 profit X is $1000 which must be

Finance 261 Practice Set 2 Supplementary Examples
1.
Assume that an investor shorts 200 shares of stock at $7.50 per share. At what price must the investor cover the short sale to realise a gross profit of $500?
2.
Consider the three stocks in the followi

Finance 261 Practice Set 1 Supplementary Examples Solutions
1. 2.
(a) a)
.093 1 + 1 = .09629 9.63% 4
4
The bond with the highest coupon interest rate (10%) would sell at a higher price. It offers a higher return, all other things (e.g. risk) being equal

Finance 261 Practice Set 1 Supplementary Examples
1.
Following a 1% increase in wholesale interest rates, most banks increased their lending rates from 9.3% p.a. to 10% p.a. (both compounded annually). Bank A, however, decided to maintain its existing sta