Economics 172
Intermediate Finance
Spring 2012
Problem Set 6: CAPM
For this problem set, use the spreadsheet ps6_CAPM.xls.
Question 1. See the Q1 worksheet in the spreadsheet, which gives you weekly closing levels on
the S&P500 index, as well as weekly cl

Options
1
What is an Option?
An option is an agreement between two parties that gives the purchaser of the option the
right, but not the obligation, to buy or sell a specific quantity of an asset (called the
underlying asset) at a specified price during a

Capital Asset Pricing Model
1
Linear Regression Review
2
Regression: A Simple Example
Vertical distances between the
observations (data) and straight
line are squared (why?) and
summed.
The Regression Line: = mx + b
is the straight line that minimizes
the

Economics 172
Intermediate Finance
Spring 2012
Problem Set 8: FUTURES & OPTIONS
1. A Wheat farmer expects to harvest 60,000 bushels of wheat in September. In order to pay for
the seed and equipment, the farmer had to draw $150,000 from his savings account

Economics 172
Intermediate Finance
Fall 2011
Problem Set 7: FUTURES
1. A Wheat farmer expects to harvest 60,000 bushels of wheat in September. In order to pay for
the seed and equipment, the farmer had to draw $150,000 from his savings account on
January

Economics 172
Intermediate Finance
Spring 2012
Problem Set 5: Risk, Return and Diversification
Problem 1:
Suppose a risk-averse investor can choose from the following three investments.
Investment
Expected Return (E[ri])
Standard Deviation (i)
A
12%
30%
B

Economics 172
Intermediate Finance
Spring 2012
Problem Set 4: Equity Markets
Question 1
Part A
Replicate in a spreadsheet the sample DCF calculation from class (the Ice Cream company), using the
PS4_Q1.xls spreadsheet provided.
1. All information/assumpti

Economics 172
Intermediate Finance
Spring 2012
Problem Set 3: Bonds
1. The 5.75% coupon, 10-yr US Treasury bond is priced at 100.83.
(i) What is its yield?
(ii) Its DV01 (dollar duration) is 8.00. If its yield moves instantaneously to 5.69%, what will its

Economics 172
Intermediate Finance
Spring 2012
Problem Set 2: Bond Markets
Note that in all questions, US Treasury bonds should be assumed to be semi-annual.Report all numerical
answers to 2 decimal places.
1. You have been told that the yield on 10yr US

Economics 172
Intermediate Finance
Spring 2012
Problem Set 1: Mortgages
1. Exactly one year ago you borrowed $250,000 to finance the purchase of an investment property via a ten-year 6%
mortgage. Interest compounds monthly, and you make monthly payments o