September 2, 2016 12:28 am
Eric Platt in New York
Investors piled into US bank stocks in the final week of August at the fastest pace in
almost a year, propelled by firming
expectations that the Federal Reserve will increase interest rates this year.
Fund
Solutions to Homework 3
Track 2
Kaixuan Jiang
UID: 114986900
1. Answers
=(18%-6%)/(14%-6%)=1.5
the new expected return would be (14%-6%)/8.5%)*2*8.5%+6%=22% The market price
of the stock would turn 50*14%/22%=31.82
1. False. Stocks with a beta of zero o
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 1
Chapter 1: Problem 1
A.
Opportunity Set
With one dollar, you can buy 500 red hots and no rock candies (point
A), or 100
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 6
Chapter 6: Problem 1
The simultaneous equations necessary to solve this problem are:
5 = 16Z1 + 20Z2 + 40Z3
7 = 20Z1 + 1
Elton, Gruber, Brown and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 4
Chapter 4: Problem 1
A.
Expected return is the sum of each outcome times its associated
probability.
Expected return of A
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 5
Chapter 5: Problem 1
From Problem 1 of Chapter 4, we know that:
R 1 = 12%
R 2 = 6%
21 = 8
R 3 = 14%
22 = 2
R 4 = 12%
23
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 8
Chapter 8: Problem 1
Given the correlation coefficient of the returns on a pair of securities i and j,
the securities co
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 26
Chapter 26: Problem 1
A.
The points on a Predictive Realization Diagram would have the following
coordinates (where Pi
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 14
Chapter 14: Problem 1
Given the zero-beta security market line in this problem, the return on the
zero-beta portfolio e
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 22
Chapter 22: Problem 1
The duration formula shown in the text for annual payments can easily be
modified to reflect semi
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 25
Chapter 25: Problem 1
Using standard deviation as the measure for variability, the reward-tovariability ratio for a fun
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 23
Chapter 23: Problem 1
Although selling calls today would generate a positive cash flow for the client
now, the client w
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 18
Chapter 18: Problem 1
Since the companys growth rate of 10% extends into the future indefinitely,
use the constant-grow
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 9
Chapter 9: Problem 1
In the table below, given that the riskless rate equals 5%, the securities are
ranked in descending
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 15
Chapter 15: Problem 1
That is NOT a valid test of the theory, and the empirical evidence IS consistent
with the theory.
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 19
Chapter 19: Problem 1
If earnings follow a mean-reverting process, then it is appropriate to use
historical data to for
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 24
Chapter 24: Problem 1
The no-arbitrage condition for stock-index futures appears in the text as:
F
P PV D
1 R
Given th
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 12
Chapter 12: Problem 1
Equation (12.1) in the text can be used to answer this question:
R RF
RN RF
US
N,US
N
US
As is
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 13
Chapter 13: Problem 1
The equation for the security market line is:
Ri RF Rm RF i
Thus, from the data in the problem we
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 16
Chapter 16: Problem 1
From the text we know that three points determine a plane. The APT equation
for a plane is:
Ri 0
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 11
Chapter 11: Problem 1
Expected utility of investment A = 1/3 7.5 + 1/3 12.5 + 1/3 31.5 =
17.0
Expected utility of inves
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 21
Chapter 21: Problem 1
We can use the cash flows bonds A and B to replicate the cash flows of bond C.
Let YA be the frac
Elton, Gruber, Brown, and Goetzmann
Modern Portfolio Theory and Investment Analysis, 7th Edition
Solutions to Text Problems: Chapter 7
Chapter 7: Problem 1
We will illustrate the answers for stock A and the market portfolio (S&P 500);
the answers for stoc
BUFN761 Derivative Securities Solution PS 1.
Prof. Julien Cujean
MS Sec 0501/0502/0503/0504 Spring 2017
February 2017
For this problem set, suppose that:
i) You are long the non-dividend-paying S&P 500, currently trading at $50
ii) The effective annual ri
Executive Summary:
A footwear company, Active Gear (AGI) was contemplating acquire Mercury Athletic,
the footwear division of West Coast Fashions (WCF). The head of AGI wanted to
complete his own evaluation of the opportunity. After making some key assump
Homework 5
1.
As time passes, the bond price will be lower. Because the bond price which is now above
par value, will approach par eventually.
2.
a. Based on the information in the question, we can know that
n = 40; FV = 1000; PV = 950; PMT = 40
By calcul
Question 1.
The existence of capital markets make it easy for firms to raise capitals needed for
their investments in real assets. A efficient Capital market provide a place for
investors to trading liquidly. Large firms could issue bonds or stocks to the
7. Why are the following effects considered efficient market anomalies? Are there rational
explanations for any of these effects?
5
10
15
20
25
30
35
40
45
50
Following effects are difficult to reconcile with the efficient market hypothesis, and therefore
1.(a)The overnight gains and losses in these 4 days:
Day 1:(1.1043-1.1675)*37500=$2370
Day 2:(1.1523-1.1043)*37500=$1800
Day 3:(1.2004-1.1523)*37500=$1803.75
Day 4:(1.1650-1.2004)*37500=-$1327.50
(b)Assuming that no withdrawal of the amount above the init