10/5/2016 Topic: Are there effects of maternal cigarette smoking on birth weight?
Are there effects of maternal cigarette smoking on birth weight? 17
In 1989, most states began using revised birth certicates that provide more detaile
Chapter 7 of Hubbard & OBrien
Derivatives, Hedging & Speculating
Derivative: An asset that derives its economic value from an
underlying asset, such as a stock or a bond.
Derivatives can be used to hedge or to speculate
Problems of Adverse
Selection & Moral Hazard in
the Financial System
Hubbard & OBrien: Chapter 9
Transaction Costs & Information
Small investors often face large transaction and information costs relative to
the size of their investment.
Determining Interest Rates
Hubbard & OBrien: Chapter 4 (Pages 87-110)
Determinants of Portfolio Choice
Five basic criteria:
Expected Rate of Return
Degree of Risk
Cost of Acquiring Information
An increase in wealth, cet
In a feature published just prior to the presidential election of 2008, the New York Times presented an analysis of
candidate and party success in U.S. Presidential elections as a function of candidate height and weight. Although
likely intended as a l
The Basics of the Financial System
Chapters 1 & 2 (pages 23-35) of Hubbard &
The Financial System
What is the financial system?
Key Components of the Financial System
1. Explain the following in 3-5 sentences. Give examples wherever you can. (2+1)=3X5=
a. A housing bubble burst
A housing bubble is an unsustainable increase in the price of houses. A housing
bubble burst occurs
Additional Practice Problems on PV and NPV
Calculate the present values today of the following cash flows at the given opportunity
cost of capital (OCC). [Note: The OCC is nothing but the discount rate or the required
return on the investment.]
Sample Midterm Exam
The dataset WAGE2.dta contains wage (monthly earnings) information for a random sample of
935 individuals. Please clearly mark/number your answers while answering the following
1. Setup the working environment as follows:
Estimating the Value of a Call Option
Using the Black-Scholes Formula
We assume the distribution of possible stock price changes
approaches a lognormal distribution.
The value of call option = [N(d1) X P]-[N(d2) X PV(EX)]
Name of Student:
Answer all questions.
1. Consider a 4 year discount bond, with a face value of $1000, and a current price of $760. What is
the YTM (yield to maturity) on this discount bond? Show your calculations.
(1+2 = 3 poi
Net Present Value
Valuing an Investment Opportunity
Suppose you own a company that is thinking about constructing an
office building: cost of constructing the building is $700,000.
Your company has cash in the bank to finance construction.
The Risk Structure and
Term Structure of
Hubbard & OBrien: Chapter 5
Risk Structure of Interest Rates
Explains the differences in interest rates across bonds with the same
Bonds with the same maturity may differ in terms of othe
Interest Rates and the Rates of
Hubbard & O'Brien: Chapter 3
Why do lenders charge interest?
Compensation for inflation
Compensation for default risk
Compensation for the opportunity cost of waiting to spend your
The interest rate provid
10/5/2016 Topic: YOU ARE HIRED AS AN ECONOMIST CONSULTANT: DEMAND FOR AIR TRAVEL
YOU ARE HIRED AS AN ECONOMIST CONSULTANT: DEMAND FOR AIR TRAVEL
Suppose you are hired as an Economist Consultant for American Airlines. On your rst d
The National Center for Educational Statistics estimates that American colleges and universities spend $32 billion
yearly on student instruction alone. This is about $12,000 per full time student. Despite this, a significant fraction of
students fail to a
Calculating Portfolio Risk and the Beta of a Security
Consider a portfolio: 60% Heinz, 40% Exxon Mobil.
Expected Return on Individual Stocks: 6% for Heinz, 10% for Exxon.
Expected Portfolio Return
= (.60 X 6)+ (.40 X10)=7.6%
Stocks and the Stock
Chapter 6 of Hubbard & OBrien
Stocks as Equities
A stockholder (or shareholder) has a legal claim on the firms profits
and on its equity (assets minus liabilities).
Stocks are called equities because ownership of stocks repre
Suppose you are interested in the survival probability of passengers aboard the Titanic. You have information about
2000 passengers, including the gender (=1 if male), whether child or adult (=1 if adult), the class traveled (First class
or class 1 is the
10/5/2016 Topic: THE EFFECT OF MANAGERS ON FIRM POLICIES
THE EFFECT OF MANAGERS ON FIRM POLICIES
Bertrand and Schoar (2013) want to investigate whether and how individual managers affect corporate behavior and performance. They co
10/5/2016 Topic: Lessons from Sesame Street
Lessons from Sesame Street
Sesame Street is one of the largest early childhood interventions ever to take place. It was introduced in 1969 as an educational, early childhood
1. Some U.S. states have enacted laws that allow citizens to carry concealed weapons.
These laws are known as "shall-issue" laws because they instruct local authorities to issue
a concealed weapons permit to all applicants who arc citizens, are mentally c
Capital Asset Pricing Model
Stock Price Changes and Normal
When measured over a short interval, the past rates of return on any
stock conform fairly close to a normal distribution.
If returns are normally distributed, expected return and st
More Practice Problems on Stocks and Derivatives
5. The current share price is $48.00, the current dividend is $3.25 per share, the required
return on equity is 11%. Dividends grow at a constant rate. What is the expected
dividend growth? Use the Gordon G
Name of Student:
Answer all questions.
1. A new project is expected to generate a cash flow of $100,000 next year, and then cash flows are
expected to decline at a rate of 10% per year, and continue for 8 more years. The OCC is
Answer all questions. These questions are based on materials covered in chapter 3 of the
textbook. When you use a source other than your textbook or class notes, please cite the source
1. Assume that the int
Chapter 13 Random
1 / 1 point
After reports of the subprime mortgage crisis began to appear in the media, which of the
following most likely caused housing prices to fall?
a) Keynesian theory
b) neoclassical theory
c) cyclical expectations
1 / 1 point
Regardless of whether you are looking through the microeconomics microscope or the
macroeconomics telescope, the fundamental subject material of the interconnected
_ doesnt change.