Joaquin Lopez
University of Chicago
Investments 35000
Final Review Session
In these notes I will walk you through a few examples of what I think are some of the topics
you should be familiar with for the nal exam.
1
A buttery spread with calls
Assume that

Week 1: Lecture Note 2
1. Returns and Compounding
Gross Return vs. Net Return
Return is a measure of how well a security performs
Example: at time t we buy one share at $50; at end of year (t+1) it is
worth $55 and pays $2 dividend
dt +1 + Pt +1
Gross Ret

Week 8: Lecture Note 14
Introduction to Forward and Futures
Contracts
1. How did derivatives evolve?
2. Forward contracts
3. Example: using forward contracts for hedging
4. Payoff diagram for long and short forward positions
5. Futures contracts
6. Exampl

Week 9: Lecture Note 16
Introduction to Options
Agenda
Basic types of options
Profit diagrams for options at maturity
Cash flow or payoff diagrams at maturity
The Chicago Board Options Exchange
European put-call parity for stocks without dividends
Europea

Week 3: Lecture Note 6
Portfolio Mathematics
This lecture covers:
The mathematics and statistics of portfolios. The material in this lecture
is vital for the rest of the course and provides us with the tools we need
to make practical investment decisions

Week 3: Lecture Note 5
Introduction to Asset Allocation
This lecture note covers:
The Basic Allocation Problem
Assembling Portfolios
A framework for making basic allocation decisions between one riskless and
one risky asset
Constantinides
Bus 35000, Wi

Week 1: Lecture Note 3
Recall the definition of returns:
dt +1 + Pt +1
1 + rt +1 =
Pt
Ex-ante, investors want the asset to offer an expected return r, say
E [ rt +1 ] = r
where r is the riskless interest rate + risk premium. The expected return
must compe

Week 7: Lecture Note 13
The Money Management Industry
This lecture covers key topics on the money
management industry
1. Structure
2. Performance Evaluation
1
Constantinides
Bus 35000, Winter 2017
Lecture Note 13, Page 1
1. Structure
What functions do ins

Gustavo Brito - 12137435
Bus 35000, Professor Stefano Giglio
02/02/2017
Problem Set 3
Part I
4.11 Assume in exercise 4.9 that ABCO decides to borrow $8 billion at 5 percent interest to triple
its current investment in each of its four lines of businesses.

Bus 35000, Professor Stefano Giglio
University of Chicago, Booth School of Business
Problem set 3
Due: Beginning of Class 5
You can discuss the problem sets with up to 4 people. However, each student
should write up an individual version of the problem se

Week 4: Lecture Note 9
Practical Asset Allocation
This lecture addresses the implementation of asset
allocation on real data:
1. Problems with mean-variance analysis
2. Step One:
forecasting expected returns and standard deviations
3. Step Two:
finding th

Week 5: Lecture Note 10
Multifactor Models and the Arbitrage Pricing
Theory
This lecture covers asset pricing models that are more
general than the CAPM
1. Systemic versus Non-systemic Risk
2. Tracking Portfolios
3. Arbitrage and Arbitrage Pricing
4. Gene

Lecture 2B
Fixed Income Investments and Bond
Portfolio Management
1
Yield to maturity, zero-coupon bond
The price of a bond with payment in
where
years is
is the yield to maturity of the discount bond.
Example: Suppose that a 5-year pure discount bond wit

Lecture 2A
Risk, Return, and Present Value
1
Historical overview of return
What have nominal, annual, realized returns on securities
been historically?
2
Historical overview of return, cont.
Some averages
Historical breakdown of stock returns into thei

Lecture 3A
Introduction to Asset Allocation
1
This lecture covers
A framework for making basic asset allocation decisions
between a riskless and a risky asset
An introduction to mean-variance analysis and portfolio theory
An introduction to a more gene

Week 8: Lecture Note 15
Pricing Forward and Futures Contracts
Agenda
The no-arbitrage principle
The cost-of-carry for forward prices without dividends
The cost-of-carry for forward prices with dividends
Pricing foreign currency forward contracts
Carry tra

Week 1: Lecture Note 1
Financial Markets
Overview
Money market instruments short-term (one year or less)
treasury bills
certificates of deposit (CDs)
commercial paper
Fixed income instruments:
treasury n o t e s
t r e a s u r y bonds
municipal bonds

Week 10: Lecture Note 17
Binomial Option Pricing
When you come to a fork in the road, take itYogi Berra
Agenda
Introduction
Example of one-stage binomial pricing
The general one-stage binomial model
Risk-adjusted probabilities
The Black-Scholes-Merton ins

Week 4: Lecture Note 8
The Capital Asset Pricing Model (CAPM)
This lecture covers the Capital Asset Pricing Model
(CAPM), the most widely used model in relating risk
and return
1. The CAPM
2. The CAPM in Practice
3. Implications of the CAPM
Constantinides

Week 2: Lecture Note 4
Fixed Income Investments
and Bond Portfolio Management
1. The Term Structure of Interest Rates
Different kinds of bonds:
Treasury Bills/Notes/Bonds
Municipal Bonds
Corporate Bonds
Mortgage-backed Bonds
Asset-backed Bonds
In thi

Week 3: Lecture Note 7
Portfolio Theory and Mean-Variance Analysis
This lecture
Previously, we examined asset allocation between one riskless and one risky asset.
Now we will look at more general cases in the following order:
1. Two Risky Assets and No Ri

Week 6: Lecture Note 12
Market Efficiency
How efficient are the markets?
1. Market Efficiency
2. Market Anomalies
3. Discussion
Market anomalies are one of the major challenges to the efficient
markets hypothesis. We discuss the rational and behavioral
pe

Bus 35000, Professor Stefano Giglio
University of Chicago, Booth School of Business
Problem set 1
Due: Beginning of Class 3
You can discuss the problem sets with up to 4 people. However, each student
should write up an individual version of the problem se

Gustavo Brito - 12137435
Bus 35000, Professor Stefano Giglio
01/19/2017
Problem Set 1
1. The following is a list of prices for zero-coupon bonds of various maturities with face
value $1,000. Calculate the yields to maturity of each bond and the implied se

BUSF 35000 Sections 02, 82, and 85
Statistics and Linear Algebra Review
Question 1. Expected returns, variance and covariance of stocks in a 4 states world
This question shows you how to compute the expected returns, variance and covariance in a world tha

Lecture 5: Market Efficiency
Defining Market Efficiency
Market efficiency means that
Prices are correct: they fully reflect all available information
People use all available information in forming expectations about future cash flows
The discount rate

Lecture 4: Practical Asset Allocation
Implementing the Three Step Procedure
Step One. Get the inputs
How do we get values for the means (expected returns), variances, and covariances of asset
returns?
Use historical data?
We want to have an estimate of

Lecture 3: Introduction to Asset Allocation
The Basic Allocation Problem (I)
You want to split your money between a riskless security (e.g., T-Bills) and a risky asset (e.g.,
S&P 500 index)
Suppose your investment horizon is one year
We will work with

Lecture 2: Fixed Income
Overview of Fixed Income Markets: Treasuries (I)
Treasury Notes and Treasury Bonds
The U.S. government borrows money from you
Maturities and naming conventions:
T-Bills: Maturity less than one year (no coupons)
T-Notes: From o