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

Bus 35000, Professor Stefano Giglio
University of Chicago, Booth School of Business
Problem set 0 - not graded
Due: beginning of first day of class
Read the Greenleaf article in the course packet.
Read chapters 1, 2, 3, and 5 in the Bodie, Kane, and Mar

Bus 35000, Professor Stefano Giglio
University of Chicago, Booth School of Business
Midterm Fall 2014 Solution
1. 20 points. A six month zero coupon bond with face value $100 sells for $99, a
one-year zero coupon bond sells for $98, and an 18-month zero c

University of Chicago, Booth School of Business
Bus 35000: Investments / Fall 2014
Instructor:
Professor Stefano Giglio
Oce:
Phone:
E-mail:
Class hours:
HPC 401
(773) 834-1957
stefano.giglio@chicagobooth.edu
Saturday 9am-12pm at Gleacher Center, Room 308

BUSF 35000 Sections 01, 81
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 that has
on

N. Aaron Pancost
October 1, 2014
Solutions to Problem Set 0
1. Real assets are economic objects that produce the goods and services of the economy: for example,
land, factories, inventory, and human knowledge. So-called real assets need not be tangible; a

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

Lecture 1 : Risk and Return
Types of Assets
Real assets
Assets used to produce goods and services
Factories and machines
Illiquid, specific purpose, not traded frequently
Left-hand side of balance sheet
Financial assets = claims on real assets
Liquid

BASICS
- long position trader commits to purchase asset on delivery date (profit if Passet)
- short position trader commits to deliver asset on delivery date (profit if Passet)
- call option right to purchase for specified price prior to exp date (profit

BASICS
- long position trader commits to purchase asset on delivery date (profit if Passet)
- short position trader commits to deliver asset on delivery date (profit if Passet)
- call option right to purchase for specified price prior to exp date (profit

Investments Notes
Lecture 1 (post-break). Pre-break stuff is in notebook
Only big companies will issue corporate bonds
Debentures: unsecured bonds
Subordinated debentures: (i.e. if you are second-in-line and the firm gets in trouble, goes
into bankruptcy,

Useful Formulas for 35000
Bond Pricing:
Yield to maturity, y , on a coupon bond with T periods to maturity, price P ,
coupons C and face value F :
P=
C
C
C +F
+
+
2
1 + y (1 + y )
(1 + y )T
Yield to maturity (Y T Mj ) on a zero coupon bond with maturit