Project 2 (Due Date: 11:50pm, Nov 21, 2014, Friday)
Instruction: I only want one copy of your work from each group. No more than 4 people in a
work group. Please remember to write down the name and UID of everyone in the group. All the
answers are relativ
Assignment#3
1. Which of the following functions do investment companies perform for their investors?
A. Record keeping and administration
B. Diversification and divisibility
C. Professional management
D. Lower transaction costs
E. Record keeping and admi
Problem 1
Asset
A
2
81
9
Expected Return
Variance
Standard Deviation
B
10
400
20
<-adjust
<-adjust
Correlation =
-1.00
W(a)
0.69
Variance
Standard Deviation
Expected Value
W(b)
0.31
0.00
0.0
4.5
(2) Then adjust the bar for W(a) and the bar for
Correlation
FINA2802/2320 Tutorial 9
THE UNIVERSITY OF HONG KONG
FACULTY OF BUSINESS AND ECONOMICS
FINA2802/2320D INVESTMENTS AND PORTFOLIO ANALYSIS
FIRST SEMESTER, 2013-2014
Tutorial 9 Chapter 9 & 10 CAPM and APT
Question 1
Consider the following table, which gives
THE UNIVERSITY OF HONG KONG
FACULTY OF BUSINESS AND ECONOMICS
FINA2802/2320ABC INVESTMENTS AND PORTFOLIO ANALYSIS
FIRST SEMESTER, 2014-2015
Chapter 11 - Efficient Market Hypothesis
Question 1
An index model regression applied to past monthly returns in Ge
1
Asset allocation
Security selection
- introduce you to the important
features of broad classes of securities
Financial markets - segmented into
money markets and capital markets
2
Money Market (short-term, low-risk debt )
Debt Market
Equity Market
Deriv
Sep. 1, 2014
1
Why study investments?
Be a smart investor!
Equity
Analysis
Debt
Securities
Option
derivatives
Portfolio
Theory
2
An investment is the commitment of current
money or other resources in the expectation
of reaping future benefits.
3
If you ha
1
Security markets
Primary market
Secondary market
How securities are traded
Type of orders
Trading systems
Buy on margin, short sale
Regulations for securities trading
2
Primary Market
Firms issue new securities through underwriter to
the public
I
1
Security markets
Primary market
Secondary market
How securities are traded
Type of orders
Trading systems
Buy on margin, short sale
Regulations for securities trading
2
Primary Market
Firms issue new securities through underwriter to
the public
I
Project 2 (Due Date: 11:50pm, Nov 21, 2015)
Instruction: I only want one copy of your work from each group. No more than 4 people in a
work group. Please remember to write down the name and UID of everyone in the group. All the
answers are relatively shor
Portfolio Theory I
Jinghan Meng
Roadmap for Today
1.
2.
3.
Chapter 5.1-5.3: Interest Rates and Inflation
Chapter 5.4: Risk and Returns Scenario Analysis
Chapter 5.5-5.8: Risk and Returns Time Series Analysis
2
Interest Rates and Inflation
Interest Rates
Capital Asset Pricing Model
Jinghan Meng
Roadmap for Today
1.
2.
3.
Chapter 9.1: Capital Asset Pricing Model
Chapter 9.2: Comparing CAPM with Index Model
Chapter 9.3-9.6: Practical Issues for CAPM
4
Markowitz vs. the CAPM
Harry Markowitz built up the fou
Basic Knowledge in Financial Market
Jinghan Meng
Roadmap for Today
1. Chapter 3: How Securities are Traded
How securities are issued
How securities are traded type of market, type of orders, examples of
security markets, trading strategies
2. Chapter 4:
APT (BKMJ Ch10)
10
Douglas Chung
Arbitrage pricing theory (APT) and multifactor model
Assumptions of APT:
1. Security returns can be described by a factor model.
2. Portfolios are well diversified to eliminate all idiosyncratic risks.
3. Market is efficie
CAPM & APT (BKMJ Ch910)
9
Douglas Chung
Capital Asset Pricing Model (CAPM)
Assumptions of CAPM:
Individual behaviour:
1. Investors are rational, mean-variance optimizers.
2. Their planning horizon is a single period.
3. Investors have homogeneous expectat
Optimal portfolios (BKMJ Ch?) Douglas Chung
7 Optimal portfolios
Portfolio diversication:
a
N N N N N
2 _ , i i , . . _ 2 2 + , . . . . . 1
Up wanUzOJ/ha wiai wzwaatUJ/m ( )
i=1 j=1 i=1 i=1j=1,j;iv
Assume an equally weighted investment with all stocks
Risk aversion and capital allocation (BKMJ Ch6) Douglas Chung
6 Risk aversion and capital allocation
Mean variance utility: .
U = IE(R) 5A0? (1)
What is the economic meaning. of this utility function? What is the shape of the utility when A is
larger than
FINA2320/2802DE Fall 2015: Homework #2
Solution
( ) = (0.30)(0.07) + (0.50)(0.11) + (0.20)(0.1) = 5.6%.
1. (a) The expected return of stock fund A is
( ) = (0.30)(0.09) + (0.50)(0.2) + (0.20)(0.26) = 12.5%.
The expected return of stock fund B is
= (0.3)(
FINA2320/2802DE Fall 2015: Homework #1
Solutions
1. Buying on margin case:
(a) The initial value of stock is $75 1000 = $75,000.
So investor should using invest:
Equity in account = $75,000 Initial Margin = $75,000 50% = $37,500
And investor should borrow
FINA2320
Investment and Portfolio Analysis
FINA2320
INVESTMENT
AND PORTFOLIO
ANALYSIS
Report on Project A
Dr. Alex W. H. Chan Class 2I
CHAN Chun Ho, Goofy (3035071486)
CHIU Man Ting, Michelle (3035069055)
WONG Hoi Ming Iris (3035069639)
Page 1
Report on P
FINA2320
Investment and Portfolio Analysis
FINA2320
INVESTMENT AND
PORTFOLIO ANALYSIS
Report on Project A
Dr. Alex W. H. Chan Class 2I
CHAN Chun Ho, Goofy (3035071486)
CHIU Man Ting, Michelle (3035069055)
WONG Hoi Ming Iris (3035069639)
Page 1
Report on P
Chapter 7
2.
If the covariance of the security doubles, then so will its beta and its risk premium.
The current risk
premium is 14 6 = 8%, so the new risk premium would be 16%, and the new discount rate for the
security would be 16 + 6 = 22%.
If the stock
Chapter 12
6.
We find the yield to maturity from our financial calculator using the following inputs:
n = 3, FV = 1000, PV = 953.10, PMT = 80.
Or solve for y such that 953.10 = 80 Annuity factor (y, 3) + 1,000 PV factor (y, 3)
This results in YTM = 9.88%
Chapter 21
8. a.
E(r)
Portfolio A
12
12
.7
Portfolio B
16
31
1.4
Market index
13
18
1.0
Risk-free asset
5
0
0.0
The alphas for the two portfolios are:
A = 12% [5% + 0.7(13% 5%)] =
B = 16% [5% + 1.4(13% 5%)] = 0.2%
1.4%
Ideally, you would want to take a
Chapter 2
6. a. i.
ii.
b. i.
ii.
7.
1 + r = (1,000/976.4)4 = 1.1002
r = 10.02%
1 + r = (1,000/953.9)2 = 1.0990
r = 9.90%
The three-month bill offers a higher effective annual yield.
1,000 976 .4 360
rBD =
= .0934 = 9.34%
1,000
91
1,000 953 .9 360
rBD =
=
Chapter 9
11. The excess return on the market was 8% - 1% = 7%. Therefore, the forecast excess
return on ABC given the markets return is .10% + 1.1 7% = 7.8%. ABCs actual
excess return was 7% - 1% = 6%, meaning that the abnormal return was 1.8%.
12. a. Ba
FINA2320/2802D Fall 2016: Homework #1
Due: 6pm Friday, October 7
(50 points in total)
1. (15 points) Suppose that Facebook is selling at $75 per share at the beginning of 2016.
You are bullish on Facebook stock, and want to buy 1000 shares on margin. The
FINA2320/2802D Fall 2016: Homework #2
Due: 6pm Friday, 11 November
(50 points in total)
1. A portfolio manager analyzes 100 stocks and constructs a mean-variance efficient
portfolio using these 100 securities. (18 points)
(a) How many estimates are needed
FINA2320 Homework 1 Calculation Checks
Wong On Ki
Subclass B
3035103277
1. If the stock price of Facebook on expiration date is $46 per share, the option will not
be exercised since the payoff of this put option would be 0.
If the stock price of Facebook
Index Model
Jinghan Meng
Roadmap for Today
1.
2.
3.
Chapter 8.1: Single-Factor Model
Chapter 8.2: Single-Index Model
Chapter 8.3: Statistical Analysis of Single-Index Model
2
Review: Markowitz Model
Efficient frontier of risky assets: Best risk-return op
Basic Knowledge in Financial Market
Jinghan Meng
Roadmap for Today
1.
2.
3.
Syllabus
Chapter 1: The Investment Environment
Chapter 2: Asset Classes and Financial Instruments
3
Syllabus
Course Introduction and Requirements
General Information
Instructor: