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 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 7
Chapter 7: Problem 1
We will illustrate the answers for stock A and the market portfolio (S&P 500); the
answers for stoc
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 16
Chapter 16: Problem 1
From the text we know that three points determine a plane. The APT equation for
a plane is:
R i =
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 24
Chapter 24: Problem 1
The no-arbitrage condition for stock-index futures appears in the text as:
F
= P PV (D)
(1+ R)
Gi
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-to-variability
ratio for a fu
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 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 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 14
Chapter 14: Problem 1
Given the zero-beta security market line in this problem, the return on the zerobeta portfolio eq
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 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 5
Chapter 5: Problem 1
From Problem 1 of Chapter 4, we know that:
R 1 = 12%
R 2 = 6%
R 3 = 14%
R 4 = 12%
21 = 8
22 = 2
23
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 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 13
Chapter 13: Problem 1
The equation for the security market line is:
(
)
Ri = RF + Rm RF i
Thus, from the data in the pr
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:
RN RF
N
>
RUS RF
US
N,US
As is
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 17
Chapter 17: Problem 1
The simplest trading strategy would be to buy a stock at the opening price on the
day that the he
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