投资学 第八版 英文答案 CHAPTER 1 THE INVESTMENT ENVIRONMENT
投资学(Investment 8th)讲义1
Investment InstitutionsWhat are Investment institutions? Contractual savings institutions -Insurance companies -Pension fundsInvestment intermediaries -Mutual funds / unit trusts -Investment trusts -Hedge funds-Private equity company❝Investment institution is a financial intermediary (company) engaged in investing in, and managing, a portfolio of securities on behalf of their shareholders. ❝Indirect investment in capital/money marketinstruments via an investment institution is the most popular way for individuals to invest surplus funds ❝In the UK, 50 –60% of equities and bonds are held and managed by investment institutions ❝Benefits: diversified portfolio, professional managements❝All investment companies charge a fee (annual expense ratio) to shareholders to pay for theoperating costs and the management fee.❝Depositary institutions◦Intermediaries with a significant proportion of their funds derived from customer deposits, e.g. Building societies. Short-term liabilities.❝Contractual savings institutions◦Typically acquire funds at periodic intervals on a contractual basis❝Investment intermediaries◦Collective investment funds, Finance companies,Investment banks, Securities firms❝Two major groups: Insurance companies and Pension funds ❝Long-term liabilities❝Liquidity of their assets is less important than for depositary institutions –they can predict with greater accuracy their future payments due to customers❝Hence, they can invest a greater proportion of funds in long-term securities (bonds,equities)❝Primary objective is to protect policyholders (firms and individuals) from adverse events ❝Receive premiums from policyholders and promise compensation if specified events occur❝Two main segments: general insurance and life insurance❝Protection against personal injury and liabilities such as accidents, theft and fire❝Usually over a fixed time period e.g. 1 year ❝Claims usually made soon after the event so liabilities are mostly short term❝Hence they hold a greater proportion of liquid assets than life insurers. Holding financial assets might be viewed as a byproduct of the business.❝Some authors (e.g. B&T) do not view this category as an investment intermediary❝Protects the policyholder in the event of death, illness or retirement; hence long-term liabilities❝Term assurance, Whole-of-life policy, Endowment policy, Annuities❝Term assurance: provides insurance cover, for specifiedperiod, against the risk of death. If the insured survivesthe specified period then no payment is made.❝Whole-of-life policy pays a capital sum on the death ofthe person assured, whenever that event occurs.❝Endowment policy pays a capital sum at the end ofsome specified term or earlier if the assured dies withinthe term.-The premium for Whole-of-life and endowment policieswill be higher than for term assurance.❝Annuities: A policyholder pay an initial lump sumwhich used by the insurance company to providean agreed income until death.-The insurance company immediately creates a fund❝Risk: certain sums are guaranteed to be paid in thefuture and these sums exceed the value of thepremiums over the life of the contract.❝Match the term structure of its assets and liabilities❝Invest in long-term assets e.g. bonds, equities andmortgages.❝Provide retirement income (in the form ofannuities) to employees covered by a pension plan❝Personal scheme and public (state) scheme❝Funded scheme and unfunded (pay-as-you-go)scheme❝Funded scheme: Receive contributions fromemployers and/or employees and invest thesefunds in assets, including equities and bonds.Returns from the investment are used to paybenefits to members of the scheme.❝Two main types of funded scheme: defined benefit(DB) and defined contribution (DC)❝DB: the sponsor agrees to pay members ofthe scheme a pension equal to apredetermined percentage of their finalsalary (average salary), subject to themember‟s years of service❝DC: the return on the investmentsdetermines pension benefits❝Occupational schemes where the sponsor isthe employer have historically been DB,while private pensions are DC❝Risk: benefits to be paid are not known with certainty;inflation complications as it increases the benefits to bepaid by fund.❝Benefit from tax deferral: in the UK, contributions arenot taxable, pensioner pays income tax❝Pension fund trustees will determine the overallinvestment strategy❝They will often decide what proportion of assets to beheld in different asset classes❝Asset mix will be influenced by the maturity of the fund❝Long-term liabilities hence long-term assets❝Index-linked bonds, Equities❝Investment companies are classified, depending on whether their own capitalisation (number of shares outstanding) is constantly changing or fixed:-Open-end : capitalisation constantly changing; new investors buy additional shares from the company and some existing shareholders sell their shares back to the company.-Closed-end : fixed capitalization; share traded onexchange.open-ended❝Mutual funds / unit trusts❝Open-ended investment companies OEICsClosed ended❝Investment trusts ❝Hedge funds❝Private equity company❝Pool resources from many individuals andcompanies and invest these in a range of assets ❝Provide opportunities for small investors to investin a diversified fund at low cost❝Take advantage of lower transaction costs in trading larger blocks of securities❝Trusts in the legal sense; controlled and monitored by trustees; who act as guardian of the assets on behalf of the beneficial owners ❝Investment decisions❝When an investor buys a stake in a unit trust, he/she purchases a new unit in the fund (unless matched with a seller by the fund manager)❝Open-ended fund where the size of the fund can varyaccording to the number of contributors to the fund ❝Price of each unit reflects current value of the fund divided by the number of outstanding units❝All sales and purchases of units are made with the trust manager.❝Do not trade on stock exchange.❝Dual pricing structure: offer price (investors buy units)and bid price (investors sell units back to the trust)❝Annual management fee (usually 0.5 -1% of the funds under management), plus the bid-offer spread on buying and selling units❝Limited in the amount that can be invested in any single security❝Total return for a mutual fund includes reinvestment dividends and capital gain.❝A cumulative total return measures the actual performance over 3, 5 or 10 years.❝In Jan 2009, 8,000 domestic mutual funds withassets of $9.4 trillion in the US.❝Short-term funds:-Money market mutual funds ❝Long-term funds: -Capital market funds;-Equity (stock) funds, Bond funds or Hybrid(balanced) funds (hold combination of stocks and bonds)-Index funds: mutual funds holding an managed portfolio of bonds or stocks designed to match particular market index, such as S&P 500. Has low expenses ratio.❝OEICs operate similarly to a unit trust in the sense that they are open-ended❝But an OEIC has a company structure and can be listed on the stock exchange ❝Shares will reflect the value of the fund ❝Shares will have a single price (rather than the separate buying and selling prices indicated for unit trusts)❝Companies whose business is the investment of funds in financial assets.❝A closed-end fund, only able to raise more funds through rights issue shares or borrowing (bonds) ❝Not a trust in the legal sense; limited liability company with listed shares (traded in stock market).❝Investors can purchase ordinary shares of the ITC ❝A portfolio, managed by ITC‟s board of directors who determine the investment strategy❝Not faced with outflow of funds, so investment strategy does not depend on maintaining cash flows to meet future liabilities❝The existence of borrowed funds in the capitalstructure implies a …gearing effect‟ on the value of the ITC shares❝Net asset value (NAV) per share is the value of assetsless debt divided by number of issued shares-E.g. ITC capital structure: £8m in equities (4m shares) + £2m debt. Thus the NAV per share = £2-If the value of ITC asset portfolio were to doubled to £20m, then the NAV per would increase to £4.5 (£18m/4m shares)-A 100% in the value of assets held has led to an increase in the NAV per share of 125%❝The gearing effect is of benefit to shareholders in a rising stock market.❝The hedge funds are largely unregulated❝Reputation is as risky funds, shrouded by mystery and only accessible to the wealthy.❝According to IFSL, the number of hedge funds increased from 4,000 with $324bn of assets in 1999 to peak of 11,000 with $2,150bn in 2007, and then declined to 10,000 hedge funds and $1,500bn by the start of 2009. ❝There is no unique definition of hedge fund since it is an industry term rather than a legal term❝“Includes a multitude of skill -based investment strategies with a broad range of risk and returnobjectives. A common element is the use of investment and risk management skills to seek positive returns regardless of market direction.”❝A hedge fund is an actively managed investment fund ❝Seeks an attractive …absolute return‟, a return whether the market go up or down.❝Do not follow any benchmark, but rather just try to generate high returns (larger than ordinary available return) while managing risks, by exploiting various market opportunities❝Typical strategies include -Short selling,-Borrowing, Leverage -Use of derivatives❝Fees include a fixed fee and management fee e.g. 1-2% of assets plus 20-25% of upside performance.Hedge fundsMutual funds and pension fundsInvestment trusts FreedomLimitation on borrowing, short selling, and the use of derivatives May borrow Limitations on short selling, and the use of derivatives❝Typical investors◦Wealthy individuals ◦Pension funds◦Other hedge funds, creating …funds of hedge funds‟ –diversity in strategy and risk❝Returns and risk can vary a great deal among the different hedge fund strategies❝Market neutral (or relative value arbitrage) funds ◦Attempt to produce returns that have no or low correlation with e.g. equity markets◦Highly quantitative portfolio construction◦Concentrate on the relative value of individual shares, bonds, currencies ...◦Commonly apply arbitrage strategies-e.g. exploit mispricing between an underlying asset and a derivative instrument-Concentrate on the difference in performance of two given securities in homogenous universe. E.g. belief that BP will do better than X in oil firm; go long on BP and short on X.-Take position with convertible bonds❝Long/short funds-Generally invest in equity and bonds, taking directional bets on individual security or sector-Analyse individual companies and individual shares-Micro investors (look at individual/specific stocks)-Some may specialize in geographical sectors -Others may specialize in either small or large companies -E.g. 130/30-Timing is crucial-Stock-picking skill (short selling overpriced stocks and buying underpriced stocks)-Not automatically market neutral e.g. could havestrong positive correlation with equityGlobal (macro) asset funds-Look at stocks, bonds, currencies, and commodities from a global point of view -Macro-investors (look at broad themes) -Have positive exposure to the market-A fund might go long in sectors they believe will provide good returns, and short on countries they believe will have negative returns❝Event driven funds-Looks to exploit special situations -Take over bids-Merger, Corporate restructuring❝A group of individuals set up a limited liabilitypartnership, might have a limited life of around 10 years.❝Make good returns by buying public companies or neglected subsidiaries at good price and turning them into more attractive business❝They will gear up with debt that a public company would not want to risk.❝Normally be turned into non-quoted company❝They get involved in the business, bringing their own expertise and give managers big incentives to improve the business❝They seek cut costs, squeeze suppliers and sell unwanted assets, sell and lease back property ❝Large amount of leverage involved❝They take their profit in a variety of ways:-Refloat the company-Sell the company to someone else in the same business -Refinancing❝The private equity market was boosted in the early 2000s.❝IFSL shows that the global private equity investment amounted to $176.6bn in 2000, this increased to $317.6bn in 2007, then hit by the credit crisis andfell to $189bn.❝In the UK, well-known firms that are or have been owned by private equity groups: Boots, Iceland, Debenhams, New Look, Kwik-Fit❝E.g. In Dec. 2003, a group of private equity firms-Texas Pacific, CVC and Merrill Lynch Global Private Equity-bough Debenhams for £1.7bn, of which £600m was their own capital.❝In two refinancing in 2004 and 2005, they reconstructed the balance sheet with new borrowings and paid themselves back £1.3bn(twice of their original capital) in about 18 months. ❝They refloated Debenhams in May 2006.Explain the different types of investment institution. Identify and analyse the factors that will influence the investment strategy applied by each type of institution.。
投资学 第八版 英文答案 CHAPTER 1 THE INVESTMENT ENVIRONMENT
CHAPTER 1: THE INVESTMENT ENVIRONMENTPROBLEM SETS1. Ultimately, it is true that real assets determine the material well being of an economy. Nevertheless, individuals can benefit when financial engineering creates new products that allow them to manage their portfoliosof financial assets more efficiently. Because bundling and unbundlingcreates financial products with new properties and sensitivities to various sources of risk, it allows investors to hedge particular sources of riskmore efficiently.2. Securitization requires access to a large number of potential investors. To attract these investors, the capital market needs:a safe system of business laws and low probability of confiscatorytaxation/regulation;a well-developed investment banking industry;a well-developed system of brokerage and financial transactions, and;well-developed media, particularly financial reporting.These characteristics are found in (indeed make for) a well-developedfinancial market.3. Securitization leads to disintermediation; that is, securitization provides a means for market participants to bypass intermediaries. For example, mortgage-backed securities channel funds to the housing market without requiring that banks or thrift institutions make loans from theirown portfolios. As securitization progresses, financial intermediariesmust increase other activities such as providing short-term liquidity to consumers and small business, and financial services.4. Financial assets make it easy for large firms to raise the capital needed to finance their investments in real assets. If General Motors, for example, could not issue stocks or bonds to the general public, it wouldhave a far more difficult time raising capital. Contraction of the supplyof financial assets would make financing more difficult, thereby increasingthe cost of capital. A higher cost of capital results in less investment and lower real growth.5. Even if the firm does not need to issue stock in any particular year, the stock market is still important to the financial manager. The stock price provides important information about how the market values the firm's investment projects. For example, if the stock price rises considerably, managers might conclude that the market believes the firm's futureprospects are bright. This might be a useful signal to the firm to proceed with an investment such as an expansion of the firm's business.In addition, the fact that shares can be traded in the secondary market makes the shares more attractive to investors since investors know that, when they wish to, they will be able to sell their shares. This in turn makes investors more willing to buy shares in a primary offering, and thus improves the terms on which firms can raise money in the equity market.6. a. Cash is a financial asset because it is the liability of the federal government.b. No. The cash does not directly add to the productive capacity of the economy.c. Yes.d. Society as a whole is worse off, since taxpayers, as a group will make up for the liability.7. a. The bank loan is a financial liability for Lanni. (Lanni's IOU is the bank's financial asset.) The cash Lanni receives is a financial asset. The new financial asset created is Lanni's promissory note (that is, Lanni’s IOU to the bank).b. Lanni transfers financial assets (cash) to the software developers.In return, Lanni gets a real asset, the completed software. No financial assets are created or destroyed; cash is simply transferred from one partyto another.c. Lanni gives the real asset (the software) to Microsoft in exchangefor a financial asset, 1,500 shares of Microsoft stock. If Microsoftissues new shares in order to pay Lanni, then this would represent the creation of new financial assets.d. Lanni exchanges one financial asset (1,500 shares of stock) for another ($120,000). Lanni gives a financial asset ($50,000 cash) to the bank and gets back another financial asset (its IOU). The loan is "destroyed" in the transaction, since it is retired when paid off and no longer exists.8. a.Assets Liabilities & Shareholders’ equityCash $ 70,000 Bank loan $ 50,000Computers 30,000 Shareholders’equity50,000Total $100,000 Total $100,000 Ratio of real assets to total assets = $30,000/$100,000 = 0.30b.Assets Liabilities & Shareholders’ equitySoftwareproduct*$ 70,000 Bank loan $ 50,000 Computers 30,000 Shareholders’equity50,000Total $100,000 Total $100,000 *Valued at costRatio of real assets to total assets = $100,000/$100,000 = 1.0 c.Assets Liabilities & Shareholders’ equityMicrosoft shares $120,000 Bank loan $ 50,000Computers 30,000 Shareholders’equity100,000Total $150,000 Total $150,000Ratio of real assets to total assets = $30,000/$150,000 = 0.20 Conclusion: when the firm starts up and raises working capital, it is characterized by a low ratio of real assets to total assets. When it is in full production, it has a high ratio of real assets to total assets. Whenthe project "shuts down" and the firm sells it off for cash, financial assets once again replace real assets.9. For commercial banks, the ratio is: $107.5/$10,410.9 = 0.010For non-financial firms, the ratio is: $13,295/$25,164 = 0.528The difference should be expected primarily because the bulk of the business of financial institutions is to make loans; which are financial assets for financial institutions.10. a. Primary-market transactionb. Derivative assetsc. Investors who wish to hold gold without the complication and cost of physical storage.11. a. A fixed salary means that compensation is (at least in the short run) independent of the firm's success. This salary structure does not tie the manager’s immediate compensation to the success of the firm. However, the manager might view this as the safest compensation structure and therefore value it more highly.b. A salary that is paid in the form of stock in the firm means that the manager earns the most when the shareholders’ wealth is maximized. This structure is therefore most likely to align the interests of managers and shareholders. If stock compensation is overdone, however, the manager might view it as overly risky since the manager’s career is already linked to the firm, and this undiversified exposure would be exacerbated with a large stock position in the firm.c. Call options on shares of the firm create great incentives for managers to contribute to the firm’s success. In some cases, however, stock options can lead to other agency problems. For example, a manager with numerous call options might be tempted to take on a very risky investment project, reasoning that if the project succeeds the payoff will be huge, while if it fails, the losses are limited to the lost value of the options. Shareholders, in contrast, bear the losses as well as the gains on the project, and might be less willing to assume that risk.12. Even if an individual shareholder could monitor and improve managers’ performance, and thereby increase the value of the firm, the payoff would be small, since the ownership share in a large corporation would be very small. For example, if you own $10,000 of GM stock and can increase the value of the firm by 5%, a very ambitious goal, you benefit by only: 0.05 $10,000 = $500In contrast, a bank that has a multimillion-dollar loan outstanding to the firm has a big stake in making sure that the firm can repay the loan. Itis clearly worthwhile for the bank to spend considerable resources to monitor the firm.13. Mutual funds accept funds from small investors and invest, on behalf of these investors, in the national and international securities markets. Pension funds accept funds and then invest, on behalf of current and future retirees, thereby channeling funds from one sector of the economy to another.Venture capital firms pool the funds of private investors and invest in start-up firms.Banks accept deposits from customers and loan those funds to businesses, or use the funds to buy securities of large corporations.14. Treasury bills serve a purpose for investors who prefer a low-risk investment. The lower average rate of return compared to stocks is the price investors pay for predictability of investment performance and portfolio value.15. With a “top-down” investing style, you focus on asset allocation or the broad composition of the entire portfolio, which is the major determinant of overall performance. Moreover, top-down management is the natural way to establish a portfolio with a level of risk consistent with your risk tolerance. The disadvantage of an exclusive emphasis on top-down issues is that you may forfeit the potential high returns that could result from identifying and concentrating in undervalued securities or sectors of the market.With a “bottom-up” investing style, you try to benefit from identifying undervalued securities. The disadvantage is that you tend to overlook theoverall composition of your portfolio, which may result in a non-diversified portfolio or a portfolio with a risk level inconsistent withyour level of risk tolerance. In addition, this technique tends to require more active management, thus generating more transaction costs. Finally, your analysis may be incorrect, in which case you will have fruitlessly expended effort and money attempting to beat a simple buy-and-hold strategy.16. You should be skeptical. If the author actually knows how to achieve such returns, one must question why the author would then be so ready tosell the secret to others. Financial markets are very competitive; one of the implications of this fact is that riches do not come easily. High expected returns require bearing some risk, and obvious bargains are fewand far between. Odds are that the only one getting rich from the book isits author.17. a. The SEC website defines the difference between saving and investing in terms of the investment alternatives or the financial assetsthe individual chooses to acquire. According to the SEC website, saving is the process of acquiring a “safe” financial asset and investing is the process of acquiring “risky” financial assets.b. The economist’s definition of savings is the difference between income and consumption. Investing is the process of allocating one’s savings among available assets, both real assets and financial assets. The SEC definitions actually represent (according the economist’s definition) two kinds of investment alternatives.18. As is the case for the SEC definitions (see Problem 17), the SIA defines saving and investing as acquisition of alternative kinds offinancial assets. According to the SIA, saving is the process of acquiring safe assets, generally from a bank, while investing is the acquisition of other financial assets, such as stocks and bonds. On the other hand, the definitions in the chapter indicate that saving means spending less than one’s income. Investing is the process of allocating one’s savings among financial assets, including savings account deposits and money market accounts (“saving” according to the SIA), other financial assets such a s stocks and bonds (“investing” according to the SIA), as well as real assets.。
(完整word版)博迪第八版投资学第十章课后习题答案
CHAPTER 10: ARBITRAGE PRICING THEORYAND MULTIFACTOR MODELS OF RISK AND RETURNPROBLEM SETS1. The revised estimate of the expected rate of return on the stock would be the oldestimate plus the sum of the products of the unexpected change in each factortimes the respective sensitivity coefficient:revised estimate = 12% + [(1 2%) + (0.5 3%)] = 15.5%2. The APT factors must correlate with major sources of uncertainty, i.e., sources ofuncertainty that are of concern to many investors. Researchers should investigate factors that correlate with uncertainty in consumption and investmentopportunities. GDP, the inflation rate, and interest rates are among the factorsthat can be expected to determine risk premiums. In particular, industrialproduction (IP) is a good indicator of changes in the business cycle. Thus, IP is acandidate for a factor that is highly correlated with uncertainties that have to dowith investment and consumption opportunities in the economy.3. Any pattern of returns can be “explained” if we are free to choose anindefinitely large number of explanatory factors. If a theory of asset pricing is tohave value, it must explain returns using a reasonably limited number ofexplanatory variables (i.e., systematic factors).4. Equation 10.9 applies here:E(r p) = r f + P1 [E(r1 ) r f ] + P2 [E(r2) – r f ]We need to find the risk premium (RP) for each of the two factors:RP1 = [E(r1) r f ] and RP2 = [E(r2) r f ]In order to do so, we solve the following system of two equations with two unknowns:31 = 6 + (1.5 RP1) + (2.0 RP2)27 = 6 + (2.2 RP1) + [(–0.2) RP2]The solution to this set of equations is:RP1 = 10% and RP2 = 5%Thus, the expected return-beta relationship is: E(r P) = 6% + (P1 10%) + (P2 5%)5. The expected return for Portfolio F equals the risk-free rate since its beta equals 0.For Portfolio A, the ratio of risk premium to beta is: (12 6)/1.2 = 5For Portfolio E, the ratio is lower at: (8 – 6)/0.6 = 3.33This implies that an arbitrage opportunity exists. For instance, you can create a Portfolio G with beta equal to 0.6 (the same as E’s) by combining Portfolio A and Portfolio F in equal weights. The expected return and beta for Portfolio G are then:E(r G ) = (0.5 12%) + (0.5 6%) = 9%G = (0.5 1.2) + (0.5 0) = 0.6Comparing Portfolio G to Portfolio E, G has the same beta and higher return.Therefore, an arbitrage opportunity exists by buying Portfolio G and selling an equal amount of Portfolio E. The profit for this arbitrage will be:r G– r E =[9% + (0.6 F)] [8% + (0.6 F)] = 1%That is, 1% of the funds (long or short) in each portfolio.6. Substituting the portfolio returns and betas in the expected return-betarelationship, we obtain two equations with two unknowns, the risk-free rate (r f ) and the factor risk premium (RP):12 = r f + (1.2 RP)9 = r f + (0.8 RP)Solving these equations, we obtain:r f = 3% and RP = 7.5%7. a. Shorting an equally-weighted portfolio of the ten negative-alpha stocks andinvesting the proceeds in an equally-weighted portfolio of the ten positive-alpha stocks eliminates the market exposure and creates a zero-investmentportfolio. Denoting the systematic market factor as R M , the expected dollarreturn is (noting that the expectation of non-systematic risk, e, is zero):$1,000,000 [0.02 + (1.0 R M )] $1,000,000 [(–0.02) + (1.0R M )]= $1,000,000 0.04 = $40,000The sensitivity of the payoff of this portfolio to the market factor is zero because the exposures of the positive alpha and negative alpha stocks cancel out. (Notice that the terms involving R M sum to zero.) Thus, the systematic component of total risk is also zero. The variance of the analyst’s profit is not zero, however, since this portfolio is not well diversified.For n = 20 stocks (i.e., long 10 stocks and short 10 stocks) the investor will have a $100,000 position (either long or short) in each stock. Net market exposure is zero, but firm-specific risk has not been fully diversified. The variance of dollar returns from the positions in the 20 stocks is: 20 [(100,000 0.30)2 ] = 18,000,000,000 The standard deviation of dollar returns is $134,164.b.If n = 50 stocks (25 stocks long and 25 stocks short), the investor will have a $40,000 position in each stock, and the variance of dollar returns is: 50 [(40,000 0.30)2 ] = 7,200,000,000 The standard deviation of dollar returns is $84,853. Similarly, if n = 100 stocks (50 stocks long and 50 stocks short), the investor will have a $20,000 position in each stock, and the variance of dollar returns is: 100 [(20,000 0.30)2 ] = 3,600,000,000 The standard deviation of dollar returns is $60,000. Notice that, when the number of stocks increases by a factor of 5 (i.e., from 20 to 100), standard deviation decreases by a factor of 5= 2.23607 (from $134,164 to $60,000).8. a.)e (22M 22σ+σβ=σ 88125)208.0(2222A =+⨯=σ 50010)200.1(2222B =+⨯=σ 97620)202.1(2222C =+⨯=σb.If there are an infinite number of assets with identical characteristics, then a well-diversified portfolio of each type will have only systematic risk since the non-systematic risk will approach zero with large n. The mean will equal that of the individual (identical) stocks.c. There is no arbitrage opportunity because the well-diversified portfolios allplot on the security market line (SML). Because they are fairly priced, there is no arbitrage.9. a. A long position in a portfolio (P) comprised of Portfolios A and B will offer anexpected return-beta tradeoff lying on a straight line between points A and B.Therefore, we can choose weights such that P = C but with expectedreturn higher than that of Portfolio C. Hence, combining P with a shortposition in C will create an arbitrage portfolio with zero investment, zero beta, and positive rate of return.b. The argument in part (a) leads to the proposition that the coefficient of 2must be zero in order to preclude arbitrage opportunities.10. a. E(r) = 6 + (1.2 6) + (0.5 8) + (0.3 3) = 18.1%b.Surprises in the macroeconomic factors will result in surprises in the return ofthe stock:Unexpected return from macro factors =[1.2(4 – 5)] + [0.5(6 – 3)] + [0.3(0 – 2)] = –0.3%E (r) =18.1% − 0.3% = 17.8%11. The APT required (i.e., equilibrium) rate of return on the stock based on r f and thefactor betas is:required E(r) = 6 + (1 6) + (0.5 2) + (0.75 4) = 16%According to the equation for the return on the stock, the actually expectedreturn on the stock is 15% (because the expected surprises on all factors are zero by definition). Because the actually expected return based on risk is less than the equilibrium return, we conclude that the stock is overpriced.12. The first two factors seem promising with respect to the likely impact on the firm’scost of capital. Both are macro factors that would elicit hedging demands across broad sectors of investors. The third factor, while important to Pork Products, is a poor choice for a multifactor SML because the price of hogs is of minor importance to most investors and is therefore highly unlikely to be a priced risk factor. Better choices would focus on variables that investors in aggregate might find moreimportant to their welfare. Examples include: inflation uncertainty, short-terminterest-rate risk, energy price risk, or exchange rate risk. The important point here is that, in specifying a multifactor SML, we not confuse risk factors that areimportant to a particular investor with factors that are important to investors ingeneral; only the latter are likely to command a risk premium in the capital markets.13. The maximum residual variance is tied to the number of securities (n) in theportfolio because, as we increase the number of securities, we are more likely to encounter securities with larger residual variances. The starting point is todetermine the practical limit on the portfolio residual standard deviation, (e P), that still qualifies as a ‘well-diversified portfolio.’ A reasonable approach is to compare 2(e P) to the market variance, or equivalently, to compare (e P) to the market standard deviation. Suppose we do not allow (e P) to exceed p M, where p is a small decimal fraction, for example, 0.05; then, the smaller the value wechoose for p, the more stringent our criterion for defining how diversified a‘well-diversified’ portfolio must be.Now construct a portfolio of n securities with weights w1, w2,…,w n, so that w i =1.The portfolio residual variance is: 2(e P) = w122(e i)To meet our practical definition of sufficiently diversified, we require this residual variance to be less than (p M)2. A sure and simple way to proceed is to assumethe worst, that is, assume that the residual variance of each security is the highest possible value allowed under the assumptions of the problem: 2(e i) = n2MIn that case: 2(e P) = w i2n M2Now apply the constraint: w i2 n M2 ≤ (p M)2This requires that: n w i2≤p2Or, equivalently, that: w i2 ≤p2/nA relatively easy way to generate a set of well-diversified portfolios is to useportfolio weights that follow a geometric progression, since the computations then become relatively straightforward. Choose w1 and a common factor q for thegeometric progression such that q < 1. Therefore, the weight on each stock is afraction q of the weight on the previous stock in the series. Then the sum of n terms is:w i= w1(1– q n)/(1– q) = 1or: w1 = (1– q)/(1–q n)The sum of the n squared weights is similarly obtained from w12 and a common geometric progression factor of q2. Therefore:w i2 = w12(1– q2n)/(1– q 2)Substituting for w1 from above, we obtain:w i2 = [(1– q)2/(1–q n)2] × [(1– q2n)/(1– q 2)]For sufficient diversification, we choose q so that: w i2 ≤p2/nFor example, continue to assume that p = 0.05 and n = 1,000. If we chooseq = 0.9973, then we will satisfy the required condition. At this value for q:w1 = 0.0029 and w n = 0.0029 × 0.99731,000In this case, w1 is about 15 times w n. Despite this significant departure from equalweighting, this portfolio is nevertheless well diversified. Any value of q between0.9973 and 1.0 results in a well-diversified portfolio. As q gets closer to 1, theportfolio approaches equal weighting.14. a. Assume a single-factor economy, with a factor risk premium E M and a (large)set of well-diversified portfolios with beta P. Suppose we create a portfolioZ by allocating the portion w to portfolio P and (1 – w) to the marketportfolio M. The rate of return on portfolio Z is:R Z = (w × R P) + [(1 – w) × R M]Portfolio Z is riskless if we choose w so that Z = 0. This requires that:Z = (w × P) + [(1 – w) × 1] = 0 w = 1/(1 –P) and (1 – w) = –P/(1 –P) Substitute this value for w in the expression for R Z:R Z = {[1/(1 –P)] × R P} – {[P/(1 –P)] × R M}Since Z = 0, then, in order to avoid arbitrage, R Z must be zero.This implies that: R P = P× R MTaking expectations we have:E P = P× E MThis is the SML for well-diversified portfolios.b. The same argument can be used to show that, in a three-factor model withfactor risk premiums E M, E1 and E2, in order to avoid arbitrage, we must have:E P = (PM× E M) + (P1× E1) + (P2× E2)This is the SML for a three-factor economy.15. a. The Fama-French (FF) three-factor model holds that one of the factors drivingreturns is firm size. An index with returns highly correlated with firm size (i.e.,firm capitalization) that captures this factor is SMB (Small Minus Big), thereturn for a portfolio of small stocks in excess of the return for a portfolio oflarge stocks. The returns for a small firm will be positively correlated with SMB.Moreover, the smaller the firm, the greater its residual from the other twofactors, the market portfolio and the HML portfolio, which is the return for aportfolio of high book-to-market stocks in excess of the return for a portfolioof low book-to-market stocks. Hence, the ratio of the variance of this residualto the variance of the return on SMB will be larger and, together with thehigher correlation, results in a high beta on the SMB factor.b.This question appears to point to a flaw in the FF model. The model predictsthat firm size affects average returns, so that, if two firms merge into a largerfirm, then the FF model predicts lower average returns for the merged firm.However, there seems to be no reason for the merged firm to underperformthe returns of the component companies, assuming that the component firmswere unrelated and that they will now be operated independently. We mighttherefore expect that the performance of the merged firm would be the sameas the performance of a portfolio of the originally independent firms, but theFF model predicts that the increased firm size will result in lower averagereturns. Therefore, the question revolves around the behavior of returns for aportfolio of small firms, compared to the return for larger firms that resultfrom merging those small firms into larger ones. Had past mergers of smallfirms into larger firms resulted, on average, in no change in the resultantlarger firms’ stock return characteristics (compared to the portfolio of stocksof the merged firms), the size factor in the FF model would have failed.Perhaps the reason the size factor seems to help explain stock returns is that, when small firms become large, the characteristics of their fortunes (and hence their stock returns) change in a significant way. Put differently, stocksof large firms that result from a merger of smaller firms appear empirically to behave differently from portfolios of the smaller component firms. Specifically, the FF model predicts that the large firm will have a smaller risk premium. Notice that this development is not necessarily a bad thing for the stockholders of the smaller firms that merge. The lower risk premium may be due, in part, to the increase in value of the larger firm relative to the merged firms.CFA PROBLEMS1. a. This statement is incorrect. The CAPM requires a mean-variance efficientmarket portfolio, but APT does not.b.This statement is incorrect. The CAPM assumes normally distributed securityreturns, but APT does not.c. This statement is correct.2. b. Since Portfolio X has = 1.0, then X is the market portfolio and E(R M) =16%.Using E(R M ) = 16% and r f = 8%, the expected return for portfolio Y is notconsistent.3. d.4. c.5. d.6. c. Investors will take on as large a position as possible only if the mispricingopportunity is an arbitrage. Otherwise, considerations of risk anddiversification will limit the position they attempt to take in the mispricedsecurity.7. d.8. d.。
Bodie投资学第8版第1章投资概论共35页
(security selection) top-down investment vs. bottom-up
strategy
2020/6/13 青岛大学经是有效的
风险-收益的权衡(risk-return trade-off)
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Google2019-2009走势图
市值 1460亿
美元
2020/6/13 青岛大学经济学院
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2020/6/13 青岛大学经济学院
张宗强
市值 1460亿
美元
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1.4 投资过程
储蓄(saving)、投资(investing)与安全投资 (safe investing)
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Table 1.1 Balance Sheet of U.S. Households, 2019
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Table 1.2 Domestic Net Worth
问题1：表1.1和1.2中实物资产的数据不一致，原因？(P2脚注) 问题2：概念检查问题1(P3)
Herbert B. Mayo，投资学导论(第7版)，北 京大学出版社，2019
朴明根等编，证券投资学，清华大学出版 社，2019
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1.2 实物资产与金融资产
实物资产（Real assets）：直接用于生产商品和 服务的资产。包括土地、建筑、机器、知识等。 代表一个经济的生产能力，决定一个社会的财富。
Bodie投资学第8版第1章投资概论
➢ 积极投资(active management) ➢ 消极投资(passive management)
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1.6 金融市场的主体(players)
（1）家庭部门（the household sector）：既 是金融市场资金的主要供给者，又是投资 者。
资金的时间价值
不确定性（Uncertainty）——风险性
如果证券没有风险是否意味着没有收益？
收益性：增加投资者的财富来满足未来的消费
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1.1 投资与投资学
1.1.2 投资学（Investments） 研究投资行为及均衡定价的科学。
投资学是金融学(finance)的两大核心课程之一。 概念辨析：金融学与finance
金融资产（Financial assets）：实物资产的要求 权（ Claims on real assets ），定义实物资产在 投资者之间的配置。
➢ 金融资产的价值与其物质形态没有任何关系：股票可 能并不比印制股票的纸张更值钱。
➢ 整个社会财富的总量与金融资产数量无关，金融资产 不是社会财富的代表。
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1.1 投资与投资学
关于股市： 一个人在书店，对店员说：我想买本书，里面没 有凶杀，却暗含杀机，没有爱情，却爱恨难舍， 没有侦探，却时时警惕。你能给我介绍一本么？ “只有这个”，店员说：
“中国股市行情”。
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1.1 投资与投资学
2020/8/30 青岛大学经济学院
Essentials Of Investments 8th Ed Bodie 投资学精要(第八版)课后习题答案chap04
CHAPTER 04 MUTUAL FUNDS AND OTHER INVESTMENT COMPANIES 1.Mutual funds offer many benefits. Some of those benefits include the ability to investwith small amounts of money, diversification, professional management, lowtransaction costs, tax benefits, and reduce administrative functions.2.Close-end funds trade on the open market and are thus subject to market pricing. Open-end funds, are sold by the mutual fund and must reflect the NAV of the investments.3.Annual fees charged by a mutual fund to pay for marketing and distribution costs.4. A unit investment trust is an unmanaged mutual fund. Its portfolio is fixed and does notchange due to asset trades, as does a close-end fund. .5.Exchange-traded funds can be traded during the day, just as the stocks they represent.They are most tax effective, in that they do not have as many distributions. They also have much lower transaction costs. They also do not require load charges, management fees, and minimum investment amounts.6.Hedge funds have much less regulation since they are part of private partnerships andfree from mist SEC regulation. They permit investors to take on many risks unavailable to mutual funds. Hedge funds, however, may require higher fees and provide lesstransparency to investors. This offers significant counter party risk and hedge fundinvestors need to be more careful about the firm the invest with.7.An open-end fund will have higher fees since they are actively marketing and managingtheir investor base. The fund is always looking for new investors. A unit investment trust need not spend too much time on such matters since investors find each other.8.Asset allocation funds may dramatically vary the proportions allocated to each marketin accord with the portfolio manager’s forecast of the r elative performance of eachsector. Hence, these funds are engaged in market timing and are not designed to be low-risk investment vehicles.9.a. A unit investment trusts offer low costs and stable portfolios. Since they do notchange their portfolio, the investor knows exactly what they own. They are better suited to sophisticated investors.b. Open-end mutual funds offer higher levels of service to investors. The investors donot have any administrative burdens and their money is actively managed. This is better suited for less knowledgeable investors.c. Individual securities offer the most sophisticated investors ultimate flexibility. Theyare able to save money since they are only charged the expenses they incur. Alldecisions are under the control of the investor.10. Open-end funds must honor redemptions and receive deposits from investors. This flowof money necessitates retaining cash. Close-end funds no longer take and receivemoney from investors. As such, they are free to be fully invested at all times.11. The offering price includes a 6% front-end load, or sales commission, meaning thatevery dollar paid results in only $0.94 going toward purchase of shares. Therefore: Offering price =06.0170.10$load 1NAV -=-= = $11.3812. NAV = offering price ⨯ (1 – load) = $12.30 ⨯ 0.95 = $11.6913. HW14. Value of stocks sold and replaced = $15,000,000Turnover rate = 000,000,42$000,000,15$= 0.357 = 35.7%15.a. NAV =million5million 3$million 200$-= $39.40b. Premium (or discount) = NAV NAV ice Pr - = 40.39$40.39$36$-= –0.086 = -8.6% The fund sells at an 8.6% discount from NAV16. Rate of return = NAV year of Start ons Distributi )NAV (+∆ = 50.12$50.1$40.0$+-= 0.0880 = 8.80%17.HW18.Assume a hypothetical investment of $100.Loaded upa. Year 1 = 100 x (1+.06-.0175) = 104.25b. Year 3 = 100 x (1+.06-.0175)^3 = 116.30c. Year 10 = 100 x (1+.06-.0175)^10 = 151.62Economy funda. Year 1 = 100 x .98 x (1+.06-.0025) = 103.64b. Year 3 = 100 x .98 x (1+.06-.0025) ^ 3 = 115.90c. Year 10 = 100 x .98 x (1+.06-.0025) ^ 10 = 171.4119.NAVa. (450,000,000 – 10,000,000) / 44,000,000 = $10 per shareb. (440,000,000 – 10,000,000) / 43,000,000 = $10 per share20.a.Empirical research indicates that past performance of mutual funds is not highlypredictive of future performance, especially for better-performing funds. Whilethere may be some tendency for the fund to be an above average performer nextyear, it is unlikely to once again be a top 10% performer.b.On the other hand, the evidence is more suggestive of a tendency for poorperformance to persist. This tendency is probably related to fund costs andturnover rates. Thus if the fund is among the poorest performers, investorswould be concerned that the poor performance will persist.21. Start of year NAV = $20Dividends per share = $0.20End of year NAV is based on the 8% price gain, less the 1% 12b-1 fee:End of year NAV = $20 ⨯ 1.08 ⨯ (1 – 0.01) = $21.384 Rate of return =20$20.0$20$384.21$+-= 0.0792 = 7.92%22. The excess of purchases over sales must be due to new inflows into the fund. Therefore,$400 million of stock previously held by the fund was replaced by new holdings. So turnover is: $400/$2,200 = 0.182 = 18.2%23. Fees paid to investment managers were: 0.007 ⨯ $2.2 billion = $15.4 millionSince the total expense ratio was 1.1% and the management fee was 0.7%, we conclude that 0.4% must be for other expenses. Therefore, other administrative expenses were: 0.004 ⨯ $2.2 billion = $8.8 million24. As an initial approximation, your return equals the return on the shares minus the totalof the expense ratio and purchase costs: 12% - 1.2% - 4% = 6.8%But the precise return is less than this because the 4% load is paid up front, not at the end of the year.To purchase the shares, you would have had to invest: $20,000/(1 - 0.04) = $20,833The shares increase in value from $20,000 to: $20,000 ⨯ (1.12 - 0.012) = $22,160 The rate of return is: ($22,160 - $20,833)/$20,833 = 6.37%25. Suppose you have $1000 to invest. The initial investment in Class A shares is $940 netof the front-end load. After 4 years, your portfolio will be worth:$940 ⨯ (1.10)4 = $1,376.25Class B shares allow you to invest the full $1,000, but your investmentperformance net of 12b-1 fees will be only 9.5%, and you will pay a 1% back-endload fee if you sell after 4 years. Your portfolio value after 4 years will be:$1,000 ⨯ (1.095)4 = $1,437.66After paying the back-end load fee, your portfolio value will be:$1,437.66 ⨯ 0.99 = $1,423.28Class B shares are the better choice if your horizon is 4 years. With a 15-year horizon, the Class A shares will be worth:$940 ⨯ (1.10)15 = $3,926.61For the Class B shares, there is no back-end load in this case since the horizon is greater than 5 years. Therefore, the value of the Class B shares will be:$1,000 ⨯ (1.095)15 = $3,901.32At this longer horizon, Class B shares are no longer the better choice. The effect of Class B's 0.5% 12b-1 fees cumulates over time and finally overwhelms the 6% load charged to Class A investors.26. For the bond fund, the fraction of portfolio income given up to fees is:%0.4%6.0= 0.150 = 15.0%For the equity fund, the fraction of investment earnings given up to fees is:%0.12%6.0= 0.050 = 5.0%Fees are a much higher fraction of expected earnings for the bond fund, and therefore may be a more important factor in selecting the bond fund. This may help to explain why unmanaged unit investment trusts are concentrated inthe fixed income market. The advantages of unit investment trusts are low turnover and low trading costs and management fees. This is a more important concern to bond-market investors.27.a. After two years, each dollar invested in a fund with a 4% load and a portfolioreturn equal to r will grow to:$0.96 ⨯ (1 + r – 0.005)2Each dollar invested in the bank CD will grow to:$1 ⨯ (1.06)2If the mutual fund is to be the better investment, then the portfolio return, r,must satisfy:0.96 ⨯ (1 + r – 0.005)2 > (1.06)20.96 ⨯ (1 + r – 0.005)2 > 1.1236(1 + r – 0.005)2 > 1.1704 1 + r – 0.005 > 1.08191 + r > 1.0869Therefore, r > 0.0869 = 8.69%b.If you invest for six years, then the portfolio return must satisfy:0.96 ⨯ (1 + r – 0.005)6 > (1.06)6 = 1.4185(1 + r – 0.005)6 > 1.47761 + r – 0.005 > 1.06721 + r > 1.0722r > 7.22%The cutoff rate of return is lower for the six year investment because the "fixedcost" (i.e., the one-time front-end load) is spread out over a greater number ofyears.c.With a 12b-1 fee instead of a front-end load, the portfolio must earn a rate ofreturn (r) that satisfies:1 + r – 0.005 – 0.0075 > 1.06In this case, r must exceed 7.25% regardless of the investment horizon.28.The turnover rate is 50%. This means that, on average, 50% of the portfolio is sold andreplaced with other securities each year. Trading costs on the sell orders are 0.4%; and the buy orders to replace those securities entail another 0.4% in trading costs. Total trading costs will reduce portfolio returns by: 2 ⨯ 0.4% ⨯ 0.50 = 0.4%29.Suppose that finishing in the top half of all portfolio managers is purely luck, and thatthe probability of doing so in any year is exactly ½. Then the probability that anyparticular manager would finish in the top half of the sample five years in a row is (½)5 = 1/32. We would then expect to find that [350 ⨯ (1/32)] = 11 managers finish in the top half for each of the five consecutive years. This is precisely what we found. Thus, we should not conclude that the consistent performance after five years is proof of skill.We would expect to find eleven managers exhibiting precisely this level of"consistency" even if performance is due solely to luck.。
证券投资学4
12
Chapter 1 The Investment Setting
Chapter 1 The Investment Setting
Zhiqiang Wang
School of Finance Dongbei University of Finance & Economics
Chapter 1 The Investment Setting 1
The Investment Setting
Chapter 1 The Investment Setting 9
2. Measures of Return and Risk
Measures of historical rates of return Computing mean historical returns Computing expected rates of return Measuring the risk of expected rates of return Risk measures for historical returns
8
Required Rate of Return
Pure time value of money
– Pure rate of interest
Nominal risk-free rate Risk premium Required rate of return, including
– Pure time value of money – Expected rate of inflation – Risk premium
投资学(Investment 8th)讲义1
Investment InstitutionsWhat are Investment institutions? Contractual savings institutions -Insurance companies -Pension fundsInvestment intermediaries -Mutual funds / unit trusts -Investment trusts -Hedge funds-Private equity company❝Investment institution is a financial intermediary (company) engaged in investing in, and managing, a portfolio of securities on behalf of their shareholders. ❝Indirect investment in capital/money marketinstruments via an investment institution is the most popular way for individuals to invest surplus funds ❝In the UK, 50 –60% of equities and bonds are held and managed by investment institutions ❝Benefits: diversified portfolio, professional managements❝All investment companies charge a fee (annual expense ratio) to shareholders to pay for theoperating costs and the management fee.❝Depositary institutions◦Intermediaries with a significant proportion of their funds derived from customer deposits, e.g. Building societies. Short-term liabilities.❝Contractual savings institutions◦Typically acquire funds at periodic intervals on a contractual basis❝Investment intermediaries◦Collective investment funds, Finance companies,Investment banks, Securities firms❝Two major groups: Insurance companies and Pension funds ❝Long-term liabilities❝Liquidity of their assets is less important than for depositary institutions –they can predict with greater accuracy their future payments due to customers❝Hence, they can invest a greater proportion of funds in long-term securities (bonds,equities)❝Primary objective is to protect policyholders (firms and individuals) from adverse events ❝Receive premiums from policyholders and promise compensation if specified events occur❝Two main segments: general insurance and life insurance❝Protection against personal injury and liabilities such as accidents, theft and fire❝Usually over a fixed time period e.g. 1 year ❝Claims usually made soon after the event so liabilities are mostly short term❝Hence they hold a greater proportion of liquid assets than life insurers. Holding financial assets might be viewed as a byproduct of the business.❝Some authors (e.g. B&T) do not view this category as an investment intermediary❝Protects the policyholder in the event of death, illness or retirement; hence long-term liabilities❝Term assurance, Whole-of-life policy, Endowment policy, Annuities❝Term assurance: provides insurance cover, for specifiedperiod, against the risk of death. If the insured survivesthe specified period then no payment is made.❝Whole-of-life policy pays a capital sum on the death ofthe person assured, whenever that event occurs.❝Endowment policy pays a capital sum at the end ofsome specified term or earlier if the assured dies withinthe term.-The premium for Whole-of-life and endowment policieswill be higher than for term assurance.❝Annuities: A policyholder pay an initial lump sumwhich used by the insurance company to providean agreed income until death.-The insurance company immediately creates a fund❝Risk: certain sums are guaranteed to be paid in thefuture and these sums exceed the value of thepremiums over the life of the contract.❝Match the term structure of its assets and liabilities❝Invest in long-term assets e.g. bonds, equities andmortgages.❝Provide retirement income (in the form ofannuities) to employees covered by a pension plan❝Personal scheme and public (state) scheme❝Funded scheme and unfunded (pay-as-you-go)scheme❝Funded scheme: Receive contributions fromemployers and/or employees and invest thesefunds in assets, including equities and bonds.Returns from the investment are used to paybenefits to members of the scheme.❝Two main types of funded scheme: defined benefit(DB) and defined contribution (DC)❝DB: the sponsor agrees to pay members ofthe scheme a pension equal to apredetermined percentage of their finalsalary (average salary), subject to themember‟s years of service❝DC: the return on the investmentsdetermines pension benefits❝Occupational schemes where the sponsor isthe employer have historically been DB,while private pensions are DC❝Risk: benefits to be paid are not known with certainty;inflation complications as it increases the benefits to bepaid by fund.❝Benefit from tax deferral: in the UK, contributions arenot taxable, pensioner pays income tax❝Pension fund trustees will determine the overallinvestment strategy❝They will often decide what proportion of assets to beheld in different asset classes❝Asset mix will be influenced by the maturity of the fund❝Long-term liabilities hence long-term assets❝Index-linked bonds, Equities❝Investment companies are classified, depending on whether their own capitalisation (number of shares outstanding) is constantly changing or fixed:-Open-end : capitalisation constantly changing; new investors buy additional shares from the company and some existing shareholders sell their shares back to the company.-Closed-end : fixed capitalization; share traded onexchange.open-ended❝Mutual funds / unit trusts❝Open-ended investment companies OEICsClosed ended❝Investment trusts ❝Hedge funds❝Private equity company❝Pool resources from many individuals andcompanies and invest these in a range of assets ❝Provide opportunities for small investors to investin a diversified fund at low cost❝Take advantage of lower transaction costs in trading larger blocks of securities❝Trusts in the legal sense; controlled and monitored by trustees; who act as guardian of the assets on behalf of the beneficial owners ❝Investment decisions❝When an investor buys a stake in a unit trust, he/she purchases a new unit in the fund (unless matched with a seller by the fund manager)❝Open-ended fund where the size of the fund can varyaccording to the number of contributors to the fund ❝Price of each unit reflects current value of the fund divided by the number of outstanding units❝All sales and purchases of units are made with the trust manager.❝Do not trade on stock exchange.❝Dual pricing structure: offer price (investors buy units)and bid price (investors sell units back to the trust)❝Annual management fee (usually 0.5 -1% of the funds under management), plus the bid-offer spread on buying and selling units❝Limited in the amount that can be invested in any single security❝Total return for a mutual fund includes reinvestment dividends and capital gain.❝A cumulative total return measures the actual performance over 3, 5 or 10 years.❝In Jan 2009, 8,000 domestic mutual funds withassets of $9.4 trillion in the US.❝Short-term funds:-Money market mutual funds ❝Long-term funds: -Capital market funds;-Equity (stock) funds, Bond funds or Hybrid(balanced) funds (hold combination of stocks and bonds)-Index funds: mutual funds holding an managed portfolio of bonds or stocks designed to match particular market index, such as S&P 500. Has low expenses ratio.❝OEICs operate similarly to a unit trust in the sense that they are open-ended❝But an OEIC has a company structure and can be listed on the stock exchange ❝Shares will reflect the value of the fund ❝Shares will have a single price (rather than the separate buying and selling prices indicated for unit trusts)❝Companies whose business is the investment of funds in financial assets.❝A closed-end fund, only able to raise more funds through rights issue shares or borrowing (bonds) ❝Not a trust in the legal sense; limited liability company with listed shares (traded in stock market).❝Investors can purchase ordinary shares of the ITC ❝A portfolio, managed by ITC‟s board of directors who determine the investment strategy❝Not faced with outflow of funds, so investment strategy does not depend on maintaining cash flows to meet future liabilities❝The existence of borrowed funds in the capitalstructure implies a …gearing effect‟ on the value of the ITC shares❝Net asset value (NAV) per share is the value of assetsless debt divided by number of issued shares-E.g. ITC capital structure: £8m in equities (4m shares) + £2m debt. Thus the NAV per share = £2-If the value of ITC asset portfolio were to doubled to £20m, then the NAV per would increase to £4.5 (£18m/4m shares)-A 100% in the value of assets held has led to an increase in the NAV per share of 125%❝The gearing effect is of benefit to shareholders in a rising stock market.❝The hedge funds are largely unregulated❝Reputation is as risky funds, shrouded by mystery and only accessible to the wealthy.❝According to IFSL, the number of hedge funds increased from 4,000 with $324bn of assets in 1999 to peak of 11,000 with $2,150bn in 2007, and then declined to 10,000 hedge funds and $1,500bn by the start of 2009. ❝There is no unique definition of hedge fund since it is an industry term rather than a legal term❝“Includes a multitude of skill -based investment strategies with a broad range of risk and returnobjectives. A common element is the use of investment and risk management skills to seek positive returns regardless of market direction.”❝A hedge fund is an actively managed investment fund ❝Seeks an attractive …absolute return‟, a return whether the market go up or down.❝Do not follow any benchmark, but rather just try to generate high returns (larger than ordinary available return) while managing risks, by exploiting various market opportunities❝Typical strategies include -Short selling,-Borrowing, Leverage -Use of derivatives❝Fees include a fixed fee and management fee e.g. 1-2% of assets plus 20-25% of upside performance.Hedge fundsMutual funds and pension fundsInvestment trusts FreedomLimitation on borrowing, short selling, and the use of derivatives May borrow Limitations on short selling, and the use of derivatives❝Typical investors◦Wealthy individuals ◦Pension funds◦Other hedge funds, creating …funds of hedge funds‟ –diversity in strategy and risk❝Returns and risk can vary a great deal among the different hedge fund strategies❝Market neutral (or relative value arbitrage) funds ◦Attempt to produce returns that have no or low correlation with e.g. equity markets◦Highly quantitative portfolio construction◦Concentrate on the relative value of individual shares, bonds, currencies ...◦Commonly apply arbitrage strategies-e.g. exploit mispricing between an underlying asset and a derivative instrument-Concentrate on the difference in performance of two given securities in homogenous universe. E.g. belief that BP will do better than X in oil firm; go long on BP and short on X.-Take position with convertible bonds❝Long/short funds-Generally invest in equity and bonds, taking directional bets on individual security or sector-Analyse individual companies and individual shares-Micro investors (look at individual/specific stocks)-Some may specialize in geographical sectors -Others may specialize in either small or large companies -E.g. 130/30-Timing is crucial-Stock-picking skill (short selling overpriced stocks and buying underpriced stocks)-Not automatically market neutral e.g. could havestrong positive correlation with equityGlobal (macro) asset funds-Look at stocks, bonds, currencies, and commodities from a global point of view -Macro-investors (look at broad themes) -Have positive exposure to the market-A fund might go long in sectors they believe will provide good returns, and short on countries they believe will have negative returns❝Event driven funds-Looks to exploit special situations -Take over bids-Merger, Corporate restructuring❝A group of individuals set up a limited liabilitypartnership, might have a limited life of around 10 years.❝Make good returns by buying public companies or neglected subsidiaries at good price and turning them into more attractive business❝They will gear up with debt that a public company would not want to risk.❝Normally be turned into non-quoted company❝They get involved in the business, bringing their own expertise and give managers big incentives to improve the business❝They seek cut costs, squeeze suppliers and sell unwanted assets, sell and lease back property ❝Large amount of leverage involved❝They take their profit in a variety of ways:-Refloat the company-Sell the company to someone else in the same business -Refinancing❝The private equity market was boosted in the early 2000s.❝IFSL shows that the global private equity investment amounted to $176.6bn in 2000, this increased to $317.6bn in 2007, then hit by the credit crisis andfell to $189bn.❝In the UK, well-known firms that are or have been owned by private equity groups: Boots, Iceland, Debenhams, New Look, Kwik-Fit❝E.g. In Dec. 2003, a group of private equity firms-Texas Pacific, CVC and Merrill Lynch Global Private Equity-bough Debenhams for £1.7bn, of which £600m was their own capital.❝In two refinancing in 2004 and 2005, they reconstructed the balance sheet with new borrowings and paid themselves back £1.3bn(twice of their original capital) in about 18 months. ❝They refloated Debenhams in May 2006.Explain the different types of investment institution. Identify and analyse the factors that will influence the investment strategy applied by each type of institution.。
(完整word版)投资学investment_题库Chap015
Multiple Choice Questions1. The term structure of interest rates is:A) The relationship between the rates of interest on all securities.B) The relationship between the interest rate on a security and its time tomaturity。
C) The relationship between the yield on a bond and its default rate。
D) All of the above.E）None of the above.Answer： B Difficulty: EasyRationale: The term structure of interest rates is the relationship between two variables, years and yield to maturity (holding all else constant).2。
The yield curve shows at any point in time：A) The relationship between the yield on a bond and the duration of the bond。
B）The relationship between the coupon rate on a bond and time to maturity of the bond。
C）The relationship between yield on a bond and the time to maturity on the bond。
D）All of the above.E) None of the above。
ch01THE INVESTMENT SETTING(投资学,赖利)
So …
With the result that …
Implications of Market Efficiency
It’s what is unexpected that moves the market (the genuinely new information in news). We should be skeptical of investment strategies that claim to be able to beat the market on a consistent basis.
Don’t put all of your eggs in one basket! Diversification reduces risk without necessarily sacrificing expected return. It’s a no-brainer!
Real assets vs. Financial assets
Why is the real risk-free rate positive?
Borrowers are willing to pay to be able to spend more than their current resources allow. Savers need compensation in order to give up the right to consume today.
Compensation for expected inflation:
If the future payment will be diminished in value because of inflation, then investors will demand an interest rate higher than the real risk-free interest rate so that their expected purchasing power will actually increase.
Investments 8ed Bodie 投资学 第八版 博迪 习题答案
Investments 8ed Bodie 投资学第八版博迪习题答案CHAPTER 1 THE INVESTMENT ENVIRONMENTPROBLEM SETS1 Ultimately it is true that real assets determine the material well being of an economy Nevertheless individuals can benefit when financial engineering creates new products that allow them to manage their portfolios of financial assets more efficiently Because bundling and unbundling creates financial products with new properties and sensitivities to various sources of risk it allows investors to hedge particular sources of risk more efficientlySecuritization requires access to a large number of potential investors To attract these investors the capital market needsa safe system of business laws and low probability of confiscatory taxationregulationa well-developed investment banking industrya well-developed system of brokerage and financialtransactions andwell-developed media particularly financial reportingThese characteristics are found in indeed make for a well-developed financial market3 Securitization leads to disintermediation that is securitization provides a means for market participants to bypass intermediaries For example mortgage-backed securities channel funds to the housing market without requiring that banks or thrift institutions make loans from their own portfolios As securitization progresses financial intermediaries must increase other activities such as providing short-term liquidity to consumers and small business and financial services4 Financial assets make it easy for large firms to raise the capital needed to finance their investments in real assets If General Motors for example could not issue stocks or bonds to the general public it would have a far more difficult time raising capital Contraction of the supply of financial assets would make financing more difficult thereby increasing the cost of capital A higher cost of capital results in less investment and lower real growth5 Even if the firm does not need to issue stock in any particular year the stock market is still important to the financial manager The stock price provides important information about how the market values the firms investment projects For example if the stock price rises considerably managers might conclude that the market believes the firms future prospects are bright This might be a useful signal to the firm to proceed with an investment such as an expansion of the firms businessIn addition the fact that shares can be traded in the secondary market makes the shares more attractive to investors since investors know that when they wish to they will be able to sell their shares This in turn makes investors more willing to buy shares in a primary offering and thus improves the terms on which firms can raise money in the equity market6 a Cash is a financial asset because it is the liability of the federal governmentb No The cash does not directly add to the productive capacity of the economyc Yesd Society as a whole is worse off since taxpayers as a group will make up for the liability7 a The bank loan is a financial liability for Lanni Lannis IOU is the banks financial asset The cash Lanni receives is a financial asset The new financial asset created is Lannis promissory note that is Lannis IOU to the bankb Lanni transfers financial assets cash to the software developers In return Lanni gets a real asset the completed software No financial assets are created or destroyed cash is simply transferred from one party to anotherc Lanni gives the real asset the software to Microsoft in exchange for a financial asset 1500 shares of Microsoft stock If Microsoft issues new shares in order to pay Lanni then this would represent the creation of new financial assetsd Lanni exchanges one financial asset 1500 shares of stock for another 120000 Lanni gives a financial asset 50000 cash to the bank and gets back another financial asset its IOU The loan is "destroyed" in the transaction since itis retired when paid off and no longer exists8 aAssets LiabilitiesShareholders equity Cash 70000 Bank loan50000 Computers 30000 Shareholders equity 50000 Total 100000 Total 100000 Ratio of real assets to total assets 30000100000 030bAssets LiabilitiesShareholders equity Software product 70000Bank loan 50000 Computers 30000Shareholders equity 50000 Total 100000Total 100000 Valued at costRatio of real assets to total assets 100000100000 10 cAssets LiabilitiesShareholders equity Microsoft shares 120000Bank loan 50000 Computers 30000Shareholders equity 100000 Total 150000Total 150000 Ratio of real assets to total assets 30000150000 020Conclusion when the firm starts up and raises working capital it is characterized by a low ratio of real assets tototal assets When it is in full production it has a high ratio of real assets to total assets When the project "shuts down" and the firm sells it off for cash financial assets once again replace real assets9 For commercial banks the ratio is 1075104109 0010For non-financial firms the ratio is 1329525164 0528 The difference should be expected primarily because the bulk of the business of financial institutions is to make loans which are financial assets for financial institutions10 a Primary-market transactionb Derivative assetsc Investors who wish to hold gold without the complication and cost of physical storage11 a A fixed salary means that compensation is at least in the short run independent of the firms success This salary structure does not tie the managers immediate compensation to the success of the firm However the manager might view this as the safest compensation structure and therefore value it more highlyb A salary that is paid in the form of stock in the firm means that the manager earns the most when the shareholders wealth is imized This structure is therefore most likely to align the interests of managers and shareholders If stock compensation is overdone however the manager might view it as overly risky since the managers career is already linked to the firm and this undiversified exposure would be exacerbated with a large stock position in the firmc Call options on shares of the firm create great incentives for managers to contribute to the firms success In some cases however stock options can lead to other agency problems For example a manager with numerous call options might be tempted to take on a very risky investment project reasoning that if the project succeeds the payoff will be huge while if it fails the losses are limited to the lost value of the options Shareholders in contrast bear the losses as wellas the gains on the project and might be less willing to assume that risk12 Even if an individual shareholder could monitor and improve managers performance and thereby increase the value of the firm the payoff would be small since the ownership share in a large corporation would be very small For example if you own 10000 of GM stock and can increase the value of the firm by 5 a very ambitious goal you benefit by only 005 10000 500 In contrast a bank that has a multimillion-dollar loan outstanding to the firm has a big stake in making sure that the firm can repay the loan It is clearly worthwhile for the bank to spend considerable resources to monitor the firm13 Mutual funds accept funds from small investors and invest on behalf of these investors in the national and international securities marketsPension funds accept funds and then invest on behalf of current and future retirees thereby channeling funds from one sector of the economy to anotherVenture capital firms pool the funds of private investors and invest in start-up firmsBanks accept deposits from customers and loan those funds to businesses or use the funds to buy securities of largecorporations14 Treasury bills serve a purpose for investors who prefer a low-risk investment The lower average rate of return compared to stocks is the price investors pay for predictability of investment performance and portfolio value15 With a top-down investing style you focus on asset allocation or the broad composition of the entire portfolio which is the major determinant of overall performance Moreover top-down management is the natural way to establish a portfolio with a level of risk consistent with your risk tolerance The disadvantage of an exclusive emphasis on top-down issues is that you may forfeit the potential high returns that could result from identifying and concentrating in undervalued securities or sectors of the market With a bottom-up investing style you try to benefit from identifying undervalued securities The disadvantage is that you tend to overlook the overall composition of your portfolio which may result in a non-diversified portfolio or a portfolio with a risk level inconsistent with your level of risk tolerance In addition this technique tends to require more active management thus generating more transaction costs Finally your analysis may be incorrect in which case you will have fruitlessly expended effort and money attempting to beat a simple buy-and-hold strategy16 You should be skeptical If the author actually knows how to achieve such returns one must question why the author would then be so ready to sell the secret to others Financialmarkets are very competitive one of the implications of this fact is that riches do not come easily High expected returns require bearing some risk and obvious bargains are few and far between Odds are that the only one getting rich from the book is its author17 a The SEC website defines the difference between saving and investing in terms of the investment alternatives or the financial assets the individual chooses to acquire According to the SEC website saving is the process of acquiring a safe financial asset and investing is the process of acquiring risky financial assetsb The economists definition of savings is the difference between income and consumption Investing is the process of allocating ones savings among available assets both real assets and financial assets The SEC definitions actually represent according the economists definition two kinds of investment alternatives18 As is the case for the SEC definitions see Problem 17 the SIA defines saving and investing as acquisition of alternative kinds of financial assets According to the SIA saving is the process of acquiring safe assets generally from a bank while investing is the acquisition of other financialassets such as stocks and bonds On the other hand the definitions in the chapter indicate that saving means spending less than ones income Investing is the process of allocating ones savings among financial assets including savings account deposits and money market accounts saving according to the SIA other financial assets such as stocks and bonds investing according to the SIA as well as real assetsCHAPTER 2 ASSET CLASSES ANDFINANCIAL INSTRUMENTSPROBLEM SETS1 Preferred stock is like long-term debt in that it typically promises a fixed payment each year In this way it is a perpetuity Preferred stock is also like long-term debt in that it does not give the holder voting rights in the firm Preferred stock is like equity in that the firm is under no contractual obligation to make the preferred stock dividend payments Failure to make payments does not set off corporate bankruptcy With respect to the priority of claims to the assets of the firm in the event of corporate bankruptcy preferred stock has a higher priority than common equity but a lower priority than bonds2 Money market securities are called cash equivalentsbecause of their great liquidity The prices of money market securities are very stable and they can be converted to cash ie sold on very short notice and with very low transaction costs3 The spread will widen Deterioration of the economy increases credit risk that is the likelihood of default Investors will demand a greater premium on debt securities subject to default risk4 On the day we tried this experiment 36 of the 50 stocks met this criterion leading us to conclude that returns on stock investments can be quite volatile5 a You would have to pay the asked price of11831 11896875 of par 11896875b The coupon rate is 11750 implying coupon payments of 11750 annually or more precisely 5875 semiannually Current yield Annual coupon incomeprice1175011896875 00988 9886 P 10000102 9803927 The total before-tax income is 4 After the 70 exclusion for preferred stock dividends the taxable income is 030 4 120Therefore taxes are 030 120 036After-tax income is 400 – 036 364Rate of return is 3644000 9108 a General Dynamics closed today at 7459 which was 017 higher than yesterdays price Yesterdays closing price was 7442b You could buy 50007459 6703 sharesc Your annual dividend income would be 6703 092 6167d The price-to-earnings ratio is 16 and the price is 7459 Therefore7459Earnings per share 16 Earnings per share 4669 a At t 0 the value of the index is 90 50 100 3 80At t 1 the value of the index is 95 45 110 3 83333 The rate of return is 8333380 1 417In the absence of a split Stock C would sell for 110 so the value of the index would be 2503 83333After the split Stock C sells for 55 Therefore we need to find the divisor d such that83333 95 45 55 d d 2340c The return is zero The index remains unchanged becausethe return for each stock separately equals zero10 a Total market value at t 0 is 9000 10000 20000 39000Total market value at t 1 is 9500 9000 22000 40500Rate of return 4050039000 – 1 385The return on each stock is as followsrA 9590 – 1 00556rB 4550 – 1 –010rC 110100 – 1 010The equally-weighted average is[00556 -010 010]3 00185 18511 The after-tax yield on the corporate bonds is 009 1– 030 00630 630Therefore municipals must offer at least 630 yields12 Equation 22 shows that the equivalent taxable yield is r rm 1 – ta 400b 444c 500d 57113 a The higher coupon bondb The call with the lower exercise pricec The put on the lower priced stock14 a You bought the contract when the futures price was 142750 see Figure 212 The contract closes at a price of 1300 which is 12750 less than the original futures price The contract multiplier is 250 Therefore the loss will be12750 250 31875b Open interest is 601655 contracts15 a Since the stock price exceeds the exercise price you will exercise the callThe payoff on the option will be 42 40 2The option originally cost 214 so the profit is 200 214014Rate of return 014214 00654 654b If the call has an exercise price of 4250 you would not exercise for any stock price of 4250 or less The loss on the call would be the initial cost 072c Since the stock price is less than the exercise price you will exercise the putThe payoff on the option will be 4250 4200 050The option originally cost 183 so the profit is 050 183 133Rate of return 133183 07268 726816 There is always a possibility that the option will be in-the-money at some time prior to expiration Investors will pay something for this possibility of a positive payoff17Value of call at expiration Initial Cost Profita 0 4 -4b 0 4 -4 c0 4 -4 d 5 4 1 e 10 46Value of put at expiration Initial Cost Profita 10 6 4b 5 6 -1c 06 -6 d 0 6 -6 e 0 6-618 A put option conveys the right to sell the underlying asset at the exercise price A short position in a futures contract carries an obligation to sell the underlying asset at the futures price19 A call option conveys the right to buy the underlying asset at the exercise price A long position in a futures contract carries an obligation to buy the underlying asset at the futures priceCFA PROBLEMSd2 The equivalent taxable yield is 675 1 034 10233 a Writing a call entails unlimited potential losses as the stock price rises4 a The taxable bond With a zero tax bracket the after-tax yield for the taxable bond is the same as the before-tax yield5 which is greater than the yield on the municipal bondThe taxable bond The after-tax yield for the taxable bond is005 1 – 010 45You are indifferent The after-tax yield for the taxable bond is005 1 – 020 40The after-tax yield is the same as that of the municipal bondd The municipal bond offers the higher after-tax yield for investors in tax brackets above 20If the after-tax yields are equal then 0056 008 1 –tThis implies that t 030 30CHAPTER 3 HOW SECURITIES ARE TRADEDPROBLEM SETSAnswers to this problem will vary2 The SuperDot system expedites the flow of orders from exchange members to the specialists It allows members to send computerized orders directly to the floor of the exchange whichallows the nearly simultaneous sale of each stock in a large portfolio This capability is necessary for program trading3 The dealer sets the bid and asked price Spreads should be higher on inactively traded stocks and lower on actively traded stocks4 a In principle potential losses are unbounded growing directly with increases in the price of IBMb If the stop-buy order can be filled at 128 the imum possible loss per share is 8 If the price of IBM shares goes above 128 then the stop-buy order would be executed limiting the losses from the short sale5 a The stock is purchased for 300 40 12000The amount borrowed is 4000 Therefore the investor put up equity or margin of 8000If the share price falls to 30 then the value of the stock falls to 9000 By the end of the year the amount of the loan owed to the broker grows to4000 108 4320Therefore the remaining margin in the investors account is 9000 4320 4680The percentage margin is now 46809000 052 52Therefore the investor will not receive a margin callThe rate of return on the investment over the year isEnding equity in the account Initial equity Initial equity4680 8000 8000 0415 4156 a The initial margin was 050 1000 40 20000As a result of the increase in the stock price Old Economy Traders loses10 1000 10000Therefore margin decreases by 10000 Moreover Old Economy Traders must pay the dividend of 2 per share to the lender of the shares so that the margin in the account decreases by an additional 2000 Therefore the remaining margin is 20000 – 10000 – 2000 8000b The percentage margin is 800050000 016 16So there will be a margin callc The equity in the account decreased from 20000 to 8000 in one year for a rate of return of 1200020000 060 607 Much of what the specialist does eg crossing orders and maintaining the limit order book can be accomplished by a computerized system In fact some exchanges use an automated system for night trading A more difficult issue to resolve is whether the more discretionary activities of specialists involving trading for their own accounts eg maintaining an orderly market can be replicated by a computer system8 a The buy order will be filled at the best limit-sell order price 5025b The next market buy order will be filled at the next-best limit-sell order price 5150c You would want to increase your inventory There is considerable buying demand at prices just below 50 indicating that downside risk is limited In contrast limit sell orders are sparse indicating that a moderate buy order could result in a substantial price increase9 a You buy 200 shares of Telecom for 10000 These shares increase in value by 10 or 1000 You pay interest of 008 5000 400The rate of return will be012 12b The value of the 200 shares is 200P Equity is 200P –5000 You will receive a margin call when030 when P 3571 or lower10 a Initial margin is 50 of 5000 or 2500b Total assets are 7500 5000 from the sale of the stock and 2500 put up for margin Liabilities are 100P Therefore equity is 7500 – 100P A margin call will be issued when 030 when P 5769 or higher11 The total cost of the purchase is 40 500 20000You borrow 5000 from your broker and invest 15000 of your own funds Your margin account starts out with equity of 15000a i Equity increases to 44 500 – 5000 17000Percentage gain 200015000 01333 1333ii With price unchanged equity is unchangedPercentage gain zeroiii Equity falls to 36 500 – 5000 13000Percentage gain –200015000 –01333 –1333The relationship between the percentage return and the percentage change in the price of the stock is given by return change in price change in price 1333 For example when the stock price rises from 40 to 44 the percentage change in price is 10 while the percentage gain forthe investor isreturn 10 1333b The value of the 500 shares is 500P Equity is 500P –5000 You will receive a margin call when025 when P 1333 or lowerc The value of the 500 shares is 500P But now you have borrowed 10000 instead of 5000 Therefore equity is 500P –10000 You will receive a margin call when025 when P 2667With less equity in the account you are far more vulnerable to a margin callBy the end of the year the amount of the loan owed to the broker grows to5000 108 5400The equity in your account is 500P –5400 Initial equity was 15000 Therefore your rate of return after one year is as followsi 01067 1067ii –00267 –267–01600 –1600The relationship between the percentage return and the percentage change in the price of Intel is given by returnFor example when the stock price rises from 40 to 44 the percentage change in price is 10 while the percentage gain for the investor is1067e The value of the 500 shares is 500P Equity is 500P –5400 You will receive a margin call when025 when P 1440 or lower12 a The gain or loss on the short position is –500 PInvested funds 15000Therefore rate of return –500 P 15000The rate of return in each of the three scenarios isi rate of return –500 15000 –01333 –1333ii rate of return –500 15000 0iii rate of return [–500 –4 ]15000 01333 1333b Total assets in the margin account equal20000 from the sale of the stock 15000 the initial margin 35000Liabilities are 500P You will receive a margin call when 025 when P 56 or higherWith a 1 dividend the short position must now pay on the borrowed shares 1share 500 shares 500 Rate of return is now[ –500 P – 500]15000i rate of return [ –500 4 –500]15000 –01667 –1667ii rate of return [ –500 0 –500]15000 –00333 –333iii rate of return [ –500 –4 – 500]15000 01000 1000Total assets are 35000 and liabilities are 500P 500 A margin call will be issued when025 when P 5520 or higher13 The broker is instructed to attempt to sell your Marriott stock as soon as the Marriott stock trades at a bid price of 38 or less Here the broker will attempt to execute but may not be able to sell at 38 since the bid price is now 3795 The price at which you sell may be more or less than 38 because the stop-loss becomes a market order to sell at current market prices14 a 5550b 5525c The trade will not be executed because the bid price is lower than the price specified in the limit sell orderd The trade will not be executed because the asked price is greater than the price specified in the limit buy order15 a In an exchange market there can be price improvement in the two market orders Brokers for each of the market orders ie the buy order and the sell order can agree to execute a trade inside the quoted spread For example they can trade at 5537 thus improving the price for both customers by 012 or 013 relative to the quoted bid and asked prices The buyer gets the stock for 013 less than the quoted asked price and the seller receives 012 more for the stock than the quoted bid priceb Whereas the limit order to buy at 5537 would not be executed in a dealer market since the asked price is 5550 it could be executed in an exchange market A broker for another customer with an order to sell at market would view the limit buy order as the best bid price the two brokers could agree to the trade and bring it to the specialist who would then execute the trade16 a You will not receive a margin call You borrowed 20000 and with another 20000 of your own equity you bought 1000 shares of Disney at 40 per share At 35 per share the market value of the stock is 35000 your equity is 15000 and the percentage margin is 1500035000 429Your percentage margin exceeds the required maintenance marginYou will receive a margin call when035 when P 3077 or lowerThe proceeds from the short sale net of commission were14 100 – 50 1350A dividend payment of 200 was withdrawn from the account Covering the short sale at 9 per share cost you including commission 900 50 950Therefore the value of your account is equal to the net profit on the transaction1350 – 200 – 950 200Note that your profit 200 equals 100 shares profit per share of 2 Your net proceeds per share was14 selling price of stock–9 repurchase price of stock–2 dividend per share–1 2 trades 050 commission per share2CFA PROBLEMS1 a In addition to the explicit fees of 70000 FBN appears to have paid an implicit price in underpricing of the IPO The underpricing is 3 per share or a total of 300000 implying total costs of 370000b No The underwriters do not capture the part of the costs corresponding to the underpricing The underpricing may be arational marketing strategy Without it the underwriters would need to spend more resources in order to place the issue with the public The underwriters would then need to charge higher explicit fees to the issuing firm The issuing firm may be just as well off paying the implicit issuance cost represented by the underpricing2 d The broker will sell at current market price after the first transaction at 55 or less3 dCHAPTER 4 MUTUAL FUNDS ANDOTHER INVESTMENT COMPANIESPROBLEM SETS1 The unit investment trust should have lower operating expenses Because the investment trust portfolio is fixed once the trust is established it does not have to pay portfolio managers to constantly monitor and rebalance the portfolio as perceived needs or opportunities change Because the portfolio is fixed the unit investment trust also incurs virtually no trading costs2 a Unit investment trusts diversification from large-scale investing lower transaction costs associated with large-scale trading low management fees predictable portfoliocomposition guaranteed low portfolio turnover rateb Open-end mutual funds diversification from large-scale investing lower transaction costs associated with large-scale trading professional management that may be able to take advantage of buy or sell opportunities as they arise record keepingc Individual stocks and bonds No management fee realization of capital gains or losses can be coordinated with investors personal tax situations portfolio can be designed to investors specific risk profile3 Open-end funds are obligated to redeem investors shares at net asset value and thus must keep cash or cash-equivalent securities on hand in order to meet potential redemptions Closed-end funds do not need the cash reserves because there are no redemptions for closed-end funds Investors in closed-end funds sell their shares when they wish to cash out4 Balanced funds keep relatively stable proportions of funds invested in each asset class They are meant as convenient instruments to provide participation in a range of asset classes Life-cycle funds are balanced funds whose asset mix generally depends on the age of the investor Aggressive life-cycle funds with larger investments in equities are。
投资学1-4章答案
第一章答案1、Issuers receive the net proceeds of securities sales when their securities are initially sold in the primary market. These securities represent claims on the issuing entities. For publicly-traded securities, these claims can be transferred through sales of the securities. This trading among investors takes place in the secondary markets, where the issuers have no direct involvement. When an investor sells his or her shares of a particular security in the secondary market, the issuers has no means or right to receive any additional funds as a result of the trade.3、The return on an investment, as shown in Equation(1.1) in the text, is given by: ROR=(Ending Wealth-Beginning Wealth)/ Beginning WealthIn the case of Colfax stock:ROR=(36+3-33)/33=18.2%4、Using the formula for the return on an investment shown above, in the case of Flit’s portfolio:(162000-150000)/150000=8.0%5、Using the formula for the return on an investment shown above, in the case of Ray’s portfolio:(25000-20000+1000)/20000=30.0%18、The five steps to the investment process are:1.Investment policy2.Security analysis3.Portfolio construction4.Portfolio revision5.Portfolio performance evaluationSetting investment policy is important because if provides the general framework around which the investment process is conducted. It identifies the investor’s risk tolerance and investment objectives. Security analysis is at the center of the investment process. It involve specifically identifying financial assets to be purchased for and sold from the investor’s portfolio. Portfolio construction moves from identifying the specific assets in the security analysis with the investor’s investment objectives. Portfolio revision is necessary because investing is a dynamic process that responds to changes in investment opportunities and the investor’s financial circumstances. Finally, portfolio performance evaluation is a feedback and control procedure intended to help the investor examine whether his or her investment program is meeting targeted objectives.22、Technical analysis attempts to forecast the movement in the prices of securities based predominantly on historical price trends in those same securities. Fundamental analysis seeks to determine the intrinsic values of securities based upon estimates of the securities’ future cash flows. These intrinsic values are compared toexisting market prices to estimate current levels of mispricing.第二章答案2、A round lot is 100 shares. Thus, an order of 511 shares involves 5 round lots and an odd lot of 11 shares.3、a. A market order instructs the broker to buy or sell immediately at the best available price. The investor is virtually assured that the order will be filled. However, the actual trade price could differ from the price existing when the order was placed.b. A limit order instructs the broker to buy or sell at a specified price(or better). The investor is assured that if the trade takes place, then it will be done at a price at least as good as his or her limit price. However, the investor cannot be certain when, or even if, the order will eventually be filled.c. A stop order instructs the broker to buy or sell at the best available price once a stop price is reached. The investor can be fairly certain that his or her order will be filled if the stop price is reached. However, the actual trade price could differ from the stop price.8、An investor’s actual margin is given by:Actual margin=(market value of assets-loan)/ market value of assetsIn Snooker’s case, the current actual margin is:Actual margin=[(1000shrs*50)-(1-0.5)*1000shrs*60]/(1000shrs*50)=40.0%Since the maintenance margin requirement is 30%, Snooker will not receive a margin call.9、The equation for calculating an investor’s actual margin involving a security purchased on margin can be solved for the price at which a margin call will occur. Equation(2.1) can be written as:Actual margin=[(n*mp)-(1-im)*pp*n]/(n*mp)Where n denotes the number of shares owned by the investor, mp denotes the current market price of the stock, im denotes the initial margin requirement, and pp denotes the purchase price of the stock. Substituting the maintenance margin requirement mm for the actual margin and solving for mp gives the price at which the actual margin will equal the maintenance margin requirement, or the price below which the investor will receive a margin call. Thus:Marginal call price=[(1-im)*pp]/(1-mm)In Cap’s case:Marginal call price=[(1-0.6)*13]/(1-0.35)=(0.4*13)/0.65=8.0010、The maximum amount that Lizzie can purchase is found by solving:Initial Equity=Initial Margin Requirement*Purchase Amount orMax Purchase Amount=Initial Equity/Initial Margin Requirement=15000/0.5=3000012、r=[(40-35)*500-500*35*(1-45%)*12%]/(500*35*45%)14、Note that the return on an investor ’s margin purchase can be expressed on a total dollar basis, as the answers to questions 12 and 13 were presented, or on a per share basis. That is,tt t t t P im P im r D P P ROR *]*)1(*[1--++=+ In Ed Delahanty ’s case:a. ROR=([40-30+1]-[0.13*(1-0.55)*30])/(0.55*30)=(11-1.755)/16.50=56%b. ROR=([20-30+1]-[0.13*(1-0.55)*30])/(0.55*30)=(-9-1.755)/16.50=-0.652=-65.2%c. ROR=(40-30+1)/30=11/30=0.367=36.7%ROR=(20-30+1)/30=-9/30=-0.300=-30%17、The actual margin for an investor who sells short a security is:Actual margin=[(proceeds from short sale+initial margin)-loan]/loanFor Candy, the actual margin calculations are:a. ([(200shrs*50)*(1+0.45)]-(200shrs*58)])/(200shrs*58)=(14500-11600)/11600=25%b. ([(200shrs*50)*(1+0.45)]-200shrs*42)/(200shrs*42)=(14500-8400)/8400=72.6%18、The actual margin for an investor who sells short a security is:Actual margin=[(proceeds from short sale+initial margin)-loan]/loanTherefore, with a rise in Naperville ’s stock to 50/shares, Dinty ’s actual margin is:[(500shrs*45)*(1+0.55)-(500shrs*50)]/(500shrs*50)=(34875-25000)/25000=39.5%19、Similar to Problem9,the equation for calculating an investor ’s actual margin for a short sold security can be solved for the price at which a margin call will occur. That is, rewriting Equation(2.2)gives:Actual margin=([(n*sp)*(1+im)]-(mp*n))/(n*mp)where the variables are the same as those in Problem 9, with sp denoting the short sale price of the stock. Substituting the maintenance margin requirement mm for the actual margin and solving for mp gives the price above which the investor will receive a margin call. Thus:Margin call price=[sp*(1+im)]/(1+mm)In Willie ’s case:Margin call price=[42*(1+0.5)]/(1+0.4)=4521、Calculated on a total dollar basis, Deerfoot ’s initial investment in the short sale of Deforest stock is 35000(0.5*70*1000). At year-end, Deerfoot had to reimburse the owner of the Deforest stock with 2000(2*1000) for dividends paid on the stock. Further, at year-end, if Deerfoot purchased the stock an repaid the owner, then theexcess proceeds over the amount which Deerfoot originally received when the stock was sold short would equal -5000(70-75*1000). Thus Deerfoot’s return on investment during the year was:ROR=[(70000-75000)-2000]/35000=-20%22、Expressing the return on a short sold security on a per share basis(including interest on the initial margin deposit) given:ROR=t ttttPimPimrDPPROR*]**[1+ --=+a.If the Madison stock, which was originally sold short at 50 per share, rises to 58then:ROR=[(50-58-0)+(0.45*50*0.08)]/(0.45*50)=-27.6%b.If the Madison stock, which was originally sold short at 50 per share, falls to 42then:ROR=[(50-42-0)+(0.45*50*0.08)]/(0.45*50)=43.6%第三章答案6. Commission brokers carry out the trading orders of the public that have been placed with thebrokers’respective brokerage firms. Commission brokers are compensated by the commissions paid by the firm’s customers.Floor brokers are not directly employed by particular brokerage firms. Rather, they are independent exchange members who assist commission brokers in executing their orders, especially during periods of heavy trading. Floor brokers are compensated by sharing in the commissions paid to the commission brokers.Floor traders are independent exchange members who trade only for themselves, not for the public. They earn a profit by recognizing mispriced stocks and appropriately buying and selling those stocks.第四章答案5. Weak-form market efficiency implies that past price information is immediately and fullyreflected in security prices. Thus this information cannot be employed to earn abnormal profits.Semistrong-form market efficiency implies that all relevant publicly available information is I mmediately and fully incorporated into security prices. Thus this information is useless to investors seeking abnormal profits.Strong-form market efficiency implies that all relevant information, public or private, is immediately and fully reflected in security prices. Thus this information cannot be used to abnormal profits.7.SemistrongWeakStrong(assuming that these deliberations are private)SemistrongWeak。
投资学课后题及答案
Chapter 1 The Investment Environment 1.What is a real asset?Real assets are used to produce goods and services. Real assets consist of land, labor, and buildings. These generate income to the economy and determine both the material wealth and productive capacity of the economy. Additionally, real assets appear on only one side of the balance sheet.2.What is a financial asset?Financial assets are claims on real assets and income from them. Financial assets consist of stocks and bonds. These contribute indirectly to the productive capacity of the economy. Additionally, financial assets appear on both sides of the balance sheet.3.What is consumption timing and why is it important? Consumption timing allows flexibility between earnings and spending. Therefore, when we are younger and we can consume more than we earn by borrowing money to by homes and automobiles. As we age, we can invest to so that we can retire someday and live off of our prior earnings. Financial assets4.What is allocation of risk and why is it important?Allocation of risk is creating assets with various degrees of risk. This enables firms to raise capital and also gives investors a choice of assets with various risk levels from which to choose5.What is separation of ownership and why is it important?The separation of ownership and management is important. Unlike a sole proprietorship where the owners are the managers, owners of corporations are stockholders. Stockholders elect the broad of directors that hires the management team. The objective that all owners can agree to is for management to maximize the value of the firm (share price).6.What are the three sectors of the economy and what is theirprimary need?A. Firms are typically net borrowers as they seek to expand the firm and require resources to take on valuable projects.B. Households are typically net savers as they seek to use consumption timing to plan for longer-term financial requirements such as educating their children and investing for retirement. As such, they are interested in risk and after tax returns of investments.C. Governments are typically net borrowers but their needs depend on the current relationship between tax receipts and expenditures7.List and explain four important functions that financialintermediates perform.Financial intermediaries connect borrowers and lenders. Financial intermediaries are able to sell their own securities and invest in the liabilities of other firms. As such they can:A. pool resources to spread management costs over an larger base which reduces costs to an individual investor.B. diversify investments by being able to invest in more securities.C. develop expertise through the increased volume of business that they do.D. achieve economies of scale by being spread research costs over the pool.]8.What is securitization and why is it important?Securitization allows borrowers to enter capital markets directly. Loans are arranged into pass-through securities (such as mortgage pool) and investors can invest in securities backed by those pools9.List and briefly explain five ways an investor can globallydiversityA primary market transaction is where securities are initially issued. Thus, the issuing firm receives the money and delivers the securities. The secondary market is where existing securities are traded. Thus, the firm that originally issued the securities receives no proceeds from the transaction. The individual selling the securities receives the money and delivers the securities while the individual buying the securities delivers the money 10.The four types of markets where trading takes place are listedbelow.A. Direct search markets. In direct search markets buyers and sellers must find each other. These markets are characterized by sporadic trading and low-priced non-standard goods such as refrigerator or sofas.B. Brokered markets. In markets that have active trading, brokers find it profitable to offer search services to buyers and seller. One example of this is real estate.C. Dealer market. In dealer markets, the dealers specialize by buying and selling for their own account. Dealers profit from the difference between their buying price and selling price (bid-ask spread). The OTC market is a dealer market.D. Auction market. In an auction market, such as the NYSE, all tradersconverge in one place to buy or sell an asset. Auction markets require heavy trading to make them efficient.11.The five ways for investors to globally diversify portfolio arelisted and discussed below.A.Investors can purchase American Depository Receipts (ADR=s) whichare a certificate that is denominated in dollars and represents a claim ona bundle of stock.B.Investors can purchase directly purchase foreign securities offered forsale in dollars.C.Investors can purchase international mutual funds that invest ininternational securities.D.Investors can purchase derivatives on foreign securities.E.Investors can purchase World Equity Benchmark Shares (WEBS) whichuse the same structure as an ADR but allow an investor to tradeportfolios of foreign stocks in a selected country.Chapter 2 Financial Instruments1.The price quotations of Treasury bonds in the Wall Street Journalshow an ask price of 101:12 and a bid price of 101:07.A. As a buyer of the bond what is the dollar price you expect to pay?B. As a seller of the bond what is the dollar price you expect to receive?A. You would pay the ask price of the dealer, 10112/32 or 101.375% of$10,000, or $10,137.50.B. You would receive the bid price of the dealer, 1017/32 or 101.21875% of$10,000, or $10,121.875.2.An investor is considering the purchase of either a municipal or acorporate bond that pay before tax rates of return of 6.92% and9.67%, respectively. If the investor is in the 25% marginal taxbracket, his or her after tax rates of return on the municipal and corporate bonds would be_________ and _________,respectively.Corporate bonds are taxable, therefore the after tax return would ber c=0.0967(1-0.25) =0.0725 or 7.25%. Since municipal bonds are free of federal tax the after tax return is equal to the before tax rate of return r m=0.0692(1-0) =6.92%.3. A 6.25% 25-year municipal bond is currently priced to yield8.7%. For a taxpayer in the 25% marginal tax bracket, this bondwould offer an equivalent taxable yield of __________.The equivalent taxable yield is the yield divided by the quantity one minus the tax rate or r m/ (1-t). Therefore, 0.087/0.75=11.6%.4.If three stocks comprise an index and the returns on the threestocks during a given period were 17%, -13%, and 6%, whatwould be the geometric return of the index?To compute a geometric average, add one to each of the returns and multiply each of the terms to find the geometric sum. To find the geometric average, the geometric sum is raised to 1/n and then one is subtracted. Therefore, the geometric mean is [(1.17) (0.87) (1.06)]1/3-1=2.566%.5.In order for you to be indifferent between the after tax returns ona corporate bond paying 8.15% and a tax-exempt municipalbond paying 6.32%, what would you tax bracket need to be? For you to be indifferent, the after tax returns would need to be equal. Since only the corporate bond is taxed, r c(1-t)= r m. Therefore,0.0632=0.0815(1-t), (1-t) =0.77546, and t=0.2245 or 22.45%.6. A $1,000 face value bond pays annual coupon payments of $65and is currently priced at $967. The current yield of the bond is __________.The current yield is annual interest divided by the current price ($65/$967) = 6.72%.pare the after tax return to a corporation that buys a share ofpreferred stock at the beginning of the year for $65, receives a dividend of $4.50 during the year, and sells the stock at the end of the year for $65. The corporation is in the 30% tax bracket.Answer the questions below based on the information given in the following table.Stock Price Number of shares outstandingStock A $35 2,000Stock B $82 4,500Stock C $21 1,600The total before tax income is the $4.50 dividend. Since the firm can exclude 70% of the dividend from tax, the firm must pay tax on 30% of the dividend, or ($4.50×0.30) =$1.35. Since the firm is in the 30% tax bracket the taxliability is $1.35×0.30=0.405. Therefore, the firm nets (after tax)$4.50-0.41=4.09. Since the firm experienced no capital gain (or loss), the after tax return is $4.09/$65 = 0.06292 or 6.29%.8.The price-weighted index constructed with the three stocks is__________.A price weighted index is constructed by adding the prices of the securities and dividing by the number of securities in the index ($35 + $82 + $21)/3 = $46.9.The value-weighted index constructed with the three stocksusing a divisor of 1,000 is __________.A value-weighted index is computed by first computing the market value of each stock (price time the number of shares outstanding). Once each market value is computed, add the market values together and divide by the divisor. In this case it is [($35×2,000) + ($82×4,500) +($21×1,600)]/1,000 = 472.60.10.Assume that the return on stocks A, B, and C (above) during theyear were 18%, -6%, and 30%, respectively.A.The return of the price-weighted index would be__________.B.The return of the value-weighted index would be__________.C.The arithmetic return of the equally weighted index wouldbe__________.A. To compute the return of the price-weighted index you need to find the new prices of the stocks and then compute the average as follows:Stock A = [$35×(1.18)] = $41.30Stock A = [$82×(0.94)] = $77.08Stock A = [$21×(1.30)] = $27.30Average = (41.30 + 77.08 +27.30)/3 = $48.56.The change in the index value (return) is (48.56 - 46)/46 = 5.565%.B. To compute the return of the value-weighted index you need to use the new prices to find the new value of the index. The return will be the change in the value of the index. In this case the new value is [($41.30×2,000) + ($77.08×4,500) + ($27.30×1,600)]/1,000 = 473.14. The old value is [($35×2,000) + ($82×4,500) + ($21×1,600)]/1,000 = 472.60. Therefore, the return is (473.14 – 472.60)/472.60 = 0.11%.C. The return of an equally weighted index is the sum of the return of eachsecurity in the index divided by the number of securities or [18% + (-6%) + 30%]/3 = 14%.Chapter 3 Security Markets1.Assume you purchased 400 shares of IBM common stock onmargin at $85 per share from your broker. If the initial margin is 60%, how much did you borrow from the broker?If you bought 400 shares@ $85/share, the cost is 400*$85=$34,000. Of this you invested $34,000*0.6=20,400 and borrowed$34,000*(1-0.6)=$13,600.2.You sold short 350 shares of common stock at $42 per share. Theinitial margin is 60%. Your initial investment was___________.If you sold short 350 share@ $42/share the proceeds are350*$42=$14,700. With a margin of 60% you must invest$14,700*0.6=$8,820.3.You purchased 1,000 shares of Cisco common stock on margin at$18 per share. Assume the initial margin is 50% and themaintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin.If you purchased 1,000 shares@ $18/share the cost is$18*1,000=$18,000. Of this you must invest 50% and can borrow 50%.Therefore, the loan amount is $18,000*0.5=$9,000. Margin=[1,000P-$9,000]/1,000P.Therefore, 0.30 = (1,00P-$9,000)/1,000P; 300P=1,000P-$9,000;-700P=-$9,000; P=$12.864.You purchased 600 shares of common stock on margin at $27 pershare. Assume the initial margin is 50% and the stock pays nodividend. What would the maintenance margin be if a margin call is made at a stock price of $22? Ignore interest on margin.If you purchased 600 shares@ $27/share the cost is $27*600=$16,200.Therefore, you invest 50% and borrowed the other 50% of the amount.The loan amount is 16,200*0.5=%8,100.Margin = [600*$22-$8,100]/ 600*$22; Margin = 0.386 or 38.6%.5.You purchased 200 shares of common stock on margin at $35 pershare. Assume the initial margin is 50% and the stock pays no dividend. What would your rate of return be if you sell the stock at price of $45.50 per share? Ignore interest on margin.The initial investment is 200*$35*0.50=$3,500. The change in value of the stock is ($45.50-$35)*200 = $2,100. Therefore, the return =$2,000/$3,500 = 60%.6.Assume you sell short 100 shares of common stock at $30 pershare, with initial margin at 50% and the stock pays no dividend.What would your rate of return if you repurchase the stock at $37/share? The stock paid no dividends during the period, and you did not remove any money from the account before making the offsetting transaction.The profit on the stock is = ($30-$37)*100 = -$700. The initialinvestment is $100*0.30*0.5=1,500. Therefore, the return is-$700/$1,500 = -46.67%.7.You sold short 200 shares of common stock at $30 per share. Theinitial margin at 50%. At what stock price would you receive a margin call if the maintenance margin is 35%.The amount in your account is 200*$50*1.5 = $15,000 and you owe 200 shares of stock. Therefore your net equity is $15,000-200P.Margin = net equity/amount you owe or 0.35 = ($15,000 -200P)/200P.Rearranging, $70 = $15,000 – 200P; 270P=$15,000; P = $55.55.8.Assume you sold short 100 shares of common stock at $25 pershare. The initial margin at 50%. What would be themaintenance margin if a margin call is made at a stock price of $30?The amount your account is $25*100*1.5 = $3,750 and you owe 100 shares of stock. Therefore your net equity is $3,750-100P.Margin = net equity/amount you owe or 0.35 = ($3,750-100*$30)/100*$30=25%..Rearranging, $70 = $15,000 – 200P; 270P=$15,000; P = $55.55.9.You want to purchase AMAT stock at $42 from your broker usingas little of your own money as possible. If initial margin is 50% and you have $2,700 to invest, how many shares can you buy?The margin is 50% or = 0.5 = ($42Q - $2,700)/$42Q. Therefore, $21Q = $42Q - $2,700.Rearranging, -$21Q = -$2,700; Q = 128.54. Since you can only buy whole shares, you can buy 128 shares. Alternatively, you can buy[$2,700*2]/$42 = 128. 57 shares.10.You buy 150 shares of Citicorp for $25 per share and depositinitial margin of 50%. The next day Citicorp's price drop to $20 per share. What is your actual margin?The actual margin (AT) is AM = [150*$20-0.5*150*25]/[150*$20] =0.375 or 37.5%.Chapter 4 Mutual Funds and Other Investment Companies1. A mutual fund had NAV per share of $14.25 on January 1, 2003.On December 31 of the same year the fund's NAV was $14.87.Income distributions were $0.59 and the fund had capital gain distributions of $1.36. Without considering taxes andtransactions costs, what rate of return did an investor receive on the fund last year?The return is calculated by finding the change in value of the investment divided by the price. The change in value is the capital gain (whether realized or not) plus the sum of all distributions. Therefore,Return= ($14.87 -14.25 + 0.59 + 1.36)/ $14.25 = 18.04%.2. A mutual fund had NAV per share of $16.25 on January 1, 2003.On December 31 of the same year the fund's rate of return was14.2%. Income distributions were $1.02 and the fund had capitalgain distributions of $0.63. Without considering taxes andtransactions costs, what ending NAV would you calculate?The return is equals the capital gain plus the all distributions divided by the investment. Therefore, 0.142 = (P - $16.25 + 1.02 + 0.63)/$16.25;P = $16.9075.3. A mutual fund had year-end assets of $316,000,000 andliabilities of $42,000,000. If the fund's NVA was $28.64, how many shares must have been held in the fund?The number of shares equals the assets minus the liabilities divided by the NAV. Therefore, ($316,000,000 - $42,000,000)/$28.64 =9,567,039.106 shares.4. A mutual fund had year-end assets of $750,000,000 andliabilities of $8,000,000. There were 40,750,000 shares in the fund at year end. What was the mutual fund's Net Asset Value?NAV equals assets minus liabilities divided by the number of shares.Therefore, ($750,000,000 – 8,000,000)/40,750,000 = $18.21.5. A mutual fund had average daily assets of $1.8 billion on 2003.The fund sold $625 million worth of stock and purchased $900 million worth of stock during the year. The fund's turnover ratio is ___________.Turnover is the value of securities sold divided by the average assets of the fund. Therefore, 625,000,000/1,800,000,000 = 34.7%.6.You purchased shares of a mutual fund at a price of $18 per shareat the beginning of the year and paid a front-end load of 5.75%.If the securities in which the fund invested increased in value by 12% during the year, and the fund's expense ratio was 0.75%, your return of you sold the fund at the end of the year would be _______.Since the fund has a front-end load, only (1-load) (or 0.9425) times NAV(18) is actually invested and growing. The money invested will grow at12% minus the 0.75% fees (or 11.25%). Therefore, [($18)(0.9425)(1.12-0.075) - $18]/$18 = 4.85% return.7.Apex fund has a NAV of 16.12 and a front load of 5.62%. What isthe offer price?The offer price equals NAV divided by one minus load. Therefore, $16.12 / (1 – 0.0562) = $17.08.8.Exponential growth fund has an offer price of 14.77 and a load of6%. What is the NAV?The offer price times on minus load equals NAV. Therefore, NAV equals $14.77 (0.94) = $13.889. A fund owns only three stocks with prices and quantities shownbelow. The fund has 50,000 shares outstanding. If the fund has $47,000 in liabilities, its NAV is________.Stock Price Number of shares outstandingStock A $35 2,000Stock B $82 4,500Stock C $21 1,600The value of assets is [($35?2,000) + ($82?4,500) + ($21?1.600)] = $472,600. Since NAV is asset minus liabilities divided by the number of shares outstanding, NAV = ($472,600 - $47,000)/50,000 = $8.5110.You have decided to invest $10,000 in the Pinnacle fund. Overthe long haul, the Pinnacle fund is expected to earn a return of10.25% on the portfolio (gross of fees). However, Pinnacle fundoffers several classes of funds. Therefore, you can choose to paya front load of 5% and escape 12-b1 fees or you can avoid theload fee by paying 12-b1 fees of 0.75%. If you investmenthorizon is 16 years, which should you choose?Since both strategies have a claim on the same portfolio of securities, you need to compute you expected terminal wealth under each strategy.The terminal wealth in the no-load fund would be the initial investment ($10,000) times one plus the net rate of return (return minus 12-b1 fee) or 1.095 raised to the N number of years (16). Therefore, 10,00(1.095)16 = $42,719.48.The terminal wealth in the front-end load fund would be the initialinvestment in the portfolio ($10,000) (1-load) times on plus the rate of return or 1.1025 raised to the N number of years (16). Therefore,9,500(1.1025)16= $45,266.94.In this case, you would be better off with the load-end fund.———大猫。
博迪投资学第八版Chap001
Chapter 1Elements of Investments1.Equity is a lower priority claim and represents an ownership share in a corporation,whereas debt has a higher priority claim, but does not have an ownership interest. Debt also pays a specified cash flow over a specific period and the claim will eventuallyexpire. Equity has an indefinite life.2. A derivative asset provides a payoff that depends on the values of a primary asset. Theprimary asset has a claim on the real assets of a firm, whereas a derivative asset does not.3.Asset allocation is the allocation of an investment portfolio across broad asset classes.Security selection is the choice of specific securities within each asset class.4.Agency problems are conflicts of interest between managers and stockholders. They areaddressed through the corporate governance process via audits, compensation structures and board elections.5.Real assets are assets used to produce goods and services. Financial assets are claims onreal assets or the income generated by them.6.Investment bankers are firms specializing in the sale of new securities to the public,typically by underwriting the issue. Commercial banking processes the financialtransactions of businesses such as checks, wire transfers and savings accountmanagement.7.a.The factory is a real asset that is created. The loan is a financial asset that iscreated by the transaction.b.When the loan is repaid, the financial asset is destroyed but the real assetcontinues to exist.c.The cash is a financial asset that is traded in exchange for a real asset, inventory. 8.a.No. The real estate in existence has not changed, merely the perception of itsvalue.b.Yes. The financial asset value of the claims on the real estate has changed, thusthe balance sheet of individual investors has been reduced.c.The difference between these two answers reflects the difference between realand financial asset values. Real assets still exist, yet the value of the claims onthose assets or the cash flows they generate do change. Thus, the difference. 9.a.The bank loan is a financial liability for Lanni. Lanni's IOU is the bank'sfinancial asset. The cash Lanni receives is a financial asset. The new financialasset created is Lanni's promissory note held by the bank.b.The cash paid by Lanni is the transfer of a financial asset to the softwaredeveloper. In return, Lanni gets a real asset, the completed software. Nofinancial assets are created or destroyed. Cash is simply transferred from onefirm to another.nni sells the software, which is a real asset, to Microsoft. In exchange Lannireceives a financial asset, 1,500 shares of Microsoft stock. If Microsoft issuesnew shares in order to pay Lanni, this would constitute the creation of newfinancial asset.d.In selling 1,500 shares of stock for $120,000, Lanni is exchanging one financialasset for another. In paying off the IOU with $50,000 Lanni is exchangingfinancial assets. The loan is "destroyed" in the transaction, since it is retiredwhen paid.10.b.Software product*$70,000 Bank loan $50,000Computers 30,000Shareholders’ equity 50,000Total $100,000Total $100,000 *Valued at costRatio of real to total assets = $100,000/$100,000 = 1.0Assets Liabilities &Shareholders’ equityc. Microsoft shares$125,000 Bank loan $50,000 Computers30,000Shareholders’ equity 105,000Total $155,000 Total $155,000Ratio of real to total assets = $30,000/$155,000 = 0.2Conclusion: when the firm starts up and raises working capital, it will be characterized by a low ratio of real to total assets. When it is in full production, it will have a high ratio of real assets. When the project "shuts down" and the firm sells it AssetsLiabilities & Shareholders’ equity11. Ultimately, real assets determine the material well being of an economy. Individualscan benefit when financial engineering creates new products which allow them tomanage portfolios of financial assets more efficiently. Since bundling and unbundling creates financial products creates new securities with varying sensitivities to risk, it allows investors to hedge particular sources of risk more efficiently.12. For commercial banks, the ratio is: $121.2/$11,426.2 = 0.0106For non-financial firms, the ratio is: $14,773/$28,507 = 0.5182The difference should be expected since the business of financial institutions is to make loans that are financial assets.13. National wealth is a measurement of the real assets used to produce the GDP in theeconomy. Financial assets are claims on those assets held by individuals. Thesefinancial assets are important since they drive the efficient use of real assets and help us allocate resources, specifically in terms of risk return trade-offs.14.a. A fixed salary means compensation is (at least in the short run) independent ofthe firm's success. This salary structure does not tie the manager’s immediatecompensation to the success of the firm. The manager might, however, viewthis as the safest compensation structure with the most value.b. A salary paid in the form of stock in the firm means the manager earns the mostwhen shareholder wealth is maximized. When the stock must be held for fiveyears, the manager has less of an incentive to manipulate the stock price. Thisstructure is most likely to align the interests of managers with the interests ofthe shareholders. If stock compensation is used too much, the manager mightview it as overly risky since the manager’s career is already linked to the firm.This undiversified exposure would be exacerbated with a large stock position inthe firm.c.When executive salaries are linked to firm profits, the firm creates incentives formanagers to contribute to the firm’s su ccess. The success of the firm is linkedto the compensation of the manager. This may lead to earnings manipulation,but that is what audits and external analysts will look out for.15.I f an individual shareholder could monitor and improve managers’ perform ance, andthereby increase the value of the firm, the payoff would be small, since the ownership share in a large corporation would be very small. For example, if you own $10,000 of IBM stock and can increase the value of the firm by 5%, a very ambitious goal, you benefit by only: 0.05 x $10,000 = $500.In contrast, a bank that has a multimillion-dollar loan outstanding to the firm has a big stake in making sure the firm can repay the loan. It is clearly worthwhile for the bank to spend considerable resources to monitor the firm.16.Since the trader benefited from profits but did not get penalized by losses, they wereencouraged to take extraordinary risks. Since traders sell to other traders, there also existed a moral hazard since other traders might facilitate the misdeed. In the end, this represents an agency problem.17.Securitization requires access to a large number of potential investors. To attract theseinvestors, the capital market needs:(1) a safe system of business laws and low probability of confiscatorytaxation/regulation;(2) a well-developed investment banking industry;(3) a well-developed system of brokerage and financial transactions, and;(4)well-developed media, particularly financial reporting.These characteristics are found in (indeed make for) a well-developed financial market.18.Securitization leads to disintermediation; that is, securitization provides a means formarket participants to bypass intermediaries. For example, mortgage-backed securities channel funds to the housing market without requiring that banks or thrift institutions make loans from their own portfolios. As securitization progresses, financialintermediaries must increase other activities such as providing short-term liquidity to consumers and small business, and financial services.19.Mutual funds accept funds from small investors and invest, on behalf of these investors,in the national and international securities markets.Pension funds accept funds and then invest, on behalf of current and future retirees, thereby channeling funds from one sector of the economy to another.Venture capital firms pool the funds of private investors and invest in start-up firms.Banks accept deposits from customers and loan those funds to businesses, or use the funds to buy securities of large corporations.20.Even if the firm does not need to issue stock in any particular year, the stock market isstill important to the financial manager. The stock price provides importantinformation about how the market values the firm's investment projects. For example, if the stock price rises considerably, managers might conclude that the market believes the firm's future prospects are bright. This might be a useful signal to the firm toproceed with an investment such as an expansion of the firm's business.In addition, the fact that shares can be traded in the secondary market makes the shares more attractive to investors since investors know that, when they wish to, they will be able to sell their shares. This in turn makes investors more willing to buy shares in a primary offering, and thus improves the terms on which firms can raise money in the equity market.21.Treasury bills serve a purpose for investors who prefer a low-risk investment. Thelower average rate of return compared to stocks is the price investors pay forpredictability of investment performance and portfolio value.22.You should be skeptical. If the author actually knows how to achieve such returns, onemust question why the author would then be so ready to sell the secret to others.Financial markets are very competitive; one of the implications of this fact is that riches do not come easily. High expected returns require bearing some risk, and obviousbargains are few and far between. Odds are that the only one getting rich from the book is its author.。
投资学第八版英文答案CHAPTE...
投资学第八版英文答案CHAPTE...CHAPTER 2: ASSET CLASSES AND FINANCIAL INSTRUMENTS PROBLEM SETS1. Preferred stock is like long-term debt in that it typically promisesa fixed payment each year. In this way, it is a perpetuity. Preferred stock is also like long-term debt in that it does not give the holder voting rights in the firm.Preferred stock is like equity in that the firm is under no contractual obligation to make the preferred stock dividend payments. Failure to make payments does not set off corporate bankruptcy. With respect to thepriority of claims to the assets of the firm in the event of corporate bankruptcy, preferred stock has a higher priority than common equity but a lower priority than bonds.2. Money market securities are called “cash equivalents” because of their great liquidity. The prices of money market securities are very stable, and they can be converted to cash (i.e., sold) on very short notice and with very low transaction costs.3. The spread will widen. Deterioration of the economy increases credit risk, that is, the likelihood of default. Investors will demand a greater premium on debt securities subject to default risk.4. On the day we tried this experiment, 36 of the 50 stocks met this criterion, leading us to conclude that returns on stock investments can be quite volatile.5. a. You would have to pay the asked price of:118:31 = 118.96875% of par = $1,189.6875b. The coupon rate is 11.750% implying coupon payments of$117.50 annually or, more precisely, $58.75 semiannually.Current yield = Annual coupon income/price= $117.50/$1,189.6875 = 0.0988 = 9.88%6. P = $10,000/1.02 = $9,803.927. The total before-tax income is $4. After the 70% exclusion for preferred stock dividends, the taxable income is: 0.30 $4 = $1.20 Therefore, taxes are: 0.30 $1.20 = $0.36After-tax income is: $4.00 – $0.36 = $3.64Rate of return is: $3.64/$40.00 = 9.10%8. a. General Dynamics closed today at $74.59, which was $0.17 higher than yesterday’s price.Yesterday’s closing price was: $74.42b. You could buy: $5,000/$74.59 = 67.03 sharesc. Your annual dividend income would be: 67.03 ? $0.92 = $61.67d. The price-to-earnings ratio is 16 and the price is $74.59. Therefore: $74.59/Earnings per share = 16 ? Earnings per share = $4.669. a. At t = 0, the value of the index is: (90 + 50 + 100)/3 = 80At t = 1, the value of the index is: (95 + 45 + 110)/3 = 83.333 The rate of return is: (83.333/80) - 1 = 4.17%In the absence of a split, Stock C would sell for 110, so the value of the index would be: 250/3 = 83.333After the split, Stock C sells for 55. Therefore, we need to find the divisor (d) such that:83.333 = (95 + 45 + 55)/d ? d = 2.340c. The return is zero. The index remains unchanged because the returnfor each stock separately equals zero.10. a. Total market value at t = 0 is: ($9,000 + $10,000 + $20,000) = $39,000Total market value at t = 1 is: ($9,500 + $9,000 + $22,000) = $40,500 Rate of return = ($40,500/$39,000) – 1 = 3.85% The return on each stock is as follows:r A = (95/90) – 1 = 0.0556r B = (45/50) – 1 = –0.10r C = (110/100) – 1 = 0.10The equally-weighted average is:[0.0556 + (-0.10) + 0.10]/3 = 0.0185 = 1.85%11. The after-tax yield on the corporate bonds is: 0.09 ? (1 –0.30) =0.0630 = 6.30%Therefore, municipals must offer at least 6.30% yields.12. Equation (2.2) shows that the equivalent taxable yield is: r = r m/(1– t)a. 4.00%b. 4.44%c. 5.00%d. 5.71%13. a. The higher coupon bond.b. The call with the lower exercise price.c. The put on the lower priced stock.14. a. You bought the contract when the futures price was 1427.50 (see Figure 2.12). The contract closes at a price of 1300, which is 127.50 less than the original futures price. The contract multiplier is $250. Therefore, the loss will be:127.50 ? $250 = $31,875b. Open interest is 601,655 contracts.15. a. Since the stock price exceeds the exercise price, you will exercise the call.The payoff on the option will be: $42 - $40 = $2The option originally cost $2.14, so the profit is: $2.00 - $2.14 = -$0.14 Rate of return = -$0.14/$2.14 = -0.0654 = -6.54%b. If the call has an exercise price of $42.50, you would not exercise for any stock price of $42.50 or less. The loss on the call would be the initial cost: $0.72c. Since the stock price is less than the exercise price, you will exercise the put.The payoff on the option will be: $42.50 $42.00 = $0.50The option originally cost $1.83 so the profit is: $0.50 ? $1.83 = ?$1.33 Rate of return = ?$1.33/$1.83 = ?0.7268 = ?72.68%16. There is always a possibility that the option will be in-the-money at some time prior to expiration. Investors will pay something for this possibility of a positive payoff.17.Value of call at expiration InitialCostProfita0 4 -4 b.0 4 -4c.0 4 -4 d.5 4 1e.10 4 6Value of put at expiration InitialCostProfita10 6 4 b.5 6 -1c.0 6 -6 d.0 6 -6e.0 6 -618. A put option conveys the right to sell the underlying asset at the exercise price. A short position in a futures contract carries an obligation to sell the underlying asset at the futures price.19. A call option conveys the right to buy the underlying asset at the exercise price. A long position in a futures contract carries an obligation to buy the underlying asset at the futures price.CFA PROBLEMS(d)2. The equivalent taxable yield is: 6.75%/(1 - 0.34) = 10.23%3. (a) Writing a call entails unlimited potential losses as the stock price rises.4. a. The taxable bond. With a zero tax bracket, the after-tax yield for the taxable bond is the same as the before-tax yield (5%), which is greater than the yield on the municipal bond.The taxable bond. The after-tax yield for the taxable bond is:0.05 ? (1 – 0.10) = 4.5%You are indifferent. The after-tax yield for the taxable bond is:0.05 ? (1 – 0.20) = 4.0%The after-tax yield is the same as that of the municipal bond.d. The municipal bond offers the higher after-tax yield for investors in tax brackets above 20%.If the after-tax yields are equal, then: 0.056 = 0.08 (1 – t)This implies that t = 0.30 =30%.。
投资学课后题及答案
Chapter 1 The Investment Environment 1.What is a real asset?Real assets are used to produce goods and services. Real assets consist of land, labor, and buildings. These generate income to the economy and determine both the material wealth and productive capacity of the economy. Additionally, real assets appear on only one side of the balance sheet.2.What is a financial asset?Financial assets are claims on real assets and income from them. Financial assets consist of stocks and bonds. These contribute indirectly to the productive capacity of the economy. Additionally, financial assets appear on both sides of the balance sheet.3.What is consumption timing and why is it important? Consumption timing allows flexibility between earnings and spending. Therefore, when we are younger and we can consume more than we earn by borrowing money to by homes and automobiles. As we age, we can invest to so that we can retire someday and live off of our prior earnings. Financial assets4.What is allocation of risk and why is it important?Allocation of risk is creating assets with various degrees of risk. This enables firms to raise capital and also gives investors a choice of assets with various risk levels from which to choose5.What is separation of ownership and why is it important?The separation of ownership and management is important. Unlike a sole proprietorship where the owners are the managers, owners of corporations are stockholders. Stockholders elect the broad of directors that hires the management team. The objective that all owners can agree to is for management to maximize the value of the firm (share price).6.What are the three sectors of the economy and what is theirprimary need?A. Firms are typically net borrowers as they seek to expand the firm and require resources to take on valuable projects.B. Households are typically net savers as they seek to use consumption timing to plan for longer-term financial requirements such as educating their children and investing for retirement. As such, they are interested in risk and after tax returns of investments.C. Governments are typically net borrowers but their needs depend on the current relationship between tax receipts and expenditures7.List and explain four important functions that financialintermediates perform.Financial intermediaries connect borrowers and lenders. Financial intermediaries are able to sell their own securities and invest in the liabilities of other firms. As such they can:A. pool resources to spread management costs over an larger base which reduces costs to an individual investor.B. diversify investments by being able to invest in more securities.C. develop expertise through the increased volume of business that they do.D. achieve economies of scale by being spread research costs over the pool.]8.What is securitization and why is it important?Securitization allows borrowers to enter capital markets directly. Loans are arranged into pass-through securities (such as mortgage pool) and investors can invest in securities backed by those pools9.List and briefly explain five ways an investor can globallydiversityA primary market transaction is where securities are initially issued. Thus, the issuing firm receives the money and delivers the securities. The secondary market is where existing securities are traded. Thus, the firm that originally issued the securities receives no proceeds from the transaction. The individual selling the securities receives the money and delivers the securities while the individual buying the securities delivers the money 10.The four types of markets where trading takes place are listedbelow.A. Direct search markets. In direct search markets buyers and sellers must find each other. These markets are characterized by sporadic trading and low-priced non-standard goods such as refrigerator or sofas.B. Brokered markets. In markets that have active trading, brokers find it profitable to offer search services to buyers and seller. One example of this is real estate.C. Dealer market. In dealer markets, the dealers specialize by buying and selling for their own account. Dealers profit from the difference between their buying price and selling price (bid-ask spread). The OTC market is a dealer market.D. Auction market. In an auction market, such as the NYSE, all tradersconverge in one place to buy or sell an asset. Auction markets require heavy trading to make them efficient.11.The five ways for investors to globally diversify portfolio arelisted and discussed below.A.Investors can purchase American Depository Receipts (ADR=s) whichare a certificate that is denominated in dollars and represents a claim ona bundle of stock.B.Investors can purchase directly purchase foreign securities offered forsale in dollars.C.Investors can purchase international mutual funds that invest ininternational securities.D.Investors can purchase derivatives on foreign securities.E.Investors can purchase World Equity Benchmark Shares (WEBS) whichuse the same structure as an ADR but allow an investor to tradeportfolios of foreign stocks in a selected country.Chapter 2 Financial Instruments1.The price quotations of Treasury bonds in the Wall Street Journalshow an ask price of 101:12 and a bid price of 101:07.A. As a buyer of the bond what is the dollar price you expect to pay?B. As a seller of the bond what is the dollar price you expect to receive?A. You would pay the ask price of the dealer, 10112/32 or 101.375% of$10,000, or $10,137.50.B. You would receive the bid price of the dealer, 1017/32 or 101.21875% of$10,000, or $10,121.875.2.An investor is considering the purchase of either a municipal or acorporate bond that pay before tax rates of return of 6.92% and9.67%, respectively. If the investor is in the 25% marginal taxbracket, his or her after tax rates of return on the municipal and corporate bonds would be_________ and _________,respectively.Corporate bonds are taxable, therefore the after tax return would ber c=0.0967(1-0.25) =0.0725 or 7.25%. Since municipal bonds are free of federal tax the after tax return is equal to the before tax rate of return r m=0.0692(1-0) =6.92%.3. A 6.25% 25-year municipal bond is currently priced to yield8.7%. For a taxpayer in the 25% marginal tax bracket, this bondwould offer an equivalent taxable yield of __________.The equivalent taxable yield is the yield divided by the quantity one minus the tax rate or r m/ (1-t). Therefore, 0.087/0.75=11.6%.4.If three stocks comprise an index and the returns on the threestocks during a given period were 17%, -13%, and 6%, whatwould be the geometric return of the index?To compute a geometric average, add one to each of the returns and multiply each of the terms to find the geometric sum. To find the geometric average, the geometric sum is raised to 1/n and then one is subtracted. Therefore, the geometric mean is [(1.17) (0.87) (1.06)]1/3-1=2.566%.5.In order for you to be indifferent between the after tax returns ona corporate bond paying 8.15% and a tax-exempt municipalbond paying 6.32%, what would you tax bracket need to be? For you to be indifferent, the after tax returns would need to be equal. Since only the corporate bond is taxed, r c(1-t)= r m. Therefore,0.0632=0.0815(1-t), (1-t) =0.77546, and t=0.2245 or 22.45%.6. A $1,000 face value bond pays annual coupon payments of $65and is currently priced at $967. The current yield of the bond is __________.The current yield is annual interest divided by the current price ($65/$967) = 6.72%.pare the after tax return to a corporation that buys a share ofpreferred stock at the beginning of the year for $65, receives a dividend of $4.50 during the year, and sells the stock at the end of the year for $65. The corporation is in the 30% tax bracket.Answer the questions below based on the information given in the following table.Stock Price Number of shares outstandingStock A $35 2,000Stock B $82 4,500Stock C $21 1,600The total before tax income is the $4.50 dividend. Since the firm can exclude 70% of the dividend from tax, the firm must pay tax on 30% of the dividend, or ($4.50×0.30) =$1.35. Since the firm is in the 30% tax bracket the taxliability is $1.35×0.30=0.405. Therefore, the firm nets (after tax)$4.50-0.41=4.09. Since the firm experienced no capital gain (or loss), the after tax return is $4.09/$65 = 0.06292 or 6.29%.8.The price-weighted index constructed with the three stocks is__________.A price weighted index is constructed by adding the prices of the securities and dividing by the number of securities in the index ($35 + $82 + $21)/3 = $46.9.The value-weighted index constructed with the three stocksusing a divisor of 1,000 is __________.A value-weighted index is computed by first computing the market value of each stock (price time the number of shares outstanding). Once each market value is computed, add the market values together and divide by the divisor. In this case it is [($35×2,000) + ($82×4,500) +($21×1,600)]/1,000 = 472.60.10.Assume that the return on stocks A, B, and C (above) during theyear were 18%, -6%, and 30%, respectively.A.The return of the price-weighted index would be__________.B.The return of the value-weighted index would be__________.C.The arithmetic return of the equally weighted index wouldbe__________.A. To compute the return of the price-weighted index you need to find the new prices of the stocks and then compute the average as follows:Stock A = [$35×(1.18)] = $41.30Stock A = [$82×(0.94)] = $77.08Stock A = [$21×(1.30)] = $27.30Average = (41.30 + 77.08 +27.30)/3 = $48.56.The change in the index value (return) is (48.56 - 46)/46 = 5.565%.B. To compute the return of the value-weighted index you need to use the new prices to find the new value of the index. The return will be the change in the value of the index. In this case the new value is [($41.30×2,000) + ($77.08×4,500) + ($27.30×1,600)]/1,000 = 473.14. The old value is [($35×2,000) + ($82×4,500) + ($21×1,600)]/1,000 = 472.60. Therefore, the return is (473.14 – 472.60)/472.60 = 0.11%.C. The return of an equally weighted index is the sum of the return of eachsecurity in the index divided by the number of securities or [18% + (-6%) + 30%]/3 = 14%.Chapter 3 Security Markets1.Assume you purchased 400 shares of IBM common stock onmargin at $85 per share from your broker. If the initial margin is 60%, how much did you borrow from the broker?If you bought 400 shares@ $85/share, the cost is 400*$85=$34,000. Of this you invested $34,000*0.6=20,400 and borrowed$34,000*(1-0.6)=$13,600.2.You sold short 350 shares of common stock at $42 per share. Theinitial margin is 60%. Your initial investment was___________.If you sold short 350 share@ $42/share the proceeds are350*$42=$14,700. With a margin of 60% you must invest$14,700*0.6=$8,820.3.You purchased 1,000 shares of Cisco common stock on margin at$18 per share. Assume the initial margin is 50% and themaintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin.If you purchased 1,000 shares@ $18/share the cost is$18*1,000=$18,000. Of this you must invest 50% and can borrow 50%.Therefore, the loan amount is $18,000*0.5=$9,000. Margin=[1,000P-$9,000]/1,000P.Therefore, 0.30 = (1,00P-$9,000)/1,000P; 300P=1,000P-$9,000;-700P=-$9,000; P=$12.864.You purchased 600 shares of common stock on margin at $27 pershare. Assume the initial margin is 50% and the stock pays nodividend. What would the maintenance margin be if a margin call is made at a stock price of $22? Ignore interest on margin.If you purchased 600 shares@ $27/share the cost is $27*600=$16,200.Therefore, you invest 50% and borrowed the other 50% of the amount.The loan amount is 16,200*0.5=%8,100.Margin = [600*$22-$8,100]/ 600*$22; Margin = 0.386 or 38.6%.5.You purchased 200 shares of common stock on margin at $35 pershare. Assume the initial margin is 50% and the stock pays no dividend. What would your rate of return be if you sell the stock at price of $45.50 per share? Ignore interest on margin.The initial investment is 200*$35*0.50=$3,500. The change in value of the stock is ($45.50-$35)*200 = $2,100. Therefore, the return =$2,000/$3,500 = 60%.6.Assume you sell short 100 shares of common stock at $30 pershare, with initial margin at 50% and the stock pays no dividend.What would your rate of return if you repurchase the stock at $37/share? The stock paid no dividends during the period, and you did not remove any money from the account before making the offsetting transaction.The profit on the stock is = ($30-$37)*100 = -$700. The initialinvestment is $100*0.30*0.5=1,500. Therefore, the return is-$700/$1,500 = -46.67%.7.You sold short 200 shares of common stock at $30 per share. Theinitial margin at 50%. At what stock price would you receive a margin call if the maintenance margin is 35%.The amount in your account is 200*$50*1.5 = $15,000 and you owe 200 shares of stock. Therefore your net equity is $15,000-200P.Margin = net equity/amount you owe or 0.35 = ($15,000 -200P)/200P.Rearranging, $70 = $15,000 – 200P; 270P=$15,000; P = $55.55.8.Assume you sold short 100 shares of common stock at $25 pershare. The initial margin at 50%. What would be themaintenance margin if a margin call is made at a stock price of $30?The amount your account is $25*100*1.5 = $3,750 and you owe 100 shares of stock. Therefore your net equity is $3,750-100P.Margin = net equity/amount you owe or 0.35 = ($3,750-100*$30)/100*$30=25%..Rearranging, $70 = $15,000 – 200P; 270P=$15,000; P = $55.55.9.You want to purchase AMAT stock at $42 from your broker usingas little of your own money as possible. If initial margin is 50% and you have $2,700 to invest, how many shares can you buy?The margin is 50% or = 0.5 = ($42Q - $2,700)/$42Q. Therefore, $21Q = $42Q - $2,700.Rearranging, -$21Q = -$2,700; Q = 128.54. Since you can only buy whole shares, you can buy 128 shares. Alternatively, you can buy[$2,700*2]/$42 = 128. 57 shares.10.You buy 150 shares of Citicorp for $25 per share and depositinitial margin of 50%. The next day Citicorp's price drop to $20 per share. What is your actual margin?The actual margin (AT) is AM = [150*$20-0.5*150*25]/[150*$20] =0.375 or 37.5%.Chapter 4 Mutual Funds and Other Investment Companies1. A mutual fund had NAV per share of $14.25 on January 1, 2003.On December 31 of the same year the fund's NAV was $14.87.Income distributions were $0.59 and the fund had capital gain distributions of $1.36. Without considering taxes andtransactions costs, what rate of return did an investor receive on the fund last year?The return is calculated by finding the change in value of the investment divided by the price. The change in value is the capital gain (whether realized or not) plus the sum of all distributions. Therefore,Return= ($14.87 -14.25 + 0.59 + 1.36)/ $14.25 = 18.04%.2. A mutual fund had NAV per share of $16.25 on January 1, 2003.On December 31 of the same year the fund's rate of return was14.2%. Income distributions were $1.02 and the fund had capitalgain distributions of $0.63. Without considering taxes andtransactions costs, what ending NAV would you calculate?The return is equals the capital gain plus the all distributions divided by the investment. Therefore, 0.142 = (P - $16.25 + 1.02 + 0.63)/$16.25;P = $16.9075.3. A mutual fund had year-end assets of $316,000,000 andliabilities of $42,000,000. If the fund's NVA was $28.64, how many shares must have been held in the fund?The number of shares equals the assets minus the liabilities divided by the NAV. Therefore, ($316,000,000 - $42,000,000)/$28.64 =9,567,039.106 shares.4. A mutual fund had year-end assets of $750,000,000 andliabilities of $8,000,000. There were 40,750,000 shares in the fund at year end. What was the mutual fund's Net Asset Value?NAV equals assets minus liabilities divided by the number of shares.Therefore, ($750,000,000 – 8,000,000)/40,750,000 = $18.21.5. A mutual fund had average daily assets of $1.8 billion on 2003.The fund sold $625 million worth of stock and purchased $900 million worth of stock during the year. The fund's turnover ratio is ___________.Turnover is the value of securities sold divided by the average assets of the fund. Therefore, 625,000,000/1,800,000,000 = 34.7%.6.You purchased shares of a mutual fund at a price of $18 per shareat the beginning of the year and paid a front-end load of 5.75%.If the securities in which the fund invested increased in value by 12% during the year, and the fund's expense ratio was 0.75%, your return of you sold the fund at the end of the year would be _______.Since the fund has a front-end load, only (1-load) (or 0.9425) times NAV(18) is actually invested and growing. The money invested will grow at12% minus the 0.75% fees (or 11.25%). Therefore, [($18)(0.9425)(1.12-0.075) - $18]/$18 = 4.85% return.7.Apex fund has a NAV of 16.12 and a front load of 5.62%. What isthe offer price?The offer price equals NAV divided by one minus load. Therefore, $16.12 / (1 – 0.0562) = $17.08.8.Exponential growth fund has an offer price of 14.77 and a load of6%. What is the NAV?The offer price times on minus load equals NAV. Therefore, NAV equals $14.77 (0.94) = $13.889. A fund owns only three stocks with prices and quantities shownbelow. The fund has 50,000 shares outstanding. If the fund has $47,000 in liabilities, its NAV is________.Stock Price Number of shares outstandingStock A $35 2,000Stock B $82 4,500Stock C $21 1,600The value of assets is [($35?2,000) + ($82?4,500) + ($21?1.600)] = $472,600. Since NAV is asset minus liabilities divided by the number of shares outstanding, NAV = ($472,600 - $47,000)/50,000 = $8.5110.You have decided to invest $10,000 in the Pinnacle fund. Overthe long haul, the Pinnacle fund is expected to earn a return of10.25% on the portfolio (gross of fees). However, Pinnacle fundoffers several classes of funds. Therefore, you can choose to paya front load of 5% and escape 12-b1 fees or you can avoid theload fee by paying 12-b1 fees of 0.75%. If you investmenthorizon is 16 years, which should you choose?Since both strategies have a claim on the same portfolio of securities, you need to compute you expected terminal wealth under each strategy.The terminal wealth in the no-load fund would be the initial investment ($10,000) times one plus the net rate of return (return minus 12-b1 fee) or 1.095 raised to the N number of years (16). Therefore, 10,00(1.095)16 = $42,719.48.The terminal wealth in the front-end load fund would be the initialinvestment in the portfolio ($10,000) (1-load) times on plus the rate of return or 1.1025 raised to the N number of years (16). Therefore,9,500(1.1025)16= $45,266.94.In this case, you would be better off with the load-end fund.———大猫。
博迪第八版投资学第十章课后习题答案
CHAPTER 10: ARBITRAGE PRICING THEORYAND MULTIFACTOR MODELS OF RISK AND RETURN PROBLEM SETS1. The revised estimate of the expected rate of return on the stock would be the oldestimate plus the sum of the products of the unexpected change in each factor times the respective sensitivity coefficient:revised estimate = 12% + [(1 ⨯ 2%) + (0.5 ⨯ 3%)] = 15.5%2. The APT factors must correlate with major sources of uncertainty, i.e., sources ofuncertainty that are of concern to many investors. Researchers should investigate factors that correlate with uncertainty in consumption and investment opportunities. GDP, the inflation rate, and interest rates are among the factors that can be expected to determine risk premiums. In particular, industrial production (IP) is a good indicator of changes in the business cycle. Thus, IP is a candidate for a factor that is highly correlated withuncertainties that have to do with investment and consumption opportunities in theeconomy.3. Any pattern of returns can be “explained” if we are free to choose an indefinitely largenumber of explanatory factors. If a theory of asset pricing is to have value, it mustexplain returns using a reasonably limited number of explanatory variables (i.e.,systematic factors).4. Equation 10.9 applies here:E(r p) = r f + βP1 [E(r1 ) - r f ] + βP2 [E(r2) – r f ]We need to find the risk premium (RP) for each of the two factors:RP1 = [E(r1) - r f ] and RP2 = [E(r2) - r f ]In order to do so, we solve the following system of two equations with two unknowns:31 = 6 + (1.5 ⨯ RP1) + (2.0 ⨯ RP2)27 = 6 + (2.2 ⨯ RP1) + [(–0.2) ⨯ RP2]The solution to this set of equations is:RP1 = 10% and RP2 = 5%Thus, the expected return-beta relationship is:E(r P) = 6% + (βP1⨯ 10%) + (βP2⨯ 5%)5. The expected return for Portfolio F equals the risk-free rate since its beta equals 0.For Portfolio A, the ratio of risk premium to beta is: (12 - 6)/1.2 = 5For Portfolio E, the ratio is lower at: (8 – 6)/0.6 = 3.33This implies that an arbitrage opportunity exists. For instance, you can create a PortfolioG with beta equal to 0.6 (the same a s E’s) by combining Portfolio A and Portfolio F inequal weights. The expected return and beta for Portfolio G are then:E(r G ) = (0.5 ⨯ 12%) + (0.5 ⨯ 6%) = 9%βG = (0.5 ⨯ 1.2) + (0.5 ⨯ 0) = 0.6Comparing Portfolio G to Portfolio E, G has the same beta and higher return. Therefore, an arbitrage opportunity exists by buying Portfolio G and selling an equal amount ofPortfolio E. The profit for this arbitrage will be:r G– r E =[9% + (0.6 ⨯ F)] - [8% + (0.6 ⨯ F)] = 1%That is, 1% of the funds (long or short) in each portfolio.6. Substituting the portfolio returns and betas in the expected return-beta relationship, weobtain two equations with two unknowns, the risk-free rate (r f ) and the factor riskpremium (RP):12 = r f + (1.2 ⨯ RP)9 = r f + (0.8 ⨯ RP)Solving these equations, we obtain:r f = 3% and RP = 7.5%7. a. Shorting an equally-weighted portfolio of the ten negative-alpha stocks andinvesting the proceeds in an equally-weighted portfolio of the ten positive-alphastocks eliminates the market exposure and creates a zero-investment portfolio.Denoting the systematic market factor as R M , the expected dollar return is (notingthat the expectation of non-systematic risk, e, is zero):$1,000,000 ⨯ [0.02 + (1.0 ⨯ R M )] - $1,000,000 ⨯ [(–0.02) + (1.0 ⨯ R M )]= $1,000,000 ⨯ 0.04 = $40,000The sensitivity of the payoff of this portfolio to the market factor is zero becausethe exposures of the positive alpha and negative alpha stocks cancel out. (Noticethat the terms involving R M sum to zero.) Thus, the systematic component of totalrisk is also zero. The variance of the analyst’s profit is not zero, however, since thisportfolio is not well diversified.For n = 20 stocks (i.e., long 10 stocks and short 10 stocks) the investor will have a $100,000 position (either long or short) in each stock. Net market exposure is zero, but firm-specific risk has not been fully diversified. The variance of dollar returns from the positions in the 20 stocks is: 20 ⨯ [(100,000 ⨯ 0.30)2 ] = 18,000,000,000 The standard deviation of dollar returns is $134,164.b.If n = 50 stocks (25 stocks long and 25 stocks short), the investor will have a $40,000 position in each stock, and the variance of dollar returns is: 50 ⨯ [(40,000 ⨯ 0.30)2 ] = 7,200,000,000 The standard deviation of dollar returns is $84,853. Similarly, if n = 100 stocks (50 stocks long and 50 stocks short), the investor will have a $20,000 position in each stock, and the variance of dollar returns is: 100 ⨯ [(20,000 ⨯ 0.30)2 ] = 3,600,000,000 The standard deviation of dollar returns is $60,000. Notice that, when the number of stocks increases by a factor of 5 (i.e., from 20 to 100), standard deviation decreases by a factor of 5= 2.23607 (from $134,164 to $60,000).8. a.)e (22M 22σ+σβ=σ 88125)208.0(2222A =+⨯=σ 50010)200.1(2222B =+⨯=σ 97620)202.1(2222C =+⨯=σb.If there are an infinite number of assets with identical characteristics, then a well-diversified portfolio of each type will have only systematic risk since the non-systematic risk will approach zero with large n. The mean will equal that of the individual (identical) stocks.c.There is no arbitrage opportunity because the well-diversified portfolios all plot on the security market line (SML). Because they are fairly priced, there is no arbitrage.9. a. A long position in a portfolio (P) comprised of Portfolios A and B will offer anexpected return-beta tradeoff lying on a straight line between points A and B.Therefore, we can choose weights such that βP = βC but with expected returnhigher than that of Portfolio C. Hence, combining P with a short position in C willcreate an arbitrage portfolio with zero investment, zero beta, and positive rate ofreturn.b. The argument in part (a) leads to the proposition that the coefficient of β2 must bezero in order to preclude arbitrage opportunities.10. a. E(r) = 6 + (1.2 ⨯ 6) + (0.5 ⨯ 8) + (0.3 ⨯ 3) = 18.1%b.Surprises in the macroeconomic factors will result in surprises in the return of thestock:Unexpected return from macro factors =[1.2(4 – 5)] + [0.5(6 – 3)] + [0.3(0 – 2)] = –0.3%E (r) =18.1% − 0.3% = 17.8%11. The APT required (i.e., equilibrium) rate of return on the stock based on r f and the factorbetas is:required E(r) = 6 + (1 ⨯ 6) + (0.5 ⨯ 2) + (0.75 ⨯ 4) = 16%According to the equation for the return on the stock, the actually expected return on the stock is 15% (because the expected surprises on all factors are zero by definition).Because the actually expected return based on risk is less than the equilibrium return, we conclude that the stock is overpriced.12. The first two factors seem promising with respect to the likely impact on the firm’s cost ofcapital. Both are macro factors that would elicit hedging demands across broad sectors of investors. The third factor, while important to Pork Products, is a poor choice for amultifactor SML because the price of hogs is of minor importance to most investors and is therefore highly unlikely to be a priced risk factor. Better choices would focus on variables that investors in aggregate might find more important to their welfare. Examples include: inflation uncertainty, short-term interest-rate risk, energy price risk, or exchange rate risk.The important point here is that, in specifying a multifactor SML, we not confuse riskfactors that are important to a particular investor with factors that are important toinvestors in general; only the latter are likely to command a risk premium in the capital markets.13. The maximum residual variance is tied to the number of securities (n) in the portfoliobecause, as we increase the number of securities, we are more likely to encountersecurities with larger residual variances. The starting point is to determine the practicallimit on the portfolio residual standard deviation, σ(e P), that still qualifies as a ‘well-diversified portfolio.’ A reasonable approach is to compare σ2(e P) to the market variance, or equivalently, to compare σ(e P) to the market standard deviation. Suppose we do notallow σ(e P) to exceed pσM, where p is a small decimal fraction, for example, 0.05; then, the smaller the value we choose for p, the more stringent our criterion for defining howdiversified a ‘well-diversified’ portfolio must be.Now construct a portfolio of n securities with weights w1, w2,…,w n, so that ∑w i =1. The portfolio residual variance is: σ2(e P) = ∑w12σ2(e i)To meet our practical definition of sufficiently diversified, we require this residualvariance to be less than (pσM)2. A sure and simple way to proceed is to assume the worst, that is, assume that the residual variance of each security is the highest possible valueallowed under the assumptions of the problem: σ2(e i) = nσ2MIn that case: σ2(e P) = ∑w i2nσM2Now apply the constraint: ∑w i2 nσM2 ≤ (pσM)2This requires that: n∑w i2≤ p2Or, equivalently, that: ∑w i2 ≤ p2/nA relatively easy way to generate a set of well-diversified portfolios is to use portfolioweights that follow a geometric progression, since the computations then become relatively straightforward. Choose w1 and a common factor q for the geometric progression such that q < 1. Therefore, the weight on each stock is a fraction q of the weight on the previousstock in the series. Then the sum of n terms is:∑w i= w1(1– q n)/(1– q) = 1or: w1 = (1– q)/(1–q n)The sum of the n squared weights is similarly obtained from w12 and a commongeometric progression factor of q2. Therefore:∑w i2 = w12(1– q2n)/(1– q 2)Substituting for w1 from above, we obtain:∑w i2 = [(1– q)2/(1–q n)2] × [(1– q2n)/(1– q 2)]For sufficient diversification, we choose q so that: ∑w i2 ≤ p2/nFor example, continue to assume that p = 0.05 and n = 1,000. If we chooseq = 0.9973, then we will satisfy the required condition. At this value for q:w1 = 0.0029 and w n = 0.0029 × 0.99731,000In this case, w1 is about 15 times w n. Despite this significant departure from equalweighting, this portfolio is nevertheless well diversified. Any value of q between 0.9973 and 1.0 results in a well-diversified portfolio. As q gets closer to 1, the portfolioapproaches equal weighting.14. a. Assume a single-factor economy, with a factor risk premium E M and a (large) setof well-diversified portfolios with beta βP. Suppose we create a portfolio Z byallocating the portion w to portfolio P and (1 – w) to the market portfolio M. Therate of return on portfolio Z is:R Z = (w × R P) + [(1 – w) × R M]Portfolio Z is riskless if we choose w so that βZ = 0. This requires that:βZ = (w ×βP) + [(1 – w) × 1] = 0 ⇒ w = 1/(1 –βP) and (1 – w) = –βP/(1 –βP)Substitute this value for w in the expression for R Z:R Z = {[1/(1 –βP)] × R P} – {[βP/(1 –βP)] × R M}Since βZ = 0, then, in order to avoid arbitrage, R Z must be zero.This implies that: R P = βP × R MTaking expectations we have:E P = βP × E MThis is the SML for well-diversified portfolios.b. The same argument can be used to show that, in a three-factor model with factorrisk premiums E M, E1 and E2, in order to avoid arbitrage, we must have:E P = (βPM × E M) + (βP1 × E1) + (βP2 × E2)This is the SML for a three-factor economy.15. a. The Fama-French (FF) three-factor model holds that one of the factors drivingreturns is firm size. An index with returns highly correlated with firm size (i.e.,firm capitalization) that captures this factor is SMB (Small Minus Big), the returnfor a portfolio of small stocks in excess of the return for a portfolio of large stocks.The returns for a small firm will be positively correlated with SMB. Moreover, thesmaller the firm, the greater its residual from the other two factors, the marketportfolio and the HML portfolio, which is the return for a portfolio of high book-to-market stocks in excess of the return for a portfolio of low book-to-marketstocks. Hence, the ratio of the variance of this residual to the variance of the returnon SMB will be larger and, together with the higher correlation, results in a highbeta on the SMB factor.b.This question appears to point to a flaw in the FF model. The model predicts thatfirm size affects average returns, so that, if two firms merge into a larger firm, thenthe FF model predicts lower average returns for the merged firm. However, thereseems to be no reason for the merged firm to underperform the returns of thecomponent companies, assuming that the component firms were unrelated and thatthey will now be operated independently. We might therefore expect that theperformance of the merged firm would be the same as the performance of aportfolio of the originally independent firms, but the FF model predicts that theincreased firm size will result in lower average returns. Therefore, the questionrevolves around the behavior of returns for a portfolio of small firms, compared tothe return for larger firms that result from merging those small firms into largerones. Had past mergers of small firms into larger firms resulted, on average, in nochange in the resultant larger firms’ stock return characteristics (compared to theportfolio of stocks of the merged firms), the size factor in the FF model wouldhave failed.Perhaps the reason the size factor seems to help explain stock returns is that, whensmall firms become large, the characteristics of their fortunes (and hence theirstock returns) change in a significant way. Put differently, stocks of large firms thatresult from a merger of smaller firms appear empirically to behave differently fromportfolios of the smaller component firms. Specifically, the FF model predicts thatthe large firm will have a smaller risk premium. Notice that this development isnot necessarily a bad thing for the stockholders of the smaller firms that merge.The lower risk premium may be due, in part, to the increase in value of the largerfirm relative to the merged firms.CFA PROBLEMS1. a. This statement is incorrect. The CAPM requires a mean-variance efficient marketportfolio, but APT does not.b.This statement is incorrect. The CAPM assumes normally distributed securityreturns, but APT does not.c. This statement is correct.2. b. Since Portfolio X has = 1.0, then X is the market portfolio and E(R M) =16%.Using E(R M ) = 16% and r f = 8%, the expected return for portfolio Y is notconsistent.3. d.4. c.5. d.6. c. Investors will take on as large a position as possible only if the mispricingopportunity is an arbitrage. Otherwise, considerations of risk and diversificationwill limit the position they attempt to take in the mispriced security.7. d.8. d.。
INVESTMENT8THTESTBANKCHAP09
Multiple Choice Questions1. In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of riskisA) unique risk.B) beta.C) standard deviation of returns.D) variance of returns.E) none of the above.Answer: B Difficulty: EasyRationale: Once, a portfolio is diversified, the only risk remaining is systematic risk,which is measured by beta.2. According to the Capital Asset Pricing Model (CAPM) a well diversified portfolio's rateof return is a function ofA) market riskB) unsystematic riskC) unique risk.D) reinvestment risk.E) none of the above.Answer: A Difficulty: EasyRationale: With a diversified portfolio, the only risk remaining is market, or systematic, risk. This is the only risk that influences return according to the CAPM.3. The market portfolio has a beta ofA) 0.B) 1.C) -1.D) .E) none of the aboveAnswer: B Difficulty: EasyRationale: By definition, the beta of the market portfolio is 1.4. The risk-free rate and the expected market rate of return are and , respectively.According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of is equal toA) .B) .C) .D)E)Answer: D Difficulty: EasyRationale: E(R) = 6% + (12 - 6) = %.5. The risk-free rate and the expected market rate of return are and , respectively.According to the capital asset pricing model (CAPM), the expected rate of return on a security with a beta of is equal toA)B) .C) .D)E)Answer: A Difficulty: EasyRationale: E(R) = % + - = %.6. Which statement is not true regarding the market portfolio?A) It includes all publicly traded financial assets.B) It lies on the efficient frontier.C) All securities in the market portfolio are held in proportion to their market values.D) It is the tangency point between the capital market line and the indifference curve.E) All of the above are true.Answer: D Difficulty: ModerateRationale: The tangency point between the capital market line and the indifference curve is the optimal portfolio for a particular investor.7. Which statement is not true regarding the Capital Market Line (CML)?A) The CML is the line from the risk-free rate through the market portfolio.B) The CML is the best attainable capital allocation line.C) The CML is also called the security market line.D) The CML always has a positive slope.E) The risk measure for the CML is standard deviation.Answer: C Difficulty: ModerateRationale: Both the Capital Market Line and the Security Market Line depict risk/return relationships. However, the risk measure for the CML is standard deviation and the risk measure for the SML is beta (thus C is not true; the other statements are true).8. The market risk, beta, of a security is equal toA) the covariance between the security's return and the market return divided by thevariance of the market's returns.B) the covariance between the security and market returns divided by the standarddeviation of the market's returns.C) the variance of the security's returns divided by the covariance between the securityand market returns.D) the variance of the security's returns divided by the variance of the market's returns.E) none of the above.Answer: A Difficulty: ModerateRationale: Beta is a measure of how a security's return covaries with the market returns, normalized by the market variance.9. According to the Capital Asset Pricing Model (CAPM), the expected rate of return onany security is equal toA) R f+ β [E(R M)].B) R f + β [E(R M) - R f].C) β [E(R M) - R f].D) E(R M) + R f.E) none of the above.Answer: B Difficulty: ModerateRationale: The expected rate of return on any security is equal to the risk free rate plus the systematic risk of the security (beta) times the market risk premium, E(R M - R f).10. The Security Market Line (SML) isA) the line that describes the expected return-beta relationship for well-diversifiedportfolios only.B) also called the Capital Allocation Line.C) the line that is tangent to the efficient frontier of all risky assets.D) the line that represents the expected return-beta relationship.E) the line that represents the relationship between an individual security's return andthe market's return.Answer: D Difficulty: ModerateRationale: The SML is a measure of expected return per unit of risk, where risk isdefined as beta (systematic risk).11. According to the Capital Asset Pricing Model (CAPM), fairly priced securitiesA) have positive betas.B) have zero alphas.C) have negative betas.D) have positive alphas.E) none of the above.Answer: B Difficulty: ModerateRationale: A zero alpha results when the security is in equilibrium (fairly priced for the level of risk).12. According to the Capital Asset Pricing Model (CAPM), under priced securitiesA) have positive betas.B) have zero alphas.C) have negative betas.D) have positive alphas.E) none of the above.Answer: D Difficulty: Moderate13. According to the Capital Asset Pricing Model (CAPM), over priced securitiesA) have positive betas.B) have zero alphas.C) have negative betas.D) have positive alphas.E) none of the above.Answer: C Difficulty: ModerateRationale: A zero alpha results when the security is in equilibrium (fairly priced for the level of risk).14. According to the Capital Asset Pricing Model (CAPM),A) a security with a positive alpha is considered overpriced.B) a security with a zero alpha is considered to be a good buy.C) a security with a negative alpha is considered to be a good buy.D) a security with a positive alpha is considered to be underpriced.E) none of the above.Answer: D Difficulty: ModerateRationale: A security with a positive alpha is one that is expected to yield an abnormal positive rate of return, based on the perceived risk of the security, and thus isunderpriced.15. According to the Capital Asset Pricing Model (CAPM), which one of the followingstatements is false?A) The expected rate of return on a security decreases in direct proportion to a decreasein the risk-free rate.B) The expected rate of return on a security increases as its beta increases.C) A fairly priced security has an alpha of zero.D) In equilibrium, all securities lie on the security market line.E) All of the above statements are true.Answer: A Difficulty: ModerateRationale: Statements B, C, and D are true, but statement A is false.16. In a well diversified portfolioA) market risk is negligible.B) systematic risk is negligible.C) unsystematic risk is negligible.D) nondiversifiable risk is negligible.E) none of the above.Answer: C Difficulty: ModerateRationale: Market, or systematic, or nondiversifiable, risk is present in a diversified portfolio; the unsystematic risk has been eliminated.17. Empirical results regarding betas estimated from historical data indicate thatA) betas are constant over time.B) betas of all securities are always greater than one.C) betas are always near zero.D) betas appear to regress toward one over time.E) betas are always positive.Answer: D Difficulty: ModerateRationale: Betas vary over time, betas may be negative or less than one, betas are not always near zero; however, betas do appear to regress toward one over time.18. Your personal opinion is that a security has an expected rate of return of . It has a betaof . The risk-free rate is and the market expected rate of return is . According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: 11% = 5% + (9% - 5%) = %; therefore, the security is fairly priced.19. The risk-free rate is 7 percent. The expected market rate of return is 15 percent. If youexpect a stock with a beta of to offer a rate of return of 12 percent, you shouldA) buy the stock because it is overpriced.B) sell short the stock because it is overpriced.C) sell the stock short because it is underpriced.D) buy the stock because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: B Difficulty: ModerateRationale: 12% < 7% + (15% - 7%) = %; therefore, stock is overpriced and should be shorted.20. You invest $600 in a security with a beta of and $400 in another security with a beta of .The beta of the resulting portfolio isA)B)C)D)E)Answer: D Difficulty: ModerateRationale: + = .21. A security has an expected rate of return of and a beta of . The market expected rate ofreturn is and the risk-free rate is . The alpha of the stock isA) %.B) %.C) %.D) %.E) none of the above.Answer: A Difficulty: ModerateRationale: 10% - [5% +(8% - 5%)] = %.22. Your opinion is that CSCO has an expected rate of return of . It has a beta of . Therisk-free rate is and the market expected rate of return is . According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: B Difficulty: ModerateRationale: % - 4% + % - 4%) = %; therefore, the security is overpriced.23. Your opinion is that CSCO has an expected rate of return of . It has a beta of . Therisk-free rate is and the market expected rate of return is . According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: % - 4% + % - 4%) = %; therefore, the security is fairly priced.24. Your opinion is that CSCO has an expected rate of return of . It has a beta of . Therisk-free rate is and the market expected rate of return is . According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: A Difficulty: ModerateRationale: 15% - 4% + % - 4%) = %; therefore, the security is under priced.25. Your opinion is that Boeing has an expected rate of return of . It has a beta of . Therisk-free rate is and the market expected rate of return is . According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: A Difficulty: ModerateRationale: % - 4% + (10% - 4%) = %; therefore, the security is under priced.26. Your opinion is that Boeing has an expected rate of return of . It has a beta of . Therisk-free rate is and the market expected rate of return is . According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: % - 4% + (10% - 4%) = %; therefore, the security is fairly priced.27. Your opinion is that Boeing has an expected rate of return of . It has a beta of . Therisk-free rate is and the market expected rate of return is . According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: % - 4% + (10% - 4%) = %; therefore, the security is overpriced.28. The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If youexpect CAT with a beta of to offer a rate of return of 10 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: B Difficulty: ModerateRationale: 10% < 4% + (11% - 4%) = %; therefore, stock is overpriced and should be shorted.29. The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If youexpect CAT with a beta of to offer a rate of return of 11 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: E Difficulty: ModerateRationale: 11% = 4% + (11% - 4%) = %; therefore, stock is fairly priced.30. The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If youexpect CAT with a beta of to offer a rate of return of 13 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: D Difficulty: ModerateRationale: 13% > 4% + (11% - 4%) = %; therefore, stock is under priced.31. You invest 55% of your money in security A with a beta of and the rest of your moneyin security B with a beta of . The beta of the resulting portfolio isA)B)C)D)E)Answer: E Difficulty: ModerateRationale: + = .32. Given the following two stocks A and BIf the expected market rate of return is and the risk-free rate is , which security would be considered the better buy and why?A) A because it offers an expected excess return of %.B) B because it offers an expected excess return of %.C) A because it offers an expected excess return of %.D) B because it offers an expected return of 14%.E) B because it has a higher beta.Answer: C Difficulty: ModerateRationale: A's excess return is expected to be 12% - [5% + (9% - 5%)] = %. B's excess return is expected to be 14% - [5% + (9% - 5%)] = %.33. Capital Asset Pricing Theory asserts that portfolio returns are best explained by:A) economic factors.B) specific risk.C) systematic risk.D) diversification.E) none of the above.Answer: C Difficulty: EasyRationale: The risk remaining in diversified portfolios is systematic risk; thus, portfolio returns are commensurate with systematic risk.34. According to the CAPM, the risk premium an investor expects to receive on any stockor portfolio increases:A) directly with alpha.B) inversely with alpha.C) directly with beta.D) inversely with beta.E) in proportion to its standard deviation.Answer: C Difficulty: EasyRationale: The market rewards systematic risk, which is measured by beta, and thus, the risk premium on a stock or portfolio varies directly with beta.35. What is the expected return of a zero-beta security?A) The market rate of return.B) Zero rate of return.C) A negative rate of return.D) The risk-free rate.E) None of the above.Answer: D Difficulty: ModerateRationale: E(R S) = r f + 0(R M - r f) = r f.36. Standard deviation and beta both measure risk, but they are different in thatA) beta measures both systematic and unsystematic risk.B) beta measures only systematic risk while standard deviation is a measure of totalrisk.C) beta measures only unsystematic risk while standard deviation is a measure of totalrisk.D) beta measures both systematic and unsystematic risk while standard deviationmeasures only systematic risk.E) beta measures total risk while standard deviation measures only nonsystematic risk.Answer: B Difficulty: EasyRationale: B is the only true statement.37. The expected return-beta relationshipA) is the most familiar expression of the CAPM to practitioners.B) refers to the way in which the covariance between the returns on a stock and returnson the market measures the contribution of the stock to the variance of the marketportfolio, which is beta.C) assumes that investors hold well-diversified portfolios.D) all of the above are true.E) none of the above is true.Answer: D Difficulty: ModerateRationale: Statements A, B and C all describe the expected return-beta relationship.38. The security market line (SML)A) can be portrayed graphically as the expected return-beta relationship.B) can be portrayed graphically as the expected return-standard deviation of marketreturns relationship.C) provides a benchmark for evaluation of investment performance.D) A and C.E) B and C.Answer: D Difficulty: ModerateRationale: The SML is a measure of expected return-beta (the CML is a measure of expected return-standard deviation of market returns). The SML provides the expected return-beta relationship for "fairly priced" securities; thus if a portfolio manager selects securities that are underpriced and produces a portfolio with a positive alpha, thisportfolio manager would receive a positive evaluation.39. Research by Jeremy Stein of MIT resolves the dispute over whether beta is a sufficientpricing factor by suggesting that managers should use beta to estimateA) long-term returns but not short-term returns.B) short-term returns but not long-term returns.C) both long- and short-term returns.D) book-to-market ratios.E) None of the above was suggested by Stein.Answer: A Difficulty: Difficult40. Studies of liquidity spreads in security markets have shown thatA) liquid stocks earn higher returns than illiquid stocks.B) illiquid stocks earn higher returns than liquid stocks.C) both liquid and illiquid stocks earn the same returns.D) illiquid stocks are good investments for frequent, short-term traders.E) None of the above is true.Answer: B Difficulty: Difficult41. An underpriced security will plotA) on the Security Market Line.B) below the Security Market Line.C) above the Security Market Line.D) either above or below the Security Market Line depending on its covariance withthe market.E) either above or below the Security Market Line depending on its standard deviation.Answer: C Difficulty: EasyRationale: An underpriced security will have a higher expected return than the SML would predict; therefore it will plot above the SML.42. The risk premium on the market portfolio will be proportional toA) the average degree of risk aversion of the investor population.B) the risk of the market portfolio as measured by its variance.C) the risk of the market portfolio as measured by its beta.D) both A and B are true.E) both A and C are true.Answer: D Difficulty: ModerateRationale: The risk premium on the market portfolio is proportional to the averagedegree of risk aversion of the investor population and the risk of the market portfolio measured by its variance.43. In equilibrium, the marginal price of risk for a risky security must beA) equal to the marginal price of risk for the market portfolio.B) greater than the marginal price of risk for the market portfolio.C) less than the marginal price of risk for the market portfolio.D) adjusted by its degree of nonsystematic risk.E) none of the above is true.Answer: A Difficulty: ModerateRationale: In equilibrium, the marginal price of risk for a risky security must be equal to the marginal price of risk for the market. If not, investors will buy or sell the security until they are equal.44. The capital asset pricing model assumesA) all investors are price takers.B) all investors have the same holding period.C) investors pay taxes on capital gains.D) both A and B are true.E) A, B and C are all true.Answer: D Difficulty: EasyRationale: The CAPM assumes that investors are price-takers with the same single holding period and that there are no taxes or transaction costs.45. If investors do not know their investment horizons for certainA) the CAPM is no longer valid.B) the CAPM underlying assumptions are not violated.C) the implications of the CAPM are not violated as long as investors' liquidity needsare not priced.D) the implications of the CAPM are no longer useful.E) none of the above is true.Answer: C Difficulty: ModerateRationale: This is discussed in the chapter's section about extensions to the CAPM. It examines what the consequences are when the assumptions are removed.46. The value of the market portfolio equalsA) the sum of the values of all equity securities.B) the sum of the values of all equity and fixed income securities.C) the sum the values of all equity, fixed income, and derivative securities.D) the sum of the values of all equity, fixed income, and derivative securities plus thevalue of all mutual funds.E) the entire wealth of the economy.Answer: E Difficulty: ModerateRationale: The market portfolio includes all assets in existence.47. The amount that an investor allocates to the market portfolio is negatively related toI)the expected return on the market portfolio.II)the investor's risk aversion coefficient.III)the risk-free rate of return.IV)the variance of the market portfolioA) I and IIB) II and IIIC) II and IVD) II, III, and IVE) I, III, and IVAnswer: D Difficulty: ModerateRationale: The optimal proportion is given by y = (E(R M)-r f)/(.01xAσ2M). This amount will decrease as r f, A, and σ2M decrease.48. One of the assumptions of the CAPM is that investors exhibit myopic behavior. Whatdoes this mean?A) They plan for one identical holding period.B) They are price-takers who can't affect market prices through their trades.C) They are mean-variance optimizers.D) They have the same economic view of the world.E) They pay no taxes or transactions costs.Answer: A Difficulty: ModerateRationale: Myopic behavior is shortsighted, with no concern for medium-term orlong-term implications.49. The CAPM applies toA) portfolios of securities only.B) individual securities only.C) efficient portfolios of securities only.D) efficient portfolios and efficient individual securities only.E) all portfolios and individual securities.Answer: E Difficulty: ModerateRationale: The CAPM is an equilibrium model for all assets. Each asset's risk premium is a function of its beta coefficient and the risk premium on the market portfolio.50. Which of the following statements about the mutual fund theorem is true?I)It is similar to the separation property.II)It implies that a passive investment strategy can be efficient.III)It implies that efficient portfolios can be formed only through active strategies.IV)It means that professional managers have superior security selection strategies.A) I and IVB) I, II, and IVC) I and IID) III and IVE) II and IVAnswer: C Difficulty: ModerateRationale: The mutual fund theorem is similar to the separation property. The technical task of creating mutual funds can be delegated to professional managers; thenindividuals combine the mutual funds with risk-free assets according to theirpreferences. The passive strategy of investing in a market index fund is efficient.51. The expected return -- beta relationship of the CAPM is graphically represented byA) the security market line.B) the capital market line.C) the capital allocation line.D) the efficient frontier with a risk-free asset.E) the efficient frontier without a risk-free asset.Answer: A Difficulty: EasyRationale: The security market line shows expected return on the vertical axis and beta on the horizontal axis. It has an intercept of r f and a slope of E(R M) - r f.52. A “fairly priced” asset liesA) above the security market line.B) on the security market line.C) on the capital market line.D) above the capital market line.E) below the security market line.Answer: B Difficulty: EasyRationale: Securities that lie on the SML earn exactly the expected return generated by the CAPM. Their prices are proportional to their beta coefficients and they have alphas equal to zero.53. For the CAPM that examines illiquidity premiums, if there is correlation among assetsdue to common systematic risk factors, the illiquidity premium on asset i is a function ofA) the market's volatility.B) asset i's volatility.C) the trading costs of security i.D) the risk-free rate.E) the money supply.Answer: C Difficulty: ModerateRationale: The formula for this extension to the CAPM relaxes the assumption thattrading is costless.54. Your opinion is that security A has an expected rate of return of . It has a beta of . Therisk-free rate is and the market expected rate of return is . According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: % = 4% + (11% - 4%) = %; therefore, the security is fairly priced.55. Your opinion is that security C has an expected rate of return of . It has a beta of . Therisk-free rate is and the market expected rate of return is . According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: A Difficulty: ModerateRationale: 4% + (10% - 4%) = %; therefore, the security is fairly priced.56. The risk-free rate is 4 percent. The expected market rate of return is 12 percent. If youexpect stock X with a beta of to offer a rate of return of 10 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: B Difficulty: ModerateRationale: 10% < 4% + (12% - 4%) = %; therefore, stock is overpriced and should be shorted.57. The risk-free rate is 5 percent. The expected market rate of return is 11 percent. If youexpect stock X with a beta of to offer a rate of return of 15 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: B Difficulty: ModerateRationale: 15% < 5% + (11% - 5%) = %; therefore, stock is overpriced and should be shorted.58. You invest 50% of your money in security A with a beta of and the rest of your moneyin security B with a beta of . The beta of the resulting portfolio isA)B)C)D)E)Answer: B Difficulty: ModerateRationale: + = .59. You invest $200 in security A with a beta of and $800 in security B with a beta of . Thebeta of the resulting portfolio is A.A)B)C)D)Answer: C Difficulty: ModerateRationale: + = .60. Security A has an expected rate of return of and a beta of . The market expected rate ofreturn is and the risk-free rate is . The alpha of the stock isA) %.B) %.C) %.D) %.E) none of the above.Answer: B Difficulty: ModerateRationale: 10% - [4% +(10% - 4%)] = %.61. A security has an expected rate of return of and a beta of . The market expected rate ofreturn is and the risk-free rate is . The alpha of the stock isA) %.B) %.C) %.D) %.E) none of the above.Answer: D Difficulty: ModerateRationale: 15% - [4% +(10% - 4%)] = %.62. A security has an expected rate of return of and a beta of . The market expected rate ofreturn is and the risk-free rate is . The alpha of the stock isA) %.B) %.C) %.D) %.E) none of the above.Answer: A Difficulty: ModerateRationale: 13% - [% +(9% - %)] = %.。
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CHAPTER 1: THE INVESTMENT ENVIRONMENTPROBLEM SETS1. Ultimately, it is true that real assets determine the material well being of an economy. Nevertheless, individuals can benefit when financial engineering creates new products that allow them to manage their portfoliosof financial assets more efficiently. Because bundling and unbundlingcreates financial products with new properties and sensitivities to various sources of risk, it allows investors to hedge particular sources of riskmore efficiently.2. Securitization requires access to a large number of potential investors. To attract these investors, the capital market needs:a safe system of business laws and low probability of confiscatorytaxation/regulation;a well-developed investment banking industry;a well-developed system of brokerage and financial transactions, and;well-developed media, particularly financial reporting.These characteristics are found in (indeed make for) a well-developedfinancial market.3. Securitization leads to disintermediation; that is, securitization provides a means for market participants to bypass intermediaries. For example, mortgage-backed securities channel funds to the housing market without requiring that banks or thrift institutions make loans from theirown portfolios. As securitization progresses, financial intermediariesmust increase other activities such as providing short-term liquidity to consumers and small business, and financial services.4. Financial assets make it easy for large firms to raise the capital needed to finance their investments in real assets. If General Motors, for example, could not issue stocks or bonds to the general public, it wouldhave a far more difficult time raising capital. Contraction of the supplyof financial assets would make financing more difficult, thereby increasingthe cost of capital. A higher cost of capital results in less investment and lower real growth.5. Even if the firm does not need to issue stock in any particular year, the stock market is still important to the financial manager. The stock price provides important information about how the market values the firm's investment projects. For example, if the stock price rises considerably, managers might conclude that the market believes the firm's futureprospects are bright. This might be a useful signal to the firm to proceed with an investment such as an expansion of the firm's business.In addition, the fact that shares can be traded in the secondary market makes the shares more attractive to investors since investors know that, when they wish to, they will be able to sell their shares. This in turn makes investors more willing to buy shares in a primary offering, and thus improves the terms on which firms can raise money in the equity market.6. a. Cash is a financial asset because it is the liability of the federal government.b. No. The cash does not directly add to the productive capacity of the economy.c. Yes.d. Society as a whole is worse off, since taxpayers, as a group will make up for the liability.7. a. The bank loan is a financial liability for Lanni. (Lanni's IOU is the bank's financial asset.) The cash Lanni receives is a financial asset. The new financial asset created is Lanni's promissory note (that is, Lanni’s IOU to the bank).b. Lanni transfers financial assets (cash) to the software developers.In return, Lanni gets a real asset, the completed software. No financial assets are created or destroyed; cash is simply transferred from one partyto another.c. Lanni gives the real asset (the software) to Microsoft in exchangefor a financial asset, 1,500 shares of Microsoft stock. If Microsoftissues new shares in order to pay Lanni, then this would represent the creation of new financial assets.d. Lanni exchanges one financial asset (1,500 shares of stock) for another ($120,000). Lanni gives a financial asset ($50,000 cash) to the bank and gets back another financial asset (its IOU). The loan is "destroyed" in the transaction, since it is retired when paid off and no longer exists.8. a.Assets Liabilities & Shareholders’ equityCash $ 70,000 Bank loan $ 50,000Computers 30,000 Shareholders’equity50,000Total $100,000 Total $100,000 Ratio of real assets to total assets = $30,000/$100,000 = 0.30b.Assets Liabilities & Shareholders’ equitySoftwareproduct*$ 70,000 Bank loan $ 50,000 Computers 30,000 Shareholders’equity50,000Total $100,000 Total $100,000 *Valued at costRatio of real assets to total assets = $100,000/$100,000 = 1.0 c.Assets Liabilities & Shareholders’ equityMicrosoft shares $120,000 Bank loan $ 50,000Computers 30,000 Shareholders’equity100,000Total $150,000 Total $150,000Ratio of real assets to total assets = $30,000/$150,000 = 0.20 Conclusion: when the firm starts up and raises working capital, it is characterized by a low ratio of real assets to total assets. When it is in full production, it has a high ratio of real assets to total assets. Whenthe project "shuts down" and the firm sells it off for cash, financial assets once again replace real assets.9. For commercial banks, the ratio is: $107.5/$10,410.9 = 0.010For non-financial firms, the ratio is: $13,295/$25,164 = 0.528The difference should be expected primarily because the bulk of the business of financial institutions is to make loans; which are financial assets for financial institutions.10. a. Primary-market transactionb. Derivative assetsc. Investors who wish to hold gold without the complication and cost of physical storage.11. a. A fixed salary means that compensation is (at least in the short run) independent of the firm's success. This salary structure does not tie the manager’s immediate compensation to the success of the firm. However, the manager might view this as the safest compensation structure and therefore value it more highly.b. A salary that is paid in the form of stock in the firm means that the manager earns the most when the shareholders’ wealth is maximized. This structure is therefore most likely to align the interests of managers and shareholders. If stock compensation is overdone, however, the manager might view it as overly risky since the manager’s career is already linked to the firm, and this undiversified exposure would be exacerbated with a large stock position in the firm.c. Call options on shares of the firm create great incentives for managers to contribute to the firm’s success. In some cases, however, stock options can lead to other agency problems. For example, a manager with numerous call options might be tempted to take on a very risky investment project, reasoning that if the project succeeds the payoff will be huge, while if it fails, the losses are limited to the lost value of the options. Shareholders, in contrast, bear the losses as well as the gains on the project, and might be less willing to assume that risk.12. Even if an individual shareholder could monitor and improve managers’ performance, and thereby increase the value of the firm, the payoff would be small, since the ownership share in a large corporation would be very small. For example, if you own $10,000 of GM stock and can increase the value of the firm by 5%, a very ambitious goal, you benefit by only: 0.05 $10,000 = $500In contrast, a bank that has a multimillion-dollar loan outstanding to the firm has a big stake in making sure that the firm can repay the loan. Itis clearly worthwhile for the bank to spend considerable resources to monitor the firm.13. Mutual funds accept funds from small investors and invest, on behalf of these investors, in the national and international securities markets. Pension funds accept funds and then invest, on behalf of current and future retirees, thereby channeling funds from one sector of the economy to another.Venture capital firms pool the funds of private investors and invest in start-up firms.Banks accept deposits from customers and loan those funds to businesses, or use the funds to buy securities of large corporations.14. Treasury bills serve a purpose for investors who prefer a low-risk investment. The lower average rate of return compared to stocks is the price investors pay for predictability of investment performance and portfolio value.15. With a “top-down” investing style, you focus on asset allocation or the broad composition of the entire portfolio, which is the major determinant of overall performance. Moreover, top-down management is the natural way to establish a portfolio with a level of risk consistent with your risk tolerance. The disadvantage of an exclusive emphasis on top-down issues is that you may forfeit the potential high returns that could result from identifying and concentrating in undervalued securities or sectors of the market.With a “bottom-up” investing style, you try to benefit from identifying undervalued securities. The disadvantage is that you tend to overlook theoverall composition of your portfolio, which may result in a non-diversified portfolio or a portfolio with a risk level inconsistent withyour level of risk tolerance. In addition, this technique tends to require more active management, thus generating more transaction costs. Finally, your analysis may be incorrect, in which case you will have fruitlessly expended effort and money attempting to beat a simple buy-and-hold strategy.16. You should be skeptical. If the author actually knows how to achieve such returns, one must question why the author would then be so ready tosell the secret to others. Financial markets are very competitive; one of the implications of this fact is that riches do not come easily. High expected returns require bearing some risk, and obvious bargains are fewand far between. Odds are that the only one getting rich from the book isits author.17. a. The SEC website defines the difference between saving and investing in terms of the investment alternatives or the financial assetsthe individual chooses to acquire. According to the SEC website, saving is the process of acquiring a “safe” financial asset and investing is the process of acquiring “risky” financial assets.b. The economist’s definition of savings is the difference between income and consumption. Investing is the process of allocating one’s savings among available assets, both real assets and financial assets. The SEC definitions actually represent (according the economist’s definition) two kinds of investment alternatives.18. As is the case for the SEC definitions (see Problem 17), the SIA defines saving and investing as acquisition of alternative kinds offinancial assets. According to the SIA, saving is the process of acquiring safe assets, generally from a bank, while investing is the acquisition of other financial assets, such as stocks and bonds. On the other hand, the definitions in the chapter indicate that saving means spending less than one’s income. Investing is the process of allocating one’s savings among financial assets, including savings account deposits and money market accounts (“saving” according to the SIA), other financial assets such a s stocks and bonds (“investing” according to the SIA), as well as real assets.。