投资学精要(博迪)(第五版)习题答案英文版chapter7
投资学精要（博迪）（第五版）习题答案英文版chapter5综述
Essentials of Investments (BKM 5th Ed.Answers to Selected Problems – Lecture 60 –300Purchase of three shares at $100 each. 1 –208Purchase of two shares at $110 less dividend income on three shares held. 2 110 Dividends on five shares plus sale of one share at price of $90 each. 3 396Dividends on four shares plus sale of four shares at price of $95 each. 396|||110 |Date: 1/1/96 1/1/97 1/1/98 1/1/99| || || || 208300The Dollar-weighted return can be determined by doing an internal rate of return (IRRcalculation. In other words, set the present value of the outflows equal to the presentvalue of the inflows (or the net present value to zero: %1661. 0001661. 01(396 1(110 1(208300321−=−=+++=++R R R3. b.5. We need to distinguish between timing and selection abilities. The intercept of the scatterdiagram is a measure of stock selection ability. If the manager tends to have a positive excess return even when the market’s performance is merely ‘neutral’ (i.e., has zero excess return, then we conclude that the manager has on average made good stock picks – stock selection must be the source of the positive excess returns.Timing ability is indicated by curvature in the plotted line. Lines that become steeper as you move to the right of the graph show good timing ability. An upward curvedrelationship indicates that the portfolio was more sensitive to market moves when the market was doing well and less sensitive to market moves when the market was doingpoorly -- this indicates good market timing skill. A downward curvature would indicate poor market timing skill.We can therefore classify performance ability for the four managers as follows:a. Bad Goodb. Good Goodc. Good Badd. Bad Bad9. The manager’s alpha is:10 - [6 + 0.5(14-6] = 010. a α(A = 24 - [12 + 1.0(21-12] = 3.0%α(B = 30 - [12 + 1.5(21-12] = 4.5%T(A = (24 - 12/1 = 12T(B = (30-12/1.5 = 12As an addition to a passive diversified portfolio, both A and B are candidates because they both have positive alphas.b (i The funds may have been trying to time the market. In that case, the SCL of the funds may be non-linear (curved.(ii One year’s worth of data is too small a sample to make clear conclusions.(iii The funds may have significantly different levels of diversification. If both have the same risk-adjusted return, the fund with the less diversified portfolio has a higher exposure to risk because of its higher firm-specific risk. Since the above measure adjusts only for systematic risk, it does not tell the entire story.11. a Indeed, the one year results were terrible, but one year is a short time period from whichto make clear conclusions. Also, the Board instructed the manager to give priority to long-term results.b The sample pension funds had a much larger share in equities compared to Alpine’s. Equities performed much better than bonds. Also, Alpine was told to hold down risk investing at most 25% in equities. Alpine should not be held responsible for an asset allocation policy dictated by the client.c Alpine’s alpha measures its risk-adjusted performance compared to the market’s:α = 13.3 - [7.5 + 0.9(13.8 - 7.5] = 0.13%, which is actually above zero!d Note that the last five years, especially the last one, have been bad for bonds – and Alpine was encouraged to hold bonds. Within this asset class, Alpine did much better than the index funds. Alpine’s performance within each asset class has been superior on a risk-adjusted basis. Its disappointing performance overall was due to a heavy asset allocation weighting toward bonds, which was the Board’s –not Alpine’s – choice.e A trustee may not care about the time-weighted return, but that return is moreindicative of the manager’s performance. After all, the manager has no control over the cash inflow of the fund.。
投资学精要(博迪)(第五版)习题答案英文版chapter9&10
Essentials of Investments (BKM 5th Ed.)Answers to Suggested Problems – Lecture 7Bond Pricing Examples for Exam 3:Problem 9(a) in Chapter 9 provides an example of a bond price calculation (answer shown below). As additional examples, page 69 in your course packet provides several bond pricing problems for bonds with various maturity, yield, and coupon characteristics. The bond prices for these examples are as follows (note all bonds pay coupons semi-annually):8% coupon, 8% market yield, 10 years to maturity: B = $1,000.008% coupon, 10% market yield, 10 years to maturity: B = $875.388% coupon, 6% market yield, 10 years to maturity: B = $1,148.778% coupon, 8% market yield, 20 years to maturity: B = $1,000.008% coupon, 10% market yield, 20 years to maturity: B = $828.418% coupon, 6% market yield, 20 years to maturity: B = $1,231.156% coupon, 8% market yield, 10 years to maturity: B = $864.106% coupon, 10% market yield, 10 years to maturity: B = $750.766% coupon, 6% market yield, 10 years to maturity: B = $1000.00Chapter 9:4. Lower. Interest rates have fallen since the bond was issued. Thus, the bond is selling at apremium and the price will decrease (toward par value) as the bond approaches maturity.5. True. Under the Expectations Hypothesis, there are no risk premia built into bond prices.The only reason for an upward sloping yield curve is the expectation of increased short-term rates in the future.7. Uncertain. Liquidity premium will increase long-term yields, but lower inflationexpectations will reduce long-term yields compared to short-term rates. The net effect is uncertain.8. If the yield curve is upward sloping, you cannot conclude that investors expect short-terminterest rates to rise because the rising slope could either be due to expectations of future increases in rates or due to a liquidity premium.9. a) The bond pays $50 every 6 monthsCurrent price = $1052.42Assuming that market interest rates remain at 4% per half year:the price 6 months from now = $1044.52b) Rate of return = [1044.52 - 1052.42 + 50]/1052.42 = .04 or 4% per 6 months14. Zero 8% coupon 10% coupona) Current prices $463.19 $1,000 $1,134.20b) Price in 1 year $500.25 $1,000 $1,124.94change $37.06 $0.00 $-9.26PriceCouponincome $0.00 $80.00 $100.00$37.06 $80.00 $90.74incomeTotalRate of return 8.00% 8.00% 8.00%33. a) The forward rate, f, is the rate that makes rolling over one-year bonds equally attractiveas investing in the two-year maturity bond and holding until maturity:(1.08)(1 + f) = (1.09)2 which implies that f = 0.1001 or 10.01%b) According to the expectations hypothesis, the forward rate equals the expected shortrate next year, so the best guess would be 10.01%.c) According to the liquidity preference (liquidity premium) hypothesis, the forward rateexceeds the expected short-term rate for next year (by the amount of the liquiditypremium), so the best guess would be less than 10.01%.35. a. We obtain forward rates from the following table:Maturity(years)YTM Forward rate Price (for part c)($1000/1.10)1 10.0% $909.09[(1.112/1.10) – 1] $811.62 ($1000/1.112)12.01%2 11.0%[(1.123/1.112) – 1] $711.78 ($1000/1.123)14.03%3 12.0%b. We obtain next year’s prices and yields by discounting each zero’s face value at theforward rates derived in part (a):Maturity(years)Price YTM1 $892.78 [ = 1000/1.1201] 12.01%2 $782.93 [ = 1000/(1.1201 x 1.1403)] 13.02%Note that this year’s upward sloping yield curve implies, according to theexpectations hypothesis, a shift upward in next year’s curve.c.Next year, the two-year zero will be a one-year zero, and it will therefore sell at: ($1000/1.1201) = $892.78Similarly, the current three-year zero will be a two-year zero, and it will sell for $782.93. Expected total rate of return:two-year bond: %00.101000.0162.811$78.892$==− three-year bond: %00.101000.0178.711$93.782$==−37. d) 2e) 3f) 2g) 4Chapter 10:1. ∆∆B B D y y =−⋅+1 -7.194 * (.005/1.10) = -.03272.If YTM=6%, Duration=2.833 years If YTM=10%, Duration=2.824 years6.a) Bond B has a higher yield since it is selling at a discount. Thus, the duration of bond B is lower (it is less sensitive to interest rate changes).b) Bond B has a lower yield and is callable before maturity. Thus, the duration of bond B is lower (it is less sensitive to interest rate changes).9.a) PV = 10,000/(1.08) + 10,000/((1.08)2) = $17,832.65Duration = (9259.26/17832.65)*1 + (8573.39/17832.65)*2 = 1.4808 yearsb) A zero-coupon bond with 1.4808 years to maturity (duration=1.4808) would immunize the obligation against interest rate risk.c) We need a bond position with a present value of $17,832.65. Thus, the face value of thebond position must be:$17,832.65*(1.08)1.4808 = $19,985.26If interest rates increase to 9%, the value of the bond would be:$19,985.26/((1.09)1.4808) = $17,590.92The tuition obligation would be:10,000/1.09 + 10,000/((1.09)2) = $17,591.11or a net position change of only $0.19.If interest rates decrease to 7%, the value of the bond would be:$19,985.26/((1.07)1.4808) = $18,079.99The tuition obligation would be:10,000/(1.07) + 10,000((1.07)2) = $18,080.18or a net position change of $0.19.**The slight differences result from the fact that duration is only a linear approximationof the true convex relationship between fixed-income values and interest rates.11. a) The duration of the perpetuity is 1.05/.05 = 21 years. Let w be the weight of the zero-coupon bond. Then we find w by solving:w × 5 + (1 – w) × 21 = 1021 – 16w = 10w = 11/16 or .6875Therefore, your portfolio would be 11/16 invested in the zero and 5/16 in theperpetuity.b) The zero-coupon bond now will have a duration of 4 years while the perpetuity willstill have a 21-year duration. To get a portfolio duration of 9 years, which is now theduration of the obligation, we again solve for w:w × 4 + (1 – w) × 21 = 921 – 17w = 9w = 12/17 or .7059So the proportion invested in the zero has to increase to 12/17 and the proportion in theperpetuity has to fall to 5/17.12. a) The duration of the perpetuity is 1.1/.1 = 11 years. The present value of the payments is$1 million/.10 = $10 million. Let w be the weight of the 5-year zero-coupon bond andtherefore (1 – w) will be the weight of the 20-year zero-coupon bond. Then we find wby solving:w × 5 + (1 – w) × 20 = 1120 – 15w = 11w = 9/15 = .60Therefore, 60% of the portfolio will be invested in the 5-year zero-coupon bond and 40%in the 20-year zero-coupon bond.Therefore, the market value of the 5-year zero must be×.60 = $6 million.$10millionSimilarly, the market value of the 20-year zero must be$10× .40 = $4 millionmillionb) Face value of the 5-year zero-coupon bond will be× (1.10)5 = $9.66 million.$6millionFace value of the 20-year zero-coupon bond will be$4 million × (1.10)20 = $26.91 million.18. a) 4b) 4c)42d)21. Note that we did not discuss swaps in detail. For that reason, I would not expect you to beable to answer this type of question on the exam. The question is meant to provide youwith a brief summary of some potential motivations for swaps.a) a. This swap would have been made if the investor anticipated a decline in long-terminterest rates and an increase in long-term bond prices. The deeper discount, lowercoupon 6 3/8% bond would provide more opportunity for capital gains, greater callprotection, and greater protection against declining reinvestment rates at a cost of only amodest drop in yield.b. This swap was probably done by an investor who believed the 24 basis point yield spreadbetween the two bonds was too narrow. The investor anticipated that, if the spreadwidened to a more normal level, either a capital gain would be experienced on theTreasury note or a capital loss would be avoided on the Phone bond, or both. Also, thisswap might have been done by an investor who anticipated a decline in interest rates, andwho also wanted to maintain high current coupon income and have the better callprotection of the Treasury note. The Treasury note would have unlimited potential forprice appreciation, in contrast to the Phone bond which would be restricted by its callprice. Furthermore, if intermediate-term interest rates were to rise, the price decline ofthe higher quality, higher coupon Treasury note would likely be “cushioned” and thereinvestment return from the higher coupons would likely be greater.c. This swap would have been made if the investor were bearish on the bond market. Thezero coupon note would be extremely vulnerable to an increase in interest rates since theyield to maturity, determined by the discount at the time of purchase, is locked in. This isin contrast to the floating rate note, for which interest is adjusted periodically to reflectcurrent returns on debt instruments. The funds received in interest income on the floatingrate notes could be used at a later time to purchase long-term bonds at more attractiveyields.d. These two bonds are similar in most respects other than quality and yield. An investorwho believed the yield spread between Government and Al bonds was too narrow wouldhave made the swap either to take a capital gain on the Government bond or to avoid acapital loss on the Al bond. The increase in call protection after the swap would not be afactor except under the most bullish interest rate scenarios. The swap does, however,extend maturity another 8 years and yield to maturity sacrifice is 169 basis points.e. The principal differences between these two bonds are the convertible feature of the Zmart bond and the yield and coupon advantage, and the longer maturity of the LuckyDucks debentures. The swap would have been made if the investor believed somecombination of the following: First, that the appreciation potential of the Z martconvertible, based primarily on the intrinsic value of Z mart common stock, was nolonger as attractive as it had been. Second, that the yields on long-term bonds were at acyclical high, causing bond portfolio managers who could take A2-risk bonds to reach forhigh yields and long maturities either to lock them in or take a capital gain when ratessubsequently declined. Third, while waiting for rates to decline, the investor will enjoyan increase in coupon income. Basically, the investor is swapping an equity-equivalentfor a long- term corporate bond.23. Choose the longer-duration bond to benefit from a rate decrease.a) The Aaa-rated bond will have the lower yield to maturity and the longer duration.b) The lower-coupon bond will have the longer duration and more de facto call protection.c) Choose the lower coupon bond for its longer duration.30. The price of the 7% bond in 5 years is:PVA(C=$70, N=25, r=8%) + PV($1000, N=25, r=8%) = $893.25You also get five $70 coupon payments four of which can be reinvested at 6% for a total of $394.59 in coupon income.HPR = ($893.25 - 867.42 + 394.59)/867.42 = 48.47%The price of the 6.5% bond in 5 years is:PVA(C=$65, N=15, r=7.5%) + PV($1000, N=15, r=7.5%) = $911.73You also get five $65 coupon payments four of which can be reinvested at 6% for a total of $366.41 in coupon income.HPR = ($911.73 - 879.50 + 366.41)/879.50 = 45.33%**The 7% bond has a higher 5-year holding period return.。
投资学(博迪)答案
(ii)价格不变，净价值不变。
收益百分比= 0。
(iii)净价值下跌至7 2美元×2 5 0-5 000美元=13 000美元。
收益百分比=2 000美元/15 000美元=-0.133 3=-1 3 . 3 3%
股票价格的百分比变化和投资者收益百分比关系由下式给定：
第五章利率史与风险溢价
1.根据表5-1，分析以下情况对真实利率的影响？
a.企业对其产品的未来需求日趋悲观，并决定减少其资本支出。
b.居民因为其未来社会福利保险的不确定性增加而倾向于更多地储蓄。
c.联邦储蓄委员会从公开市场上购买美国国债以增加货币供给。
a.如果企业降低资本支出，它们就很可能会减少对资金的需求。这将使得图5 - 1中的需求曲线向左上方移动，从而降低均衡实际利率。
a. Lanni公司向银行贷款。它共获得50000美元的现金，并且签发了一张票据保证3年内还款。
b. Lanni公司使用这笔现金和它自有的20000美元为其一新的财务计划软件开发提供融资。
c. Lanni公司将此软件产品卖给微软公司（Microsoft）,微软以它的品牌供应给公众，Lanni公司获得微软的股票1500股作为报酬。
10.67%; -2.67%; -16%
e.假设一年后，Intel股票价格降至多少时，投资者将受到追缴保证金的通知？p=28.8
购买成本是8 0美元×250=20 000美元。你从经纪人处借得5 000美元，并从自有资金中取出
15 000美元进行投资。你的保证金账户初始净价值为15 000美元。
a. (i)净价值增加了2 000美元，从15 000美元增加到：8 8美元×2 5 0-5 000美元=17 000美元。
公司理财英文版练习题答案第七章 Pangaea Corpor
公司理财英文版练习题答案第七章Pangaea Corpor1、______ pocket money did you get when you were a child? （）[单选题] *A. WhatB. HowC. How manyD. How much(正确答案)2、Nuclear science should be developed to benefit the people_____harm them. [单选题] *A.more thanB.other thanC.rather than(正确答案)D.better than3、The huntsman caught only a（）of the deer before it ran into the woods. [单选题] *A. gazeB. glareC. glimpse(正确答案)D. stare4、35．___________ good music the teacher is playing! [单选题] *A．What(正确答案)B．HowC．What aD．What the5、——Have you（）your friend Bill recently? ———No, he doesnt often write to me. [单选题] *A. heard aboutB. heard ofC. heard from (正确答案)D. received from6、Just use this room for the time being ,and we’ll offer you a larger one _______it becomes available [单选题] *A. as soon as(正确答案)B unless .C as far asD until7、?I am good at schoolwork. I often help my classmates _______ English. [单选题] *B. toC. inD. with(正确答案)8、—What were you doing when the rainstorm came?—I ______ in the library with Jane. （）[单选题] *A. readB. am readingC. will readD. was reading(正确答案)9、I _______ Zhang Hua in the bookstore last Sunday. [单选题] *A. meetB. meetingC. meetedD. met(正确答案)10、I often _______ music from the Internet. [单选题] *A. download(正确答案)B. spendD. read11、I think ______ time with my friends is fun for me.（）[单选题] *A. spendB. spendC. spending(正确答案)D. spent12、Ladies and gentlemen, please fasten your seat belts. The plane _______. [单选题] *A. takes offB. is taking off(正确答案)C. has taken offD. took off13、You wouldn' t have caught such ____ bad cold if you hadn' t been caught in ____?rain. [单选题] *A. a, /B. a, aC. a,the(正确答案)D. /, /14、We _______ swim every day in summer when we were young. [单选题] *A. use toB. are used toC. were used toD. used to(正确答案)15、This year our school is _____ than it was last year. [单选题] *A. much more beautiful(正确答案)B. much beautifulC. the most beautifulD. beautiful16、Sichuan used to have more people than ______ province in China. [单选题] *A. otherB. any other(正确答案)C. anotherD. any others17、32．There are about __________ women doctors in this hospital. [单选题] *A．two hundred ofB．two hundreds ofC．two hundredsD．two hundred (正确答案)18、Jim will _______ New York at 12 o’clock. [单选题] *A. get onB. get outC. get offD. get to(正确答案)19、Jeanne's necklace was _____ 500 francs at most. [单选题] *A. worthyB. costC. worth(正确答案)D. valuable20、It was _____ that the policy of reform and opening up came into being in China. [单选题] *A. in the 1970s(正确答案)B. in 1970sC. in the 1970s'D. in 1970's21、—______?—He can do kung fu.（）[单选题] *A. What does Eric likeB. Can Eric do kung fuC. What can Eric do(正确答案)D. Does Eric like kung fu22、I passed the test, I _____ it without your help. [单选题] *A.would not passB. wouldn't have passed(正确答案)C. didn't passD.had not passed23、Having stayed in the United States for more than ten years, he got an American（）[单选题] *A. speechB. accent(正确答案)C. voiceD. sound24、28．The question is very difficult. ______ can answer it. [单选题] * A．EveryoneB．No one(正确答案)C．SomeoneD．Anyone25、Is there ____ for one more in the car? [单选题] *A. seatB. situationC. positionD. room(正确答案)26、He does ______ in math.（）[单选题] *A. goodB. betterC. well(正确答案)D. best27、The travelers arrived _______ Xi’an _______ a rainy day. [单选题] *A. at; inB. at; onC. in; inD. in; on(正确答案)28、Tom’s sister is a nurse. I met _______ in the street yesterday . [单选题] *A. sheB. hersC. himD. her(正确答案)29、17．—When ________ they leave here?—Tomorrow morning. [单选题] * A．doB．will(正确答案)C．doesD．are30、I saw the boy _______?the classroom. [单选题] *A. enter intoB. enter(正确答案)C. to enter intoD. to enter。
博迪投资学答案chap005-7thed
博迪投资学答案chap005-7thedCHAPTER 5: LEARNING ABOUT RETURN AND RISKFROM THE HISTORICAL RECORD1. a. The “Inflation-Plus” CD is the safer investment because it guarantees thepurchasing power of the investment. Using the approximation that the realrate equals the nominal rate minus the inflation rate, the CD provides a realrate of 3.5% regardless of the inflation rate.b. The expected return depends on the expected rate of inflation over the nextyear. If the expected rate of inflation is less than 3.5% then the conventionalCD offers a higher real return than the Inflation-Plus CD; if the expected rateof inflation is greater than 3.5%, then the opposite is true.c. If you expect the rate of inflation to be 3% over the next year, then theconventional CD offers you an expected real rate of return of 4%, which is0.5% higher than the real rate on the inflation-protected CD. But unless youknow that inflation will be 3% with certainty, the conventional CD is alsoriskier. The question of which is the better investment then depends on yourattitude towards risk versus return. You might choose to diversify and investpart of your funds in each.d. No. We cannot assume that the entire difference between the risk-freenominal rate (on conventional CDs) of 7% and the real risk-free rate (oninflation-protected CDs) of 3.5% is the expected rate of inflation. Part of thedifference is probably a risk premium associated with the uncertaintysurrounding the real rate of return on the conventional CDs. This implies thatthe expected rate of inflation is less than 3.5% per year.2.From Table 5.3, the average risk premium for large-capitalization U.S. stocks forthe period 1926-2005 was: (12.15% - 3.75%) = 8.40% per yearAdding 8.40% to the 6% risk-free interest rate, the expected annual HPR for theS&P 500 stock portfolio is: 6.00% + 8.40% = 14.40%3. Probability distribution of price and one-year holding period return for a 30-yearGerman Government bond (which will have 29 years to maturity at year’s end):Economy Probability YTM Price CapitalGainCouponInterestHPRBoom 0.20 11.0% $ 74.05 -$25.95 $8.00 -17.95% Normal Growth 0.50 8.0% $100.00 $ 0.00 $8.00 8.00% Recession 0.30 7.0%$112.28 $12.28 $8.00 20.28%5-14. E(r) = [0.35 ? 44.5%] + [0.30 ? 14.0%] + [0.35 ? (–16.5%)] = 14%σ2 = [0.35 ? (44.5 – 14)2] + [0.30 ? (14 – 14)2] + [0.35 ? (–16.5 –14)2] = 651.175 σ = 25.52%The mean is unchanged, but the standard deviation has increased, as theprobabilities of the high and low returns have increased.5. For the money market fund, your holding period return for the next year depends onthe level of 30-day interest rates each month when the fund rolls over maturingsecurities. The one-year savings deposit offers a 7.5% holding period return for the year. If you forecast that the rate on money market instruments will increasesignificantly above the current 6% yield, then the money market fund might result ina higher HPR than the savings deposit. The 20-year U.K Government bond offers ayield to maturity of 9% per year, which is 150 basis points higher than the rate on the one-year savings deposit; however, you could earn a one-year HPR much less than 7.5% on the bond if long-term interest rates increase during the year. If U.K Government bond yields rise above 9%, then the price of the bond will fall, and the resulting capital loss will wipe out some or all of the 9% return you would haveearned if bond yields had remained unchanged over the course of the year.6. a. If businesses reduce their capital spending, then they arelikely to decreasetheir demand for funds. This will shift the demand curve in Figure 5.1 tothe left and reduce the equilibrium real rate of interest.b. Increased household saving will shift the supply of funds curve to the rightand cause real interest rates to fall.c. Open market purchases of U.S. Treasury securities by the Federal ReserveBoard is equivalent to an increase in the supply of funds (a shift of thesupply curve to the right). The equilibrium real rate of interest will fall.5-25-37.The average rates of return and standard deviations are quite different in the sub periods: STOCKS Mean Deviation Skewness Kurtosis1926 –2005 12.15% 20.26% -0.3605 -0.0673 1976 –2005 13.85% 15.68% -0.4575 -0.6489 1926 –1941 6.39% 30.33% -0.0022 -1.0716BONDSMean DeviationSkewness Kurtosis1926 – 2005 5.68% 8.09% 0.9903 1.6314 1976 – 2005 9.57% 10.32% 0.3772 -0.0329 1926 – 19414.42%4.32% -0.5036 0.5034The most relevant statistics to use for projecting into thefuture would seem to be the statistics estimated over the period 1976-2005, because this later period seems to have been a different economic regime. After 1955, the U.S. economy entered the Keynesian era, when the Federal government actively attempted to stabilize the economy and to prevent extremes in boom and bust cycles. Note that the standard deviation of stock returns has decreased substantially in the later period while the standard deviation of bond returns has increased.8. Real interest rates are expected to rise. The investment activity will shift the demand for funds curve (in Figure 5.1) to the right. Therefore the equilibrium real interest rate will increase.9. a %88.50588.070.170.080.0i 1i R 1i 1R 1r ==-=+-=-++=b.r ≈ R - i = 80% - 70% = 10%Clearly, the approximation gives a real HPR that is too high.10. From Table 5.2, the average real rate on T-bills has been:0.72% a. T-bills: 0.72% real rate + 3% inflation = 3.72%b.Expected return on large stocks:3.72% T-bill rate + 8.40% historical risk premium = 12.12%c.The risk premium on stocks remains unchanged. A premium, the difference between two rates, is a real value, unaffected by inflation.11. E(r) = (0.1 × 15%) + (0.6 × 13%) + (0.3 × 7%) = 11.4%12. The expected dollar return on the investment in equities is $18,000 compared to the$5,000 expected return for T-bills. Therefore, the expectedrisk premium is $13,000.13. E(r X) = [0.2 × (?20%)] + [0.5 × 18%] + [0.3 × 50%] =20%E(r Y)= [0.2 × (?15%)] + [0.5 × 20%] + [0.3 × 10%] =10%14. σX 2 = [0.2 ? (– 20 – 20)2] + [0.5 ? (18 – 20)2] + [0.3 ? (50 – 20)2] = 592σX = 24.33%σY 2 = [0.2 ? (– 15 – 10)2] + [0.5 ? (20 – 10)2] + [0.3 ? (10 –10)2] = 175σX = 13.23%15. E(r) = (0.9 × 20%) + (0.1 × 10%) =19%16. E(r) = [0.2 × (?25%)] + [0.3 × 10%] + [0.5 × 24%] =10%17. The probability that the economy will be neutral is 0.50, or 50%. Given a neutraleconomy, the stock will experience poor performance 30% of the time. Theprobability of both poor stock performance and a neutral economy is therefore:0.30 ? 0.50 = 0.15 = 15%18. a. Probability Distribution of the HPR on the Stock Market and Put:STOCK PUTState of the Economy ProbabilityEnding Price +DividendHPR Ending Value HPRBoom 0.30 $134 34% $ 0.00 -100% Normal Growth 0.50 $114 14% $ 0.00 -100% Recession 0.20 $ 84 -16% $ 29.50 146% Remember that the cost of the index fund is $100 per share, and the cost of the put option is $12.5-4b. The cost of one share of the index fund plus a put option is $112. Theprobability distribution of the HPR on the portfolio is:State of the Economy ProbabilityEnding Price +Put +DividendHPR= (134 - 112)/112Normal Growth 0.50 $114.00 1.8% = (114 - 112)/112 Recession 0.20 $113.50 1.3% = (113.50 - 112)/112c. Buying the put option guarantees the investor a minimum HPR of 1.3%regardless of what happens to the stock's price. Thus, it offers insuranceagainst a price decline.19. The probability distribution of the dollar return on CD plus call option is:State of the Economy ProbabilityEnding Valueof CDEnding Valueof CallCombinedValueBoom 0.30 $114.00 $19.50 $133.50 Normal Growth 0.50 $114.00 $ 0.00 $114.00 Recession 0.20 $114.00 $ 0.00 $114.00 5-5。
投资学精要（博迪）（第五版）习题答案英文版chapter7
投资学精要（博迪）（第五版）习题答案英文版chapter7Essentials of Investments (BKM 5th Ed.)Answers to Selected Problems – Lecture 4Note: The solutions to Example 6.4 and the concept checks are provided in the text.Chapter 6:23. In the regression of the excess return of Stock ABC on the market, the square of thecorrelation coefficient is 0.296, which indicates that 29.6% of the variance of the excesss return of ABC is explained by the market (systematic risk).Chapter 7:3. E(R p) = R f + βp[E(R M) - R f]0.20 = 0.05 + β(0.15 - 0.05)β = 0.15/0.10 = 1.5β=0 implies E(R)=R f, not zero.6. a) False:b) False: Investors of a diversified portfolio require a risk premium for systematic risk. Only thesystematic portion of total risk is compensated.c) False: 75% of the portfolio should be in the market and 25% in T-bills.βp=(0.75 * 1) + (0.25 * 0) = 0.758. Not possible. Portfolio A has a higher beta than B, but a lower expected return.9. Possible. If the CAPM is valid, the expected rate of return compensates only for market risk (beta),rather than for nonsystematic risk. Part of A’s risk may be nonsystematic.10. Not possible. If the CAPM is valid, the market portfolio is the most efficient and a higher reward-to-variability ratio than any other security. In other words, the CML must be better than the CAL for any other security. Here, the slope of the CAL for A is 0.5 while the slope of the CML is 0.33.11. Not possible. Portfolio A clearly dominates the market portfolio with a lower standard deviationand a higher expected return. The CML must be better than the CAL for security A.12. Not possible. Security A has an expected return of 22% based on CAPM and an actual return of16%. Security A is below the SML and is therefore overpriced. It is also clear that security A has a higher beta than the market, but a lower return which is not consistent with CAPM.13. Not possible. Security A has an expected return of 17.2% and an actual return of 16%. Security A isbelow the SML and is therefore overpriced.14. Possible. Portfolio A has a lower expected return and lower standard deviation than the market andthus plots below the CML.17. Using the SML: 6 = 8 + β(18 – 8)β = –2/10 = –.221. The expected return of portfolio F equals the risk-free rate since its beta equals 0. Portfolio A’sratio of risk premium to beta is: (10-4)/1 = 6.0%. You can think of this as the slope of the pricing line for Security A. Portfolio E’s ratio of risk premium to beta is: (9-4)/(2/3) = 7.5%, suggesting that Portfolio E is not on the same pricing line as security A. In other words, there is an arbitrage opportunity here.For example, if you created a new portfolio by investing 1/3in the risk-free security and 2/3 insecurity A, you would have a portfolio with a beta of 2/3 and an expected return equal to (1/3)*4% + (2/3)*10% = 8%. Since this new portfolio has the same beta as security E (2/3) but a lowerexpected return (8% vs. 9%) there is clearly an arbitrage opportunity.26. The APT factors must correlate with major sources of uncertainty in the economy. These factorswould correlate with unexpected changes in consumption and investment opportunities. DNP, the rate of inflation, and interest rates are candidates for factors that can be expected to determine risk premia. Industrial production varies with the business cycle, and thus is a candidate for a factor that is correlated with uncertainties related to investment opportunities in the economy.27. A revised estimate of the rate of return on this stock would be the old estimate plus the sum of the expected changes in the factors multiplied by the sensitivity coefficients to each factor:revised R i = 14% + 1.0(1%) + 0.4(1%) = 15.4%28. E(R P) = r f + βP1[E(R1) - R f] + βP2[E(R2) - R f]Use each security’s sensitivity to the factors to solve for the risk premia on the factors:Portfolio A: 40% = 7% + 1.8γ1 + 2.1γ2Portfolio B: 10% = 7% + 2.0γ1 + (-0.5)γ2Solving these two equations simultaneously gives γ1 = 4.47 and γ2 = 11.88.This gives the following expected return beta relationship for the economy:E(R P) = 0.07 + 4.47βP1 + 11.88βP230. d. From the CAPM, the fair expected return = 8% + 1.25 (15% - 8%) = 16.75%Actually expected return = 17%α = 17% - 16.75% = 0.25%31. d. The risk-free rate34. d. You need to know the risk-free rate. For example, if we assume a risk-free rate of 4%, then the alphaof security R is 2.0% and it lies above the SML. If we assume a risk-free rate of 8%, then the alpha ofsecurity R is zero and it lies on the SML.40. d.。
投资学精要(博迪)(第五版)习题答案英文版chapter3
Essentials of Investments (BKM 5th Ed.)Answers to Selected Problems – Lecture 2Chapter 3:1. a) In addition to the explicit fees of $70,000, FBN appears to have paid an implicit pricein underpricing of the IPO. The underpricing is $3/share or $300,000 total, implyingtotal costs of $370,000.b) No. The underwriters do not capture the part of the costs corresponding to theunderpricing. The underpricing may be a rational marketing strategy. Without it, theunderwriters would need to spend more resources to place the issue with the public.They would then need to charge higher explicit fees to the issuing firm. The issuingfirm may be just as well off paying the implicit issuance cost represented by theunderpricing.2. Potential losses are unlimited due to the fact that, theoretically, there is no limit on the priceincrease of a stock.The stop-buy order limits the losses from the short position. If the stop-buy order can be filled at $128, the maximum possible loss is $8 per share. One should keep in mind, however, that while the stop-buy order is triggered when the stock price hits $128, the order may not be filled at exactly $128.6. a) The market buy order is filled at $50.25 (the best limit-sell order) due to pricepriority.b) The next market buy order would be filled at $51.50 since this is the next best price.c) You should increase your position. There is considerable buying pressure just below $50,meaning that downside risk is limited. In contrast, limit sell orders are sparse,meaning that a moderate buy order could result in a substantial price increase.7. a) Buy 200 shares of Telecom at $50/share = $10,000.Sell 200 shares of Telecom at $50*(1.1) = $11,000.Pay interest of $5,000 * .08 = $400.Your Holding Period Return (HPR) = ($11,000 - 10,000 - 400)/$5,000 = 12%b) Ignoring the interest payment,Margin = (Value of Securities - Loan)/Value of Securities0.30 = (200*P - $5,000)/200*P or P = $35.719. Cost of purchase is $40 x 500 = $20,000. You borrow $5000 from your broker, and invest $15,000of your own funds. Your margin account starts out with a net worth of $15,000.a. (i) Net worth rises by $2,000 from $15,000 to $44 × 500 – $5,000 = $17,000.Percentage gain = $2,000/$15,000 = .133 = 13.3%(ii) With unchanged price, net worth remains unchanged.Percentage gain = zero(iii) Net worth falls to $36 × 500 – $5,000 = $13,000.Percentage gain = –$2,000/$15,000 = –.133 = –13.3%The relationship between the percentage change in the price of the stock and the investor’s percentage gain is given by:% gain = % change in price × Total investment investor's initial equity = % change in price × 1.33For example, when the stock price rises from 40 to 44, the percentage change in price is 10%, while the percentage gain for the investor is 1.33 times as large, 13.3%:% gain = 10% × $20,000$15,000 = 13.3%b. The value of the 500 shares is 500P. Equity is 500P – 5000. You will receive a margin call when500P-5000500P = .25 or when P = $13.33.c. The value of the 500 shares is 500P. But now you have borrowed $10,000 instead of $5,000. Therefore, equity is only 500P – $10,000. You will receive a margin call when500P-10,000500P = .25 or when P = $26.67.With less equity in the account, you are far more vulnerable to a margin call.d. The margin loan with accumulated interest after one year is $5,000 x 1.08 = $5,400. Therefore, equity in your account is 500P – $5,400. Initial equity was $15,000. Therefore, your rate of return after one year is as follows:(i) (500 × $44 – $5400) – $15,00015,000= .1067, or 10.67%.(ii) (500 × $40 – $5400) – $15,00015,000= –.0267, or –2.67%.(iii) (500 × $36 – $5400) – $15,00015,000= –.160, or –16.0%.The relationship between the percentage change in the price of Intel and investor’s percentage return is given by:% gain = % change in price x Total investment investor's initial equity – 8% x Funds borrowed Initial net worthFor example, when the stock price rises from 40 to 44, the percentage change in price is 10%, while the percentage gain for the investor is10% × 20,00015,000 – 8% × 500015,000 = 10.67%e. The value of the 500 shares is 500P. Equity is 500P – 5,400. You will receive a margin call when500P – 5400500P= .25 or when P = $14.4010. a)The gain or loss on the short position is –500 x ∆P. Invested funds are $15,000.Therefore the rate of return = (-500 x ∆P)/15,000. The returns in each of the threescenarios are:(i) (-500 x 4)/15000 = -13.3%(ii) (-500 x 0)/15000 = 0%(iii) (-500 x (–4))/15000 = 13.3%b)Total assets in the margin account are $20,000 (from the sale of stock) plus $15,000(the initial margin) = $35,000. Liabilities are 500P (the price of buying back theshares). A margin call will be issued when:(20,000 + 15,000 – 500P)/500P = 0.25 or P=$56c)With a $1 dividend, the short position must also pay $1 per share or $500 ($1 x 500)on the borrowed shares. The rate of return will be (-500 x ∆P – 500)/15,000.(i) [(-500 x 4) – 500]/15000 = -16.7%(ii) [(-500 x 0) – 500]/15000 = -3.33%(iii) [(-500 x (–4)) – 500]/15000 = 10.0%Liabilities are now (500P + 500). A margin call will be issued when:(20,000 + 15,000 – 500P - 500)/500P = 0.25 or P=$55.2013. a)55 ½ b)55 ¼ c)The trade will not be executed since the price on the limit sell order is higher than the quotedbid price (and the quoted ask price). d) In a purely dealer market, the trade will not be executed since the price on the limit buy orderis lower than the quoted ask price and all buy orders must be executed against the dealer’s ask quote.However, even on the Nasdaq market, customer limit orders now get priority over dealerquotes when they offer a better price than the quotes. In addition, the order could besubmitted to an ECN where it would set the inside quote. As a result, the Nasdaq dealermarket is looking more and more like an exchange market (see 14(b) below). Since this limitbuy order is offering to pay a higher price than the dealer (whose bid quote is 55¼), the limitorder would be executed against the next incoming market sell order.14. a) There can be price improvement for the two market orders. Brokers for each of themarket orders (i.e., the buy and the sell orders) can agree to do a trade inside thequoted spread. For example, they can trade at $55 3/8, thus improving the price forboth customers by $1/8 relative to the quoted bid and ask prices. The buyer gets thestock for $1/8 less than the quoted ask price and the seller receives $1/8 more for thestock than the quoted bid price.b) Whereas the limit buy order at $55 3/8 would not be executed in a purely dealer market(since the ask price is $55 ½), it could be executed in an exchange market. A brokerfor another customer with an order to sell at the market price would view the limitbuy order as the best bid price. The two brokers could agree to the trade and bring itto the specialist who would then execute the trade.19. d) Your order will be triggered at a price of $55. However, when the stock price dropsbelow your stop-loss price of $55, your stop-loss order immediately becomes amarket order and is executed at the prevailing market price. Thus, you could get $55per share, but you could also get a little bit more or a little bit less.。
博迪投资学课后答案
CHAPTER 1: THE INVESTMENT ENVIRONMENT PROBLEM 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. Becausebundling and unbundling creates financial products with new properties and sensitivities to various sources of risk, it allows investors to hedge particular sources of risk moreefficiently.2.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. 3. 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 institutionsmake loans from their own portfolios. As securitization progresses, financialintermediaries must increase other activities such as providing short-term liquidity toconsumers and small business, and financial services.4. Financial assets make it easy for large firms to raise the capital needed to finance theirinvestments in real assets. If General Motors, for example, could not issue stocks orbonds 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 growth.5. Even if the firm does not need to issue stock in any particular year, the stock market is stillimportant 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 future prospects 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 sharesmore 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 theliability.7. a. The bank loan is a financial liability for Lanni. (Lanni's IOU is the bank's financialasset.) The cash Lanni receives is a financial asset. The new financial asset createdis Lanni's promissory note (that is, Lanni’s IOU to the bank).b. Lanni transfers financial assets (cash) to the software developers. In return, Lannigets a real asset, the completed software. No financial assets are created ordestroyed; cash is simply transferred from one party to another.c. Lanni gives the real asset (the software) to Microsoft in exchange for a financialasset, 1,500 shares of Microsoft stock. If Microsoft issues new shares in order to payLanni, 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 anotherfinancial asset (its IOU). The loan is "destroyed" in the transaction, since it is retiredwhen paid off and no longer exists.8. a.AssetsLiabilities &Shareholders’ equityCash $ 70,000 Bank loan $ 50,000 Computers 30,000 Shareholders’ equity Total 50,000$100,000 Total $100,000Ratio of real assets to total assets = $30,000/$100,000 = 0.30b.AssetsLiabilities & Shareholders’ equity Software product*$ 70,000 Bank loan $ 50,000 Computers30,000 Shareholders’ equity Total 50,000 $100,000 Total $100,000 *Valued at costRatio of real assets to total assets = $100,000/$100,000 = 1.0c.AssetsLiabilities & Shareholders’ equity Microsoft shares$120,000 Bank loan $ 50,000 Computers30,000 Shareholders’ equity Total 100,000 $150,000 Total $150,000 Ratio of real assets to total assets = $30,000/$150,000 = 0.20Conclusion: when the firm starts up and raises working capital, it is characterized bya low ratio of real assets to total assets. When it is in full production, it has a highratio of real assets to total assets. When the project "shuts down" and the firm sells itoff 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 offinancial institutions is to make loans; which are financial assets for financialinstitutions.10. a. Primary-market transactionb. Derivative assetsc.Investors who wish to hold gold without the complication and cost of physicalstorage.11. a. A fixed salary means that 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. However, the manager might view this asthe 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 themost when the shareholders’ wealth is maximized. This structure is therefore mostlikely to align the interests of managers and shareholders. If stock compensation isoverdone, however, the manager might view it as overly risky since the manager’scareer is already linked to the firm, and this undiversified exposure would beexacerbated with a large stock position in the firm.c. Call options on shares of the firm create great incentives for managers to contribute tothe firm’s success. In some cases, however, stock options can lead to other agencyproblems. For example, a manager with numerous call options might be tempted totake on a very risky investment project, reasoning that if the project succeeds thepayoff will be huge, while if it fails, the losses are limited to the lost value of theoptions. 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, 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 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. It is clearly worthwhile for the bank tospend 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. Thelower average rate of return compared to stocks is the price investors pay forpredictability of investment performance and portfolio value.15. With a “top-down” investing style, you focus on asset allocation or the broad compositionof 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 riskconsistent 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 fromidentifying 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 inconsistentwith your level of risk tolerance. In addition, this technique tends to require more activemanagement, 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 asimple buy-and-hold strategy.16. You should be skeptical. If the author actually knows how to achieve such returns, one mustquestion 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 obvious bargains are few and farbetween. Odds are that the only one getting rich from the book is its author.17. a. The SEC website defines the difference between saving and investing in terms ofthe investment alternatives or the financial assets the individual chooses to acquire.According to the SEC website, saving is the process of acquiring a “safe” financialasset and investing is the process of acquiring “risky” financial assets.b. The economist’s definition of savings is the difference between income andconsumption. Investing is the process of allocating one’s savings among availableassets, 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 andinvesting 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 isthe 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, includingsavings account deposits and money market accounts (“saving” according to the SIA),other financial assets such as stocks and bonds (“investing” according to the SIA), aswell as real assets.CHAPTER 2: ASSET CLASSES ANDFINANCIAL INSTRUMENTSPROBLEM SETS1. Preferred stock is like long-term debt in that it typically promises a fixed payment eachyear. In this way, it is a perpetuity. Preferred stock is also like long-term debt in that itdoes 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 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 tocash (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, thelikelihood of default. Investors will demand a greater premium on debt securitiessubject to default risk.4. On the day we tried this experiment, 36 of the 50 stocks met this criterion, leading us toconclude 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, moreprecisely, $58.75 semiannually.c.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, thetaxable income is: 0.30 × $4 = $1.20Therefore, 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’sprice. 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 = 83.333The rate of return is: (83.333/80) − 1 = 4.17%b.In the absence of a split, Stock C would sell for 110, so the value of the indexwould 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 return for each stockseparately equals zero.10. a. Total market value at t = 0 is: ($9,000 + $10,000 + $20,000) = $39,000T otal market value at t = 1 is: ($9,500 + $9,000 + $22,000) = $40,500R ate of return = ($40,500/$39,000) – 1 = 3.85%b.The return on each stock is as follows:r A r = (95/90) – 1 = 0.0556B r = (45/50) – 1 = –0.10CThe equally-weighted average is:= (110/100) – 1 = 0.10[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). Thecontract closes at a price of 1300, which is 127.50 less than the original futures price. Thecontract 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 = −$0.14Rate 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 = −$1.33Rate 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 toexpiration. Investors will pay something for this possibility of a positive payoff.17.Value of call at expiration Initial Cost Profita. 0 4 -4b. 0 4 -4c. 0 4 -4d. 5 4 1e. 10 4 6Value of put at expiration Initial Cost Profita. 10 6 4b. 5 6 -1c. 0 6 -6d. 0 6 -6e. 0 6 -618. A put option conveys the right to sell the underlying asset at the exercise price. A shortposition in a futures contract carries an obligation to sell the underlying asset at thefutures price.19. A call option conveys the right to buy the underlying asset at the exercise price. A longposition in a futures contract carries an obligation to buy the underlying asset at thefutures price.CFA PROBLEMS1.(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 isthe same as the before-tax yield (5%), which is greater than the yield on the municipalbond.b.The taxable bond. The after-tax yield for the taxable bond is:0.05 × (1 – 0.10) = 4.5%c.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 above20%.5.If the after-tax yields are equal, then: 0.056 = 0.08 × (1 – t)This implies that t = 0.30 =30%.CHAPTER 2: ASSET CLASSES ANDFINANCIAL INSTRUMENTSPROBLEM SETS1. Preferred stock is like long-term debt in that it typically promises a fixed payment eachyear. In this way, it is a perpetuity. Preferred stock is also like long-term debt in that itdoes 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 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 tocash (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, thelikelihood of default. Investors will demand a greater premium on debt securitiessubject to default risk.4. On the day we tried this experiment, 36 of the 50 stocks met this criterion, leading us toconclude 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, moreprecisely, $58.75 semiannually.c.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, thetaxable income is: 0.30 × $4 = $1.20Therefore, 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’sprice. 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 = 83.333The rate of return is: (83.333/80) − 1 = 4.17%b.In the absence of a split, Stock C would sell for 110, so the value of the indexwould 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 return for each stockseparately equals zero.10. a. Total market value at t = 0 is: ($9,000 + $10,000 + $20,000) = $39,000T otal market value at t = 1 is: ($9,500 + $9,000 + $22,000) = $40,500R ate of return = ($40,500/$39,000) – 1 = 3.85%b.The return on each stock is as follows:r A r = (95/90) – 1 = 0.0556B r = (45/50) – 1 = –0.10CThe equally-weighted average is:= (110/100) – 1 = 0.10[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). Thecontract closes at a price of 1300, which is 127.50 less than the original futures price. Thecontract 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 = −$0.14Rate 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 = −$1.33Rate 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 toexpiration. Investors will pay something for this possibility of a positive payoff.17.Value of call at expiration Initial Cost Profita. 0 4 -4b. 0 4 -4c. 0 4 -4d. 5 4 1e. 10 4 6Value of put at expiration Initial Cost Profita. 10 6 4b. 5 6 -1c. 0 6 -6d. 0 6 -6e. 0 6 -618. A put option conveys the right to sell the underlying asset at the exercise price. A shortposition in a futures contract carries an obligation to sell the underlying asset at thefutures price.19. A call option conveys the right to buy the underlying asset at the exercise price. A longposition in a futures contract carries an obligation to buy the underlying asset at thefutures price.CFA PROBLEMS1.(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 isthe same as the before-tax yield (5%), which is greater than the yield on the municipalbond.b.The taxable bond. The after-tax yield for the taxable bond is:0.05 × (1 – 0.10) = 4.5%c.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 above20%.5.If the after-tax yields are equal, then: 0.056 = 0.08 × (1 – t)This implies that t = 0.30 =30%.CHAPTER 3: HOW SECURITIES ARE TRADEDPROBLEM SETS1.Answers to this problem will vary.2. The SuperDot system expedites the flow of orders from exchange members to thespecialists. It allows members to send computerized orders directly to the floor of theexchange, which allows the nearly simultaneous sale of each stock in a large portfolio.This capability is necessary for program trading.3. The dealer sets the bid and asked price. Spreads should be higher on inactively traded stocksand lower on actively traded stocks.4. a. In principle, potential losses are unbounded, growing directly with increases in theprice of IBM.b. If the stop-buy order can be filled at $128, the maximum possible loss per share is$8. If the price of IBM shares goes above $128, then the stop-buy order would beexecuted, limiting the losses from the short sale.5. a. The stock is purchased for: 300 × $40 = $12,000The amount borrowed is $4,000. Therefore, the investor put up equity, or margin,of $8,000.b.If the share price falls to $30, then the value of the stock falls to $9,000. By theend of the year, the amount of the loan owed to the broker grows to:$4,000 × 1.08 = $4,320Therefore, the remaining margin in the investor’s account is:$9,000 − $4,320 = $4,680The percentage margin is now: $4,680/$9,000 = 0.52 = 52%Therefore, the investor will not receive a margin call.c.The rate of return on the investment over the year is:(Ending equity in the account − Initial equity)/Initial equity= ($4,680 − $8,000)/$8,000 = −0.415 = −41.5%6. a. The initial margin was: 0.50 × 1,000 × $40 = $20,000As a result of the increase in the stock price Old Economy Traders loses:$10 × 1,000 = $10,000Therefore, margin decreases by $10,000. Moreover, Old Economy Traders mustpay the dividend of $2 per share to the lender of the shares, so that the margin inthe account decreases by an additional $2,000. Therefore, the remaining margin is:$20,000 – $10,000 – $2,000 = $8,000b.The percentage margin is: $8,000/$50,000 = 0.16 = 16% So there will be a margin call.c.The equity in the account decreased from $20,000 to $8,000 in one year, for a rate of return of: (−$12,000/$20,000) = −0.60 = −60%7. Much of what the specialist does (e.g., 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 (e.g., maintaining an orderly market) can be replicated by a computer system.8. a.The buy order will be filled at the best limit-sell order price: $50.25 b. The next market buy order will be filled at the next-best limit-sell orderprice: $51.50c. You would want to increase your inventory. There is considerable buying demand atprices just below $50, indicating that downside risk is limited. In contrast, limit sellorders are sparse, indicating that a moderate buy order could result in a substantialprice increase.9. a.You buy 200 shares of Telecom for $10,000. These shares increase in value by 10%,or $1,000. You pay interest of: 0.08 × $5,000 = $400 The rate of return will be:000,5$400$000,1$−= 0.12 = 12%。
投资学英文第7TestBank答案chap018
Chapter18EquityValuationModelsMultipleChoiceQuestions________isequaltothetotalmarketvalueofthefirm'scommonstockdividedby(thereplacementcostofthefirm'sass etslessliabilities).BookvaluepershareLiquidationvaluepershareMarketvaluepershareTobin'sQNoneoftheabove.Answer:D Difficulty:EasyRationale:Bookvaluepershareisassetsminusliabilitiesdividedbynumberofshares.Liquidationvaluepershareisthe amountashareholderwouldreceiveintheeventofbankruptcy.Marketvaluepershareisthemarketpriceofthestock. HighP/Eratiostendtoindicatethatacompanywill_______,ceterisparibus.growquicklygrowatthesamespeedastheaveragecompanygrowslowlynotgrownoneoftheaboveAnswer:A Difficulty:EasyRationale:Investorspayforgrowth;hencethehighP/Eratioforgrowthfirms;however,theinvestorshouldbesurethathe orsheispayingforexpected,nothistoric,growth._________isequalto(commonshareholders'equity/commonsharesoutstanding).BookvaluepershareLiquidationvaluepershareMarketvaluepershareTobin'sQnoneoftheaboveAnswer:A Difficulty:EasyRationale:Seerationalefortestbankquestion4184.________areanalystswhouseinformationconcerningcurrentandprospectiveprofitabilityofafirmstoassessthefirm'sfairmarketvalue.CreditanalystsFundamentalanalystsSystemsanalystsTechnicalanalystsSpecialists5.Answer:B Difficulty:EasyRationale:Fundamentalistsuseallpublicinformationinanattempttovaluestock(whilehopingtoidentifyundervaluedsecurities).The_______isdefinedasthepresentvalueofallcashproceedstotheinvestorinthestock.dividendpayoutratiointrinsicvaluemarketcapitalizationrateplowbackrationoneoftheaboveAnswer:B Difficulty:EasyRationale:Thecashflowsfromthestockdiscountedattheappropriaterate,basedontheperceivedriskinessofthestock, themarketriskpremiumandtheriskfreerate,determinetheintrinsicvalueofthestock._______istheamountofmoneypercommonsharethatcouldberealizedbybreakingupthefirm,sellingtheassets,repayingt hedebt,anddistributingtheremaindertoshareholders.BookvaluepershareLiquidationvaluepershareMarketvaluepershareTobin'sQNoneoftheaboveAnswer:B Difficulty:EasyRationale:Seeexplanationfortestbankquestion18.1.419Since1955,Treasurybondyieldsandearningsyieldsonstockswere_______.identicalnegativelycorrelatedpositivelycorrelateduncorrelatedAnswer:C Difficulty:EasyRationale:Theearningsyieldonstocksequalstheexpectedrealrateofreturnonthestockmarket,whichshouldbeequalto theyieldtomaturityonTreasurybondsplusariskpremium,whichmaychangeslowlyovertime.TheyieldsareplottedinFigu re18.8.Historically,P/Eratioshavetendedtobe_________.higherwheninflationhasbeenhighlowerwheninflationhasbeenhigh uncorrelatedwithinflationratesbutcorrelatedwithothermacroeconomicvariables uncorrelatedwithanymacroeconomicvariablesincludinginflationratesnoneoftheabove9.Answer:B Difficulty:EasyRationale:P/Eratioshavetendedtobelowerwheninflationhasbeenhigh,reflectingthemarket'sassessmentthatearningsintheseperiodsareof"lowerquality",i.e.,artificiallydistortedbyinflation,andwarrantinglowerP/Eratios.The______isacommontermforthemarketconsensusvalueoftherequiredreturnonastock.dividendpayoutratiointrinsicvaluemarketcapitalizationrateplowbackratenoneoftheaboveAnswer:C Difficulty:EasyRationale:Themarketcapitalizationrate,whichconsistsoftherisk-freerate,thesystematicriskofthestockandthemarketriskpremium,istherateatwhichastock'scashflowsarediscountedinordertodetermineintrinsicvalue.420The_________isthefractionofearningsreinvestedinthefirm.dividendpayoutratioretentionrateplowbackratioAandCBandCAnswer:E Difficulty:EasyRationale:Retentionrate,orplowbackratio,representstheearningsreinvestedinthefirm.Theretentionrate,or(1-plowback)=dividendpayout.TheGordonmodelisageneralizationoftheperpetuityformulatocoverthecaseofagrowingperpetuity. isvalidonlywhengislessthank.isvalidonlywhenkislessthang.AandB.AandC.12.Answer:D Difficulty:EasyRationale:TheGordonmodelassumesconstantgrowthindefinitely.Mathematically,gmustbelessthank;otherwise,theintrinsicvalueisundefined.Youwishtoearnareturnof13%oneachoftwostocks,XandY.StockXisexpectedtopayadividendof$3intheupcomingyearwhileStockYisexpectedtopayadividendof$4intheupcomingyear.Theexpectedgrowthrateofdividendsforbothstocksis7%.TheintrinsicvalueofstockX______.cannotbecalculatedwithoutknowingthemarketrateofreturnwillbegreaterthantheintrinsicvalueofstockYwillbethesameastheintrinsicvalueofstockYwillbelessthantheintrinsicvalueofstockYnoneoftheaboveisacorrectanswer.Answer:D Difficulty:EasyRationale:PV0=D1/(k-g);givenkandgareequal,thestockwiththelargerdividendwillhavethehighervalue.42113.Youwishtoearnareturnof11%oneachoftwostocks,CandD.StockCisexpectedtopayadividendof$3intheupcomingyearwhileStockDisexpectedtopayadividendof$4intheupcomingyear.Theexpectedgrowthrateofdividendsforbothstocksis7%.TheintrinsicvalueofstockC______.willbegreaterthantheintrinsicvalueofstockDwillbethesameastheintrinsicvalueofstockDwillbelessthantheintrinsicvalueofstockDcannotbecalculatedwithoutknowingthemarketrateofreturnnoneoftheaboveisacorrectanswer.Answer:C Difficulty:EasyRationale:PV0=D1/(k-g);givenkandgareequal,thestockwiththelargerdividendwillhavethehighervalue. Youwishtoearnareturnof12%oneachoftwostocks,AandB.Eachofthestocksisexpectedtopayadividendof$2intheupcomin gyear.Theexpectedgrowthrateofdividendsis9%forstockAand10%forstockB.TheintrinsicvalueofstockA_____. willbegreaterthantheintrinsicvalueofstockBwillbethesameastheintrinsicvalueofstockBwillbelessthantheintrinsicvalueofstockB cannotbecalculatedwithoutknowingtherateofreturnonthemarketportfolio. noneoftheaboveisacorrectstatement.Answer:C Difficulty:EasyRationale:PV0=D1/(k-g);giventhatdividendsareequal,thestockwiththehighergrowthratewillhavethehighervalue. Youwishtoearnareturnof10%oneachoftwostocks,CandD.Eachofthestocksisexpectedtopayadividendof$2intheupcomin gyear.Theexpectedgrowthrateofdividendsis9%forstockCand10%forstockD.TheintrinsicvalueofstockC_____. willbegreaterthantheintrinsicvalueofstockDwillbethesameastheintrinsicvalueofstockDwillbelessthantheintrinsicvalueofstockD cannotbecalculatedwithoutknowingtherateofreturnonthemarketportfolio. noneoftheaboveisacorrectstatement.Answer:C Difficulty:EasyRationale:PV0=D1/(k-g);giventhatdividendsareequal,thestockwiththehighergrowthratewillhavethehighervalue.42216.Eachoftwostocks,AandB,areexpectedtopayadividendof$5intheupcomingyear.Theexpectedgrowthrateofdividendsis10%forbothstocks.Yourequirearateofreturnof11%onstockAandareturnof20%onstockB.TheintrinsicvalueofstockA_____.willbegreaterthantheintrinsicvalueofstockBwillbethesameastheintrinsicvalueofstockBwillbelessthantheintrinsicvalueofstockBcannotbecalculatedwithoutknowingthemarketrateofreturn.noneoftheaboveistrue.Answer:A Difficulty:EasyRationale:PV0=D1/(k-g);giventhatdividendsareequal,thestockwiththelargerrequiredreturnwillhavethelowervalue. Eachoftwostocks,CandD,areexpectedtopayadividendof$3intheupcomingyear.Theexpectedgrowthrateofdividendsis9 %forbothstocks.Yourequirearateofreturnof10%onstockCandareturnof13%onstockD.TheintrinsicvalueofstockC_____.willbegreaterthantheintrinsicvalueofstockDwillbethesameastheintrinsicvalueofstockDwillbelessthantheintrinsicvalueofstockDcannotbecalculatedwithoutknowingthemarketrateofreturn.noneoftheaboveistrue.18.Answer:A Difficulty:EasyRationale:PV0=D1/(k-g);giventhatdividendsareequal,thestockwiththelargerrequiredreturnwillhavethelowervalue.IftheexpectedROEonreinvestedearningsisequaltok,themultistageDDMreducestoA)V0=(ExpectedDividendPerShareinYear1)/kB)V0=(ExpectedEPSinYear1)/kV0=(TreasuryBondYieldinYear1)/kC)V0=(MarketreturninYear1)/knoneoftheaboveAnswer:B Difficulty:ModerateRationale:IfROE=k,nogrowthisoccurring;b=0;EPS=DPS423LowTechCompanyhasanexpectedROEof10%.Thedividendgrowthratewillbe________ifthefirmfollowsapolicyofpaying40%ofearningsintheformofdividends.6.0%4.8%7.2%3.0%noneoftheaboveAnswer:A Difficulty:EasyRationale:10%X=6.0%.MusicDoctorsCompanyhasanexpectedROEof14%.Thedividendgrowthratewillbe________ifthefirmfollowsapolicyo fpaying60%ofearningsintheformofdividends.4.8%5.6%7.2%6.0%noneoftheaboveAnswer:B Difficulty:EasyRationale:14%X=5.6%.MedtronicCompanyhasanexpectedROEof16%.Thedividendgrowthratewillbe________ifthefirmfollowsapolicyofpaying70%ofearningsintheformofdividends.3.0%6.0%7.2%4.8%noneoftheaboveAnswer:D Difficulty:EasyRationale:16%X=4.8%.424HighSpeedCompanyhasanexpectedROEof15%.Thedividendgrowthratewillbe________ifthefirmfollowsapolicyofpaying50%ofearningsintheformofdividends.3.0%4.8%7.5%6.0%noneoftheaboveAnswer:C Difficulty:EasyRationale:15%X=7.5%.LightConstructionMachineryCompanyhasanexpectedROEof11%.Thedividendgrowthratewillbe_______ifthefirmfo llowsapolicyofpaying25%ofearningsintheformofdividends.3.0%4.8%8.25%9.0%noneoftheaboveAnswer:C Difficulty:EasyRationale:11%X=8.25%.XlinkCompanyhasanexpectedROEof15%.Thedividendgrowthratewillbe_______ifthefirmfollowsapolicyofplowingback75%ofearnings.3.75%11.25%8.25%15.0%noneoftheaboveAnswer:B Difficulty:EasyRationale:15%X=11.25%.425ThinkTankCompanyhasanexpectedROEof26%.Thedividendgrowthratewillbe_______ifthefirmfollowsapolicyofplowingback90%ofearnings.2.6%10%23.4%90%noneoftheaboveAnswer:C Difficulty:EasyRationale:26%X=23.4%.BubbaGummCompanyhasanexpectedROEof9%.Thedividendgrowthratewillbe_______ifthefirmfollowsapolicyofplowingback10%ofearnings.90%10%9%0.9%noneoftheaboveAnswer:D Difficulty:EasyRationale:9%X=0.9%.27.Apreferredstockwillpayadividendofintheupcomingyear,andeveryyearthereafter,i.e.,dividendsarenotexpectedtogrow.Yourequireareturnof10%etheconstantgrowthDDMtocalculatetheintrinsicvalueofthispreferredstock.noneoftheaboveAnswer:B Difficulty:ModerateRationale:/.10=42628.Apreferredstockwillpayadividendoftheupcomingyear,andeveryyearthereafter,i.e.,dividendsarenotexpectedtogrow.Yourequireareturnof9%etheconstantgrowthDDMtocalculatetheintrinsicvalueofthispreferredstock.$0..27noneoftheaboveAnswer:A Difficulty:ModerateRationale:/.09=29.Apreferredstockwillpayadividendofintheupcomingyear,andeveryyearthereafter,i.e.,dividendsarenotexpectedtogrow.Yourequireareturnof12%etheconstantgrowthDDMtocalculatetheintrinsicvalueofthispreferredstock.noneoftheaboveAnswer:D Difficulty:ModerateRationale:/.12=30.Apreferredstockwillpayadividendofintheupcomingyear,andeveryyearthereafter,i.e.,dividendsarenotexpectedtogrow.Yourequireareturnof11%etheconstantgrowthDDMtocalculatetheintrinsicvalueofthispreferredstock.noneoftheaboveAnswer:C Difficulty:ModerateRationale:/.11=42731.Apreferredstockwillpayadividendofintheupcomingyear,andeveryyearthereafter,i.e.,dividendsarenotexpectedtogrow.Yourequireareturnof10%etheconstantgrowthDDMtocalculatetheintrinsicvalueofthispreferredstock.noneoftheaboveAnswer:E Difficulty:ModerateRationale:/.10=32.Apreferredstockwillpayadividendofintheupcomingyear,andeveryyearthereafter,i.e.,dividendsarenotexpectedtogrow.Yourequireareturnof10%etheconstantgrowthDDMtocalculatetheintrinsicvalueofthispreferredstock.$600noneoftheaboveAnswer:E Difficulty:ModerateRationale:/.10=33.Youareconsideringacquiringacommonstockthatyouwouldliketoholdforoneyear.Youexpecttoreceivebothindividendsand$32fromthesaleofthestockattheendoftheyear.Themaximumpriceyouwouldpayforthestocktodayis_____ifyouwantedtoearna10%return.noneoftheaboveAnswer:A Difficulty:ModerateRationale:.10=(32-P+1.25)/P;.10P=32-P+1.25;=33.25;P=30.23.42834.Youareconsideringacquiringacommonstockthatyouwouldliketoholdforoneyear.Youexpecttoreceivebothindividendsand$16fromthesaleofthestockattheendoftheyear.Themaximumpriceyouwouldpayforthestocktodayis_____ifyouwantedtoearna12%return.noneoftheaboveAnswer:B Difficulty:ModerateRationale:.12=(16-P+0.75)/P;.12P=16-P+0.75;=16.75;P=14.96.35.Youareconsideringacquiringacommonstockthatyouwouldliketoholdforoneyear.Youexpecttoreceivebothindividendsand$28fromthesaleofthestockattheendoftheyear.Themaximumpriceyouwouldpayforthestocktodayis_____ifyouwantedtoearna15%return.noneoftheaboveAnswer:C Difficulty:ModerateRationale:.15=(28-P+2.50)/P;.15P=28-P+2.50;=30.50;P=26.52.36.Youareconsideringacquiringacommonstockthatyouwouldliketoholdforoneyear.Youexpecttoreceivebothindividendsand$42fromthesaleofthestockattheendoftheyear.Themaximumpriceyouwouldpayforthestocktodayis_____ifyouwantedtoearna10%return.noneoftheaboveAnswer:E Difficulty:ModerateRationale:.10=(42-P+3.50)/P;.10P=42-P+3.50;=45.50;P=41.36.429Usethefollowingtoanswerquestions37-40:PaperExpressCompanyhasabalancesheetwhichlists$85millioninassets,$40millioninliabilitiesand$45million incommonshareholders'equity.Ithas1,400,000commonsharesoutstanding.Thereplacementcostoftheassetsis$115mil lion.Themarketsharepriceis$90.WhatisPaperExpress'sbookvaluepershare?noneoftheaboveAnswer:C Difficulty:ModerateRationale:=$32.14.WhatisPaperExpress'smarketvaluepershare?noneoftheaboveAnswer:E Difficulty:EasyWhatisPaperExpress'sreplacementcostpershare?noneoftheaboveAnswer:C Difficulty:ModerateRationale:$115M-=$53.57.430WhatisPaperExpress'sTobin'sq?noneoftheaboveAnswer:A Difficulty:ModerateRationale:$90/=Oneoftheproblemswithattemptingtoforecaststockmarketvaluesisthat therearenovariablesthatseemtopredictmarketreturn. theearningsmultiplierapproachcanonlybeusedatthefirmlevel. thelevelofuncertaintysurroundingtheforecastwillalwaysbequitehigh. dividendpayoutratiosarehighlyvariable.noneoftheabove.Answer:C Difficulty:EasyRationale:Althoughsomevariablessuchasmarketdividendyieldappeartobestronglyrelatedtomarketreturn,themarke thasgreatvariabilityandsothelevelofuncertaintyinanyforecastwillbehigh. Themostpopularapproachtoforecastingtheoverallstockmarketistousethedividendmultiplier.theaggregatereturnonassets.thehistoricalratioofbookvaluetomarketvalue.theaggregateearningsmultiplier.Tobin'sQ.Answer:D Difficulty:EasyRationale:Theearningsmultiplierapproachisthemostpopularapproachtoforecastingtheoverallstockmarket. Usethefollowingtoanswerquestions43-44:SureToolCompanyisexpectedtopayadividendof$2intheupcomingyear.Therisk-freerateofreturnis4%andtheexpectedreturnonthemarketportfoliois14%.AnalystsexpectthepriceofSure ToolCompanysharestobe$22ayearfromnow.ThebetaofSureToolCompany'sstockis1.25.431Themarket'srequiredrateofreturnonSure'sstockis_____.14.0%17.5%16.5%15.25%noneoftheaboveAnswer:C Difficulty:ModerateRationale:4%+1.25(14%-4%)=16.5%.WhatistheintrinsicvalueofSure'sstocktoday?noneoftheaboveAnswer:A Difficulty:DifficultRationale:k=.04+(.14-.04);k=.165;.165=(22-P+2)/P;.165P=24-P;=24;P=20.60.IfSure'sintrinsicvalueistoday,whatmustbeitsgrowthrate?0.0%10%4%6%7%Answer:E Difficulty:DifficultRationale:k=.04+(.14-.04);k=.165;.165=2/21+g;g=.07Usethefollowingtoanswerquestions46-47:TorqueCorporationisexpectedtopayadividendofintheupcomingyear.Dividendsareexpectedtogrowatt herateof6%peryear.Therisk-freerateofreturnis5%andtheexpectedreturnonthemarketportfoliois13%.ThestockofTorqueCorporationh asabetaof1.2.432WhatisthereturnyoushouldrequireonTorque'sstock?12.0%14.6%15.6%20%noneoftheaboveAnswer:B Difficulty:ModerateRationale:5%+1.2(13%-5%)=14.6%.WhatistheintrinsicvalueofTorque'sstock?noneoftheaboveAnswer:D Difficulty:DifficultRationale:k=5%+1.2(13%-5%)=14.6%;P=1/(.146-.06)=$11.62.48.MidwestAirlineisexpectedtopayadividendof$7inthecomingyear.Dividendsareexpectedtogrowattherateof15%peryear.Therisk-freerateofreturnis6%andtheexpectedreturnonthemarketportfoliois14%.ThestockofMidwestAirlinehasabetaof3.00.Thereturnyoushouldrequireonthestockis________.10%18%30%42%noneoftheaboveAnswer:C Difficulty:ModerateRationale:6%+3(14%-6%)=30%.43349.FoolsGoldMiningCompanyisexpectedtopayadividendof$8intheupcomingyear.Dividendsareexpectedtodeclineattherateof2%peryear.Therisk-freerateofreturnis6%andtheexpectedreturnonthemarketportfoliois14%.ThestockofFoolsGoldMiningCompanyhasabetaof-0.25.Thereturnyoushouldrequireonthestockis________.2%4%6%8%noneoftheaboveAnswer:B Difficulty:ModerateRationale:6%+[-0.25(14%-6%)]=4%.HighTechChipCompanyisexpectedtohaveEPSinthecomingyearof$2.50.TheexpectedROEis12.5%.Anappropriaterequ iredreturnonthestockis11%.Ifthefirmhasaplowbackratioof70%,thegrowthrateofdividendsshouldbe5.00%6.25%6.60%7.50%8.75%Answer:E Difficulty:EasyRationale:12.5%X=8.75%.Acompanypaidadividendlastyearof$1.75.TheexpectedROEfornextyearis14.5%.Anappropriaterequiredreturnonthestockis10%.Ifthefirmhasaplowbackratioof75%,thedividendinthecomingy earshouldbenoneoftheaboveAnswer:D Difficulty:ModerateRationale:g=.155X.75=10.875%;$1.75(1.10875)=434HighTechChipCompanypaidadividendlastyearof$2.50.TheexpectedROEfornextyearis12.5%.Anappropriaterequir edreturnonthestockis11%.Ifthefirmhasaplowbackratioof60%,thedividendinthecomingyearshouldbenoneoftheaboveAnswer:C Difficulty:ModerateRationale:g=.125X.6=7.5%;$2.50(1.075)=SupposethattheaverageP/Emultipleintheoilindustryis20.DominionOilisexpectedtohaveanEPSofinthecomingye ar.TheintrinsicvalueofDominionOilstockshouldbe_____.noneoftheaboveAnswer:C Difficulty:EasyRationale:20X=$60.00.SupposethattheaverageP/Emultipleintheoilindustryis22.ExxonOilisexpectedtohaveanEPSofinthecomingyear. TheintrinsicvalueofExxonOilstockshouldbe_____.noneoftheaboveAnswer:A Difficulty:EasyRationale:22X=$33.00.435SupposethattheaverageP/Emultipleintheoilindustryis16.MobilOilisexpectedtohaveanEPSofinthecomingyear. TheintrinsicvalueofMobilOilstockshouldbe_____.noneoftheaboveAnswer:D Difficulty:EasyRationale:16X=$72.00.56.SupposethattheaverageP/Emultipleinthegasindustryis17.KMPisexpectedtohaveanEPSofinthecomingyear.TheintrinsicvalueofKMPstockshouldbe_____.noneoftheaboveAnswer:B Difficulty:EasyRationale:17X=$93.50.57.AnanalysthasdeterminedthattheintrinsicvalueofHPQstockis$20pershareusingthecapitalizedearningsmodel.IfthetypicalP/Eratiointhecomputerindustryis25,thenitwouldbereasonabletoassumetheexpectedEPSofHPQinthecomingyearis______.noneoftheaboveAnswer:C Difficulty:EasyRationale:$20(1/25)=$0.80.43658.AnanalysthasdeterminedthattheintrinsicvalueofDellstockis$34pershareusingthecapitalizedearningsmodel.IfthetypicalP/Eratiointhecomputerindustryis27,thenitwouldbereasonabletoassumetheexpectedEPSofDellinthecomingyearis______.noneoftheaboveAnswer:D Difficulty:EasyRationale:$34(1/27)=$1.26.59.AnanalysthasdeterminedthattheintrinsicvalueofIBMstockis$80pershareusingthecapitalizedearningsmodel.IfthetypicalP/Eratiointhecomputerindustryis22,thenitwouldbereasonabletoassumetheexpectedEPSofIBMinthecomingyearis______.noneoftheaboveAnswer:A Difficulty:EasyRationale:$80(1/22)=$3.64.60.OldQuartzGoldMiningCompanyisexpectedtopayadividendof$8inthecomingyear.Dividendsareexpectedtodeclineattherateof2%peryear.Therisk-freerateofreturnis6%andtheexpectedreturnonthemarketportfoliois14%.ThestockofOldQuartzGoldMiningCompanyhasabetaof-0.25.Theintrinsicvalueofthestockis______.noneoftheaboveAnswer:B Difficulty:DifficultRationale:k=6%+[-0.25(14%-6%)]=4%;P=8/[.04-(-.02)]=$133.33.43761.LowFlyAirlineisexpectedtopayadividendof$7inthecomingyear.Dividendsareexpectedtogrowattherateof15%peryear.Therisk-freerateofreturnis6%andtheexpectedreturnonthemarketportfoliois14%.ThestockoflowFlyAirlinehasabetaof3.00.Theintrinsicvalueofthestockis______.noneoftheaboveAnswer:A Difficulty:ModerateRationale:6%+3(14%-6%)=30%;P=7/(.30-.15)=$46.67.62.SunshineCorporationisexpectedtopayadividendofintheupcomingyear.Dividendsareexpectedtogrowattherateof6%peryear.Therisk-freerateofreturnis6%andtheexpectedreturnonthemarketportfoliois14%.ThestockofSunshineCorporationhasabetaof0.75.Theintrinsicvalueofthestockis_______.noneoftheaboveAnswer:D Difficulty:ModerateRationale:6%+0.75(14%-6%)=12%;P=/(.12-.06)=$25.LowTechChipCompanyisexpectedtohaveEPSinthecomingyearof$2.50.TheexpectedROEis14%.Anappropriaterequire dreturnonthestockis11%.Ifthefirmhasadividendpayoutratioof40%,theintrinsicvalueofthestockshouldbenoneoftheaboveAnswer:D Difficulty:DifficultRationale:g=14%X=8.4%;ExpectedDPS=$2.50(0.4)=$1.00;P=1/(.11-.084)=$38.46.438Usethefollowingtoanswerquestions64-65:RiskMetricsCompanyisexpectedtopayadividendofinthecomingyear.Dividendsareexpectedtogrowatarateof10%pe ryear.Therisk-freerateofreturnis5%andtheexpectedreturnonthemarketportfoliois13%.Thestockistradinginthemarkettodayatapr iceof$90.00.WhatisthemarketcapitalizationrateforRiskMetrics?13.6%13.9%15.6%16.9%noneoftheaboveAnswer:B Difficulty:ModerateRationale:k=/90+.10;k=13.9%WhatistheapproximatebetaofRiskMetrics'sstock?noneoftheaboveAnswer:C Difficulty:DifficultRationale:k=13.9%from18.64;=5%+b(13%-5%)=1.11.ThemarketcapitalizationrateonthestockofFlexsteelCompanyis12%.TheexpectedROEis13%andtheexpectedEPSare $3.60.Ifthefirm'splowbackratiois50%,theP/Eratiowillbe_________.noneoftheaboveAnswer:C Difficulty:DifficultRationale:g=13%X=6.5%;.5/(.12-.065)=439ThemarketcapitalizationrateonthestockofFlexsteelCompanyis12%.TheexpectedROEis13%andtheexpectedEPSare $3.60.Ifthefirm'splowbackratiois75%,theP/Eratiowillbe________.noneoftheaboveAnswer:D Difficulty:DifficultRationale:g=13%X=9.75%;.25/(.12-.0975)=ThemarketcapitalizationrateonthestockofFastGrowingCompanyis20%.TheexpectedROEis22%andtheexpectedEPSa re$6.10.Ifthefirm'splowbackratiois90%,theP/Eratiowillbe________.50Answer:E Difficulty:DifficultRationale:g=22%X=19.8%;.1/(.20-.198)=5044069.J.C.PenneyCompanyisexpectedtopayadividendinyear1of$1.65,adividendinyear2of$1.97,andadividendinyear3of$2.54.Afteryear3,dividendsareexpectedtogrowattherateof8%peryear.Anappropriaterequiredreturnforthestockis11%.Thestockshouldbeworth_______today.noneoftheabove1Answer:C Difficulty:DifficultRationale:Calculationsareshowninthetablebelow.Yr Dividend PVofDividend@11%$1.65$1.65/(1.11)=$1.97/(1.11)2=$2.54/(1.11)3=SumP3=(1.08)/(.11-.08)=$91.44;PVof3P=$91.44/(1.08)3=$72.5880;PO=+=$77.53.70.ExerciseBicycleCompanyisexpectedtopayadividendinyear1of$1.20,adividendinyear2of$1.50,andadividendinyear3of$2.00.Afteryear3,dividendsareexpectedtogrowattherateof10%peryear.Anappropriaterequiredreturnforthestockis14%.Thestockshouldbeworth_______today.1A)B)C)D)E)Answer:EDifficulty:DifficultRationale:Calculationsareshowninthetablebelow.Yr Dividend PVofDividend@14%=$1.50/(1.14)2=$2.00/(1.14)3=SumP3=2(1.10)/(.14-.10)=$55.00;PVofP3=$55/(1.14)3=$37.12;PO=+=$40.68.441AntiquatedProductsCorporationproducesgoodsthatareverymatureintheirproductlifecycles.AntiquatedProduc tsCorporationisexpectedtopayadividendinyear1of$1.00,adividendofinyear2,andadividendofinyear3.Afteryear3, dividendsareexpectedtodeclineatarateof2%peryear.Anappropriaterequiredrateofreturnforthestockis8%.Thestoc kshouldbeworth______.noneoftheaboveAnswer:A Difficulty:DifficultRationale:Calculationsareshownbelow.Yr. Dividend PVofDividend@8%$1.00$1.00/(1.08)=$0.90/(1.08)2=$0.85/(1.08)3=SumP3=(.98)/[.08-(-.02)]=$8.33;PVofP3=$8.33/(1.08)3=$6.1226;PO=+=$8.49.442MatureProductsCorporationproducesgoodsthatareverymatureintheirproductlifecycles.MatureProductsCorpor ationisexpectedtopayadividendinyear1of$2.00,adividendofinyear2,andadividendofinyear3.Afteryear3,dividend sareexpectedtodeclineatarateof1%peryear.Anappropriaterequiredrateofreturnforthestockis10%.Thestockshould beworth______.noneoftheabove1Answer:B Difficulty:DifficultRationale:Calculationsareshownbelow.Yr. Dividend PVofDividend@10%=$1.50/(1.10)2=$1.00/(1.10)3=Sum3P3=(.99)/[.10-(-.01)]=$9.00;PVofP3=$9/(1.10)=$6.7618;PO=+=$10.57.44373.Considerthefreecashflowapproachtostockvaluation.UticaManufacturingCompanyisexpectedtohavebefore-taxcashflowfromoperationsof$500,000inthecomingyear.Thefirm'scorporatetaxrateis30%.Itisexpectedthat$200,000ofoperatingcashflowwillbeinvestedinnewfixedassets.Depreciationfortheyearwillbe$100,000.Afterthecomingyear,cashflowsareexpectedtogrowat6%peryear.Theappropriatemarketcapitalizationrateforunleveragedcashflowis15%peryear.Thefirmhasnooutstandingdebt.TheprojectedfreecashflowofUticaManufacturingCompanyforthecomingyearis_______.$150,000$180,000$300,000$380,000noneoftheaboveAnswer:BDifficulty:DifficultRationale:Calculationsareshownbelow.Before-taxcashflowfromoperations$500,000-Depreciation$100,000Taxableincome$400,000-Taxes(30%)$120,000After-taxunleveragedincome$280,000After-taxunleveredincome+dep$380,000-Newinvestment$200,000Freecashflow$180,00074.Considerthefreecashflowapproachtostockvaluation.UticaManufacturingCompanyisexpectedtohavebefore-taxcashflowfromoperationsof$500,000inthecomingyear.Thefirm'scorporatetaxrateis30%.Itisexpectedthat$200,000ofoperatingcashflowwillbeinvestedinnewfixedassets.Depreciationfortheyearwillbe$100,000.Afterthecomingyear,cashflowsareexpectedtogrowat6%peryear.Theappropriatemarketcapitalizationrateforunleveragedcashflowis15%peryear.Thefirmhasnooutstandingdebt.ThetotalvalueoftheequityofUticaManufacturingCompanyshouldbe$1,000,000$2,000,000$3,000,000$4,000,000noneoftheaboveAnswer:B Difficulty:DifficultRationale:Projectedfreecashflow=$180,000(seetestbankproblem18.73);V0=180,000/(.15-.06)=$2,000,000.444Chapter18EquityValuationModelsAfirm'searningspershareincreasedfrom$10to$12,dividendsincreasedfromto$4.80,andthesharepriceincreased from$80to$90.Giventhisinformation,itfollowsthat________.thestockexperiencedadropintheP/EratiothefirmhadadecreaseindividendpayoutratiothefirmincreasedthenumberofsharesoutstandingtherequiredrateofreturndecreasednoneoftheaboveAnswer:A Difficulty:ModerateRationale:$80/$10=8;$90/$12=7.5.76.Inthedividenddiscountmodel,_______whichofthefollowingarenotincorporatedintothediscountrate?realrisk-freerateriskpremiumforstocksreturnonassetsexpectedinflationratenoneoftheabove77.Answer:C Difficulty:ModerateRationale:A,B,andDareincorporatedintothediscountrateusedinthedividenddiscountmodel.AcompanywhosestockissellingataP/EratiogreaterthantheP/Eratioofamarketindexmostlikelyhas_________.ananticipatedearningsgrowthratewhichislessthanthatoftheaveragefirm adividendyieldwhichislessthanthatoftheaveragefirmlesspredictableearningsgrowththanthatoftheaveragefirm greatercyclicalityofearningsgrowththanthatoftheaveragefirmnoneoftheabove.Answer:B Difficulty:ModerateRationale:Firmswithlowerthanaveragedividendyieldsareusuallygrowthfirms,whichhaveahigherP/Eratiothanaverage.445。
博迪投资学答案chap008-7thed
8-1CHAPTER 8: INDEX MODELS1.a.The two figures depict the stocks’ security characteristic lines (SCL). Stock A has higher firm-specific risk because the deviations of the observations from the SCL are larger for Stock A than for Stock B. Deviations are measured by the vertical distance of each observation from the SCL.b. Beta is the slope of the SCL, which is the measure of systematic risk. The SCL for Stock B is steeper; hence Stock B’s systematic risk is greater.c.The R 2 (or squared correlation coefficient) of the SCL is the ratio of the explained variance of the stock’s return to total variance, and the totalvariance is the sum of the explained variance plus the unexplained variance (the stock’s residual variance):)(e σσβσβR i 22M 2i 2M 2i 2+=Since the explained variance for Stock B is greater than for Stock A (theexplained variance is 2M 2B σβ, which is greater since its beta is higher), and its residual variance σ 2(e B ) is smaller, its R 2 is higher than Stock A’s.d.Alpha is the intercept of the SCL with the expected return axis. Stock A has a small positive alpha whereas Stock B has a negative alpha; hence, Stock A’s alpha is larger.e.The correlation coefficient is simply the square root of R 2, so Stock B’s correlation with the market is higher.2.The R 2 of the regression is: 0.702 = 0.49Therefore, 51% of total variance is unexplained by the market; this is nonsystematic risk. 3. d. 4. b.8-25. a. Firm-specific risk is measured by the residual standard deviation. Thus, stock A has more firm-specific risk: 10.3% > 9.1%b. Market risk is measured by beta, the slope coefficient of the regression. A has a larger beta coefficient: 1.2 > 0.8c. R 2 measures the fraction of total variance of return explained by the market return. A’s R 2 is larger than B’s: 0.576 > 0.436d.Rewriting the SCL equation in terms of total return (r) rather than excess return (R):r A – r f = α + β(r M – r f ) ⇒ r A = α + r f (1 - β) + βr M The intercept is now equal to:α + r f (1 - β) = 1 + r f (l – 1.2)Since r f = 6%, the intercept would be: 1 – 1.2 = –0.2%6.a. To optimize this portfolio one would need:n = 60 estimates of means n = 60 estimates of variances770,12nn 2=-estimates of covariances Therefore, in total:890,12n3n 2=+estimatesb.In a single index model: r i - r f = α i + β i (r M – r f ) + e i Equivalently, using excess returns: R i = α i + β i R M + e iThe variance of the rate of return on each stock can be decomposed into the components: (l)The variance due to the common market factor: 2M 2i σβ(2) The variance due to firm specific unanticipated events: )e (i 2σ In this model: σββ=j i j i )r ,r (Cov8-3The number of parameter estimates is:n = 60 estimates of the mean E(r i )n = 60 estimates of the sensitivity coefficient βi n = 60 estimates of the firm-specific variance σ2(e i ) 1 estimate of the market mean E(r M ) 1 estimate of the market variance 2M σ Therefore, in total, 182 estimates.Thus, the single index model reduces the total number of required parameter estimates from 1,890 to 182. In general, the number of parameter estimates is reduced from:)2n 3( to 2n 3n 2+⎪⎪⎭⎫ ⎝⎛+7.a. The standard deviation of each individual stock is given by:2/1i 22M 2i i )]e ([σ+σβ=σ Since βA = 0.8, βB = 1.2, σ(e A ) = 30%, σ(e B ) = 40%, and σM = 22%, we get:σA = (0.82 ⨯ 222 + 302 )1/2 = 34.78%σB = (1.22 ⨯ 222 + 402 )1/2 = 47.93%b.The expected rate of return on a portfolio is the weighted average of the expected returns of the individual securities:E(r P ) = w A E(r A ) + w B E(r B ) + w f r fwhere w A , w B , and w f are the portfolio weights for Stock A, Stock B, and T-bills, respectively.Substituting in the formula we get:E(r P ) = (0.30 ⨯ 13) + (0.45 ⨯ 18) + (0.25 ⨯ 8) = 14%The beta of a portfolio is similarly a weighted average of the betas of the individual securities:βP = w A βA + w B βB + w f β fThe beta for T-bills (β f ) is zero. The beta for the portfolio is therefore:βP = (0.30 ⨯ 0.8) + (0.45 ⨯ 1.2) + 0 = 0.788-4The variance of this portfolio is:)e (P 22M 2P 2P σ+σβ=σwhere 2M 2P σβ is the systematic component and )e (P 2σis the nonsystematic component. Since the residuals (e i ) are uncorrelated, the non-systematic variance is:)e (w )e (w )e (w )e (f 22f B 22B A 22A P 2σ+σ+σ=σ= (0.302 ⨯ 302 ) + (0.452 ⨯ 402 ) + (0.252 ⨯ 0) = 405where σ 2(e A ) and σ 2(e B ) are the firm-specific (nonsystematic) variances of Stocks A and B, and σ 2(e f ), the nonsystematic variance of T-bills, is zero. The residual standard deviation of the portfolio is thus:σ(e P ) = (405)1/2 = 20.12% The total variance of the portfolio is then:47.699405)2278.0(222P =+⨯=σThe standard deviation is 26.45%.8.For Stock A:αA = r A - [r f + βA (r M -r f )] = 11 - [6 +0.8(12 - 6)] = 0.2% For stock B:αB = 14 - [6 + 1.5(12 -6)] = -1%Stock A would be a good addition to a well-diversified portfolio. A short position in Stock B may be desirable. 9.The standard deviation of each stock can be derived from the following equation for R 2:=σσβ=2i2M2i 2iR Explained variance Total variance Therefore:%30.3198020.0207.0R A 222A 2M2A 2A=σ=⨯=σβ=σ8-5For stock B:%28.69800,412.0202.1B 222B=σ=⨯=σ10. The systematic risk for A is:1962070.0222M 2A =⨯=σβThe firm-specific risk of A (the residual variance) is the difference between A’s total risk an d its systematic risk:980 – 196 = 784 The systematic risk for B is:5762020.1222M 2B =⨯=σβB’s firm -specific risk (residual variance) is:4800 – 576 = 422411. The covariance between the returns of A and B is (since the residuals are assumedto be uncorrelated):33640020.170.0)r ,r (Cov 2M B A B A =⨯⨯=σββ=The correlation coefficient between the returns of A and B is:155.028.6930.31336)r ,r (Cov B A B A AB =⨯=σσ=ρ12. Note that the correlation is the square root of R 2:2R =ρCov(r A ,r M ) = ρσA σM = 0.201/2 ⨯ 31.30 ⨯ 20 = 280Cov(r B ,r M ) = ρσB σM = 0.121/2 ⨯ 69.28 ⨯ 20 = 4808-613. For portfolio P we can compute:σ P = [(0.62 ⨯ 980) + (0.42 ⨯ 4800) + (2 ⨯ 0.4 ⨯ 0.6 ⨯ 336]1/2 = [1282.08]1/2 = 35.81% β P = (0.6 ⨯ 0.7) + (0.4 ⨯ 1.2) = 0.90958.08400)(0.901282.08σβσ)(e σ22M2P 2P P 2=⨯-=-= Cov(r P ,r M ) = β P 2M σ=0.90 ×400=360 This same result can also be attained using the covariances of the individual stocks with the market:Cov(r P ,r M ) = Cov(0.6r A + 0.4r B , r M ) = 0.6Cov(r A , r M ) + 0.4Cov(r B ,r M )= (0.6 ⨯ 280) + (0.4 ⨯ 480) = 36014. Note that the variance of T-bills is zero, and the covariance of T-bills with any assetis zero. Therefore, for portfolio Q:[][]%55.21)3603.05.02()4003.0()08.282,15.0()r ,r (Cov w w 2w w 2/1222/1M P M P 2M 2M 2P 2P Q =⨯⨯⨯+⨯+⨯=⨯⨯⨯+σ+σ=σ75.00)13.0()90.05.0(w w M M P P Q =+⨯+⨯=β+β=β52.239)40075.0(52.464)e (22M 2Q 2Q Q 2=⨯-=σβ-σ=σ30040075.0)r ,r (Cov 2M Q M Q =⨯=σβ=15. a.Alpha (α)Expected excess returnα i = r i – [r f + βi (r M – r f ) ]E(r i ) – r f αA = 20% – [8% + 1.3(16% – 8%)] = 1.6% 20% – 8% = 12% αB = 18% – [8% + 1.8(16% – 8%)] = – 4.4% 18% – 8% = 10% αC = 17% – [8% + 0.7(16% – 8%)] = 3.4% 17% – 8% = 9% αD = 12% – [8% + 1.0(16% – 8%)] = – 4.0%12% – 8% = 4%Stocks A and C have positive alphas, whereas stocks B and D have negative alphas.The residual variances are:σ2(e A ) = 582 = 3,364σ2(e B) = 712 = 5,041σ2(e C) = 602 = 3,600σ2(e D) = 552 = 3,025b. To construct the optimal risky portfolio, we first determine the optimal activeportfolio. Using the Treynor-Black technique, we construct the active portfolio:0.000476 –0.6142Do not be concerned that the positive alpha stocks have negative weights andvice versa. We will see that the entire position in the active portfolio will benegative, returning everything to good order.With these weights, the forecast for the active portfolio is:α = [–0.6142 ⨯ 1.6] + [1.1265 ⨯ (– 4.4)] – [1.2181 ⨯ 3.4] + [1.7058 ⨯ (– 4.0)]= –16.90%β = [–0.6142 ⨯ 1.3] + [1.1265 ⨯ 1.8] – [1.2181 ⨯ 0.70] + [1.7058 ⨯ 1] = 2.08The high beta (higher than any individual beta) results from the short positionsin the relatively low beta stocks and the long positions in the relatively highbeta stocks.σ2(e) = [(–0.6142)2⨯ 3364] + [1.12652⨯ 5041] + [(–1.2181)2⨯ 3600] + [1.70582⨯ 3025] = 21,809.6σ(e) = 147.68%Here, again, the levered position in stock B [with high σ2(e)] overcomes thediversification effect, and results in a high residual standard deviation.8-78-8The optimal risky portfolio has a proportion w * in the active portfolio, computed as follows:05124.023/86.809,21/90.16/]r )r (E [)e (/w 22M f M 20-=-=σ-σα= The negative position is justified for the reason stated earlier. The adjustment for beta is:0486.0)05124.0)(08.21(105124.0w )1(1w *w 00-=--+-=β-+=Since w* is negative, the result is a positive position in stocks with positive alphas and a negative position in stocks with negative alphas. The position in the index portfolio is:1 – (–0.0486) = 1.0486c.To calculate Sharpe’s measure for the optimal risky portfolio, we compute the information ratio for the active portfolio and Sharpe’s measure for the market portfolio. The information ratio for the active portfolio is computed as follows:A = α /σ(e)= –16.90/147.68 = –0.1144 A 2 = 0.0131Hence, the square of Sharpe’s measure (S) of the optimized risky portfolio is:1341.00131.0238A S S 222M2=+⎪⎭⎫ ⎝⎛=+= S = 0.3662Compare this to the market’s Sharpe measure:S M = 8/23 = 0.3478 The difference is: 0.0184Note that the only-moderate improvement in performance results from the fact that only a small position is taken in the active portfolio A because of its large residual variance.8-9d.To calculate the exact makeup of the complete portfolio, we first compute the mean excess return of the optimal risky portfolio and its variance. The risky portfolio beta is given by:βP = w M + (w A ⨯ βA ) = 1.0486 + [(–0.0486) ⨯ 2.08] = 0.95E(R P ) = α P + βP E(R M ) = [(–0.0486) ⨯ (–16.90%)] + (0.95 ⨯ 8%) = 8.42%()94.5286.809,21)0486.0()2395.0()e (22P 22M 2P 2P =⨯-+⨯=σ+σβ=σ%00.23P =σSince A = 2.8, the optimal position in this portfolio is:5685.094.5288.201.042.8y =⨯⨯=In contrast, with a passive strategy:5401.0238.201.08y 2=⨯⨯=This is a difference of: 0.0284The final positions of the complete portfolio are: Bills 1 – 0.5685 = 43.15% M 0.5685 ⨯ l.0486 = 59.61%A 0.5685 ⨯ (–0.0486) ⨯ (–0.6142) = 1.70%B 0.5685 ⨯ (–0.0486) ⨯ 1.1265 = – 3.11%C 0.5685 ⨯ (–0.0486) ⨯ (–1.2181) = 3.37%D 0.5685 ⨯ (–0.0486) ⨯ 1.7058 = – 4.71%100.00%[sum is subject to rounding error]Note that M may include positive proportions of stocks A through D.16. a.If a manager is not allowed to sell short he will not include stocks with negative alphas in his portfolio, so he will consider only A and C:8-10The forecast for the active portfolio is:α = (0.3352 ⨯ 1.6) + (0.6648 ⨯ 3.4) = 2.80% β = (0.3352 ⨯ 1.3) + (0.6648 ⨯ 0.7) = 0.90σ2(e) = (0.33522 ⨯ 3,364) + (0.66482 ⨯ 3,600) = 1,969.03 σ(e ) = 44.37%The weight in the active portfolio is:0940.023/803.969,1/80.2/)R (E )e (/w 22M M 20==σσα= Adjusting for beta:0931.0]094.0)90.01[(1094.0w )1(1w *w 00=⨯-+=β-+=The information ratio of the active portfolio is:A = α /σ(e) =2.80/44.37 = 0.0631 Hence, the square of Sharpe’s measure is:S 2 = (8/23)2 + 0.06312 = 0.1250 Therefore: S = 0.3535The market’s Sharpe measure is: S M = 0.3478When short sales are allowed (Problem 18), the manager’s Sharpe measure is higher (0.3662). The reduction in the Sharpe measure is the cost of the short sale restriction.The characteristics of the optimal risky portfolio are:βP = w M + w A ⨯ βA = (1 – 0.0931) + (0.0931 ⨯ 0.9) = 0.99 E(R P ) = αP + βP E(R M ) = (0.0931 ⨯ 2.8%) + (0.99 ⨯ 8%) = 8.18%54.535)03.969,10931.0()2399.0()e (22P 22M 2P 2P =⨯+⨯=σ+σβ=σ%14.23P =σWith A = 2.8, the optimal position in this portfolio is:5455.054.5358.201.018.8y =⨯⨯=8-11The final positions in each asset are:Bills1 – 0.5455 = 45.45% M0.5455 ⨯ (1 - 0.0931) = 49.47% A0.5455 ⨯ 0.0931 ⨯ 0.3352 = 1.70% C0.5455 ⨯ 0.0931 ⨯ 0.6648 = 3.38%100.00%b. The mean and variance of the optimized complete portfolios in theunconstrained and short-sales constrained cases, and for the passive strategy are:E(R C ) 2C σ Unconstrained0.5685 ⨯ 8.42 = 4.79 0.5685 ⨯ 528.94 = 170.95 Constrained0.5455 ⨯ 8.18 = 4.46 0.54552 ⨯ 535.54 = 159.36 Passive 0.5401 ⨯ 8.00 = 4.32 0.54012 ⨯ 529.00 = 154.31The utility levels below are computed using the formula: 2C C A 005.0)r (E σ-Unconstrained8 + 4.79 – (0.005 ⨯ 2.8 ⨯ 170.95) = 10.40 Constrained8 + 4.46 – (0.005 ⨯ 2.8 ⨯ 159.36) = 10.23 Passive 8 + 4.32 – (0.005 ⨯ 2.8 ⨯ 154.31) = 10.1617. All alphas are reduced to 0.3 times their values in the original case. Therefore, therelative weights of each security in the active portfolio are unchanged, but the alpha of the active portfolio is only 0.3 times its previous value: 0.3 ⨯ -16.90% = -5.07% The investor will take a smaller position in the active portfolio. The optimal risky portfolio has a proportion w * in the active portfolio as follows:01537.023/86.809,21/07.5/)r r (E )e (/w 22Mf M 20-=-=σ-σα= The negative position is justified for the reason given earlier. The adjustment for beta is:0151.0)]01537.0()08.21[(101537.0w )1(1w *w 00-=-⨯-+-=β-+= Since w* is negative, the result is a positive position in stocks with positive alphas and a negative position in stocks with negative alphas. The position in the index portfolio is:1 – (–0.0151) = 1.0151To calculate Sharpe’s measure for the optimal risky portfolio we compute theinformation ratio for the active portfolio and Sharpe’s measure for the marketportfolio. The information ratio of the active portfolio is 0.3 times its previousvalue:A = α /σ(e)= –5.07/147.68 = –0.0343 and A2 =0.00118Hence, the square of Sharpe’s measure of the optimized risky portfolio is: S2 = S2M + A2 = (8/23)2 + 0.00118 = 0.1222S = 0.3495Compare this to the market’s Sharpe measure: S M = 8/23 = 0.3478The difference is: 0.0017Note that the reduction of the forecast alphas by a factor of 0.3 reduced the squared information ratio and the improvement in the squared Sharpe ratio by a factor of:0.32 = 0.0918. The regression results provide quantitative measures of return and risk based onmonthly returns over the five-year period.βfor ABC was 0.60, considerably less than the average stock’s β of 1.0. Thisindicates that, when the S&P 500 rose or fell by 1 percentage point, ABC’s return on average rose or fell by only 0.60 percentage point. Therefore, ABC’s systematic risk (or market risk) was low relative to the typical value for stocks. ABC’s alpha (the intercept of the regression) was –3.2%, indicating that when the market return was 0%, the average return on ABC was –3.2%. ABC’s unsystematic risk (orresidual risk), as measured by σ(e), was 13.02%. For ABC, R2 was 0.35, indicating closeness of fit to the linear regression greater than the value for a typical stock.β for XYZ was s omewhat higher, at 0.97, indicating XYZ’s return pattern was very similar to the β for the market index. Therefore, XYZ stock had average systematic risk for the period examined. Alpha for XYZ was positive and quite large,indicating a return of almost 7.3%, on average, for XYZ independent of marketreturn. Residual risk was 21.45%, half again as much as ABC’s, indicating a wider scatter of observations around the regression line for XYZ. Correspondingly, the fit of the regression model was considerably less than that of ABC, consistent with an R2 of only 0.17.8-12The effects of including one or the other of these stocks in a diversified portfoliomay be quite different. If it can be assumed that both stocks’ betas will remainstable over time, then there is a large difference in systematic risk level. The betas obtained from the two brokerage houses may help the analyst draw inferences forthe future. The three estimates of ABC’s β are similar, regardless of the sampleperiod of the underlying data. The range of these estimates is 0.60 to 0.71, wellbelow the market average βof 1.0. The three estimates of XYZ’s β varysignificantly among the three sources, ranging as high as 1.45 for the weekly dataover the most recent two years. One could infer tha t XYZ’s β for the future mightbe well above 1.0, meaning it might have somewhat greater systematic risk thanwas implied by the monthly regression for the five-year period.These stocks appear to have significantly different systematic risk characteristics. If these stocks are added to a diversified portfolio, XYZ will add more to total volatility.19. 9 = 3 + β (11 - 3) ⇒β = 0.7520. a. Merrill Lynch adjusts beta by taking the sample estimate of beta and averagingit with 1.0, using the weights of 2/3 and 1/3, as follows:adjusted beta = [(2/3) ⨯ 1.24] + [(1/3) ⨯ 1.0] = 1.16b.If you use your current estimate of beta to be βt–1 = 1.24, thenβt = 0.3 + (0.7 ⨯ 1.24) = 1.1688-13。
博迪投资学答案chap010-7thed
10-1CHAPTER 10: ARBITRAGE PRICING THEORY AND MULTIFACTOR MODELS OF RISK AND RETURN1 a. )e (22M 22σ+σβ=σ88125)208.0(2222A =+⨯=σ 50010)200.1(2222B =+⨯=σ97620)202.1(2222C =+⨯=σb. If there are an infinite number of assets with identical characteristics, then awell-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.2. 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%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 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.3. Substituting the portfolio returns and betas in the expected return-beta relationship,we obtain two equations with two unknowns, the risk-free rate (r f ) and the factorrisk 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%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. a. A long position in a portfolio (P) comprised of Portfolios A and B will offeran expected return-beta tradeoff lying on a straight line between points A andB. Therefore, we can choose weights such that βP = βC 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 β2must be zero in order to preclude arbitrage opportunities.6. 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%10-27. 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) + (1.0 ⨯ R M )]= $1,000,000 ⨯ 0.04 = $40,000The sensitivity of the payoff of this portfolio to the market factor is zerobecause the exposures of the positive alpha and negative alpha stocks cancelout. (Notice that the terms involving R M sum to zero.) Thus, the systematiccomponent of tota l risk is also zero. The variance of the analyst’s profit is notzero, however, since this portfolio is not well diversified.For n = 20 stocks (i.e., long 10 stocks and short 10 stocks) the investor willhave a $100,000 position (either long or short) in each stock. Net marketexposure is zero, but firm-specific risk has not been fully diversified. Thevariance of dollar returns from the positions in the 20 stocks is:20 ⨯ [(100,000 ⨯ 0.30)2 ] = 18,000,000,000The 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 ] = 7,200,000,000The standard deviation of dollar returns is $84,853.Similarly, if n = 100 stocks (50 stocks long and 50 stocks short), the investorwill have a $20,000 position in each stock, and the variance of dollar returns is: 100 ⨯ [(20,000 ⨯ 0.30)2 ] = 3,600,000,000The standard deviation of dollar returns is $60,000.Notice that, when the number of stocks increases by a factor of 5 (i.e., from 20to 100), standard deviation decreases by a factor of 5= 2.23607 (from$134,164 to $60,000).8. 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.10-39. b. Since Portfolio X has β = 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.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. d.12. The APT factors must correlate with major sources of uncertainty, i.e., sources ofuncertainty that are of concern to many investors. Researchers should investigatefactors 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 goodindicator of changes in the business cycle. Thus, IP is a candidate for a factor that is highly correlated with uncertainties that have to do with investment andconsumption opportunities in the economy.13. 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 acrossbroad sectors of investors. The third factor, while important to Pork Products, is apoor 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. Betterchoices 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 are important toa particular investor with factors that are important to investors in general; only thelatter are likely to command a risk premium in the capital markets.14. 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.10-415. d.16. d.17. 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 expected return on the stock is 15% (because the expected surprises on all factors are zero bydefinition). Because the actually expected return based on risk is less than theequilibrium return, we conclude that the stock is overpriced.18. Any pattern of returns can be “explained” if we are free to choose an indefinitelylarge number of explanatory factors. If a theory of asset pricing is to have value, it must explain returns using a reasonably limited number of explanatory variables(i.e., systematic factors).19. d.20. c.10-5。
金融学原理英文第七单元课后答案
⾦融学原理英⽂第七单元课后答案CHAPTER 7ANSWERS7-1 The four financial statements contained in most annual reports are the balance sheet, income statement, statement of retained earnings, andstatement of cash flows.7-2 No, because the $20 million of retained earnings probably would not be held as cash. The retained earnings figure represents the reinvestmentof earnings by the firm. Consequently, the $20 million would be aninvestment in all of the assets of the firm.7-3 Liquidating assets, borrowing more funds, and issuing stock would constitute sources of funds. Purchasing assets, paying off debt, and stockrepurchases would constitute uses of funds. Thus, the following general rules can be used to determine what changes in balance sheet accountsrepresent sources and uses of funds:Sources of cash: Uses of Cash:in a liability or equity account in a liability of equity accountin an asset account in an asset account7-4 The emphasis of the various types of analysts is by no means uniform nor should it be. Management is interested in all types of ratios for two reasons.First, the ratios point out weaknesses that should be strengthened; second,management recognizes that the other parties are interested in all theratios and that financial appearances must be kept up if the firm is tobe regarded highly by creditors and equity investors. Equity investorsare interested primarily in profitability, but they examine the otherratios to get information on the riskiness of equity commitments. Long-term creditors are more interested in the debt ratio, TIE, and fixed chargecoverage ratios, as well as the profitability ratios. Short-term creditorsemphasize liquidity and look most carefully at the liquidity ratios.7-5 The most important aspect of ratio analysis is the judgment used when interpreting the results to reach an overall conclusion concerning a firm'sfinancial position. The analyst should be aware of, and include in theinterpretation, the fact that: (1) large firms with many differentdivisions are difficult to categorize in a single industry; (2) financialstatements are reported at historical costs; (3) seasonal factors candistort the ratios; (4) some firms try to "window dress" their financial statements to look good; (5) firms use different accounting procedures to compute inventory values, depreciation, and so on; (6) there might notexist a single value that can be used for comparing firms' ratios (e.g.,a current ratio of 2.0 might not be good); and (7) conclusions concerningthe overall financial position of a firm should be based on a representativenumber of ratios, not a single ratio.7-6 Differences in the amounts of assets necessary to generate a dollar of sales cause asset turnover ratios to vary among industries. For example,a steel company needs a greater number of dollars in assets to producea dollar in sales than does a grocery store chain such as Safeway. Also,profit margins and turnover ratios might vary due to differences in theamount of expenses incurred to produce sales. For example, one would expecta grocery store chain like Safeway to spend more per dollar of sales thandoes a steel company. Often, a large turnover will be associated with a low profit margin, and vice versa.7-7 ROE can be writtenTotal assets divided by owners' equity, which is termed the equity multiplier, is a measure of debt utilization; the more debt, the higher the equity multiplier. Thus, using more debt will increase the equity multiplier, resulting in a higher ROE.7-8 a. Cash, receivables, and inventories, as well as current liabilities, vary over the year for firms with seasonal sales patterns. Therefore,those ratios that examine balance sheet figures will vary unlessaverages (monthly ones are best) are used.b. Common equity is determined at a point in time, say, December 31, 2002.Profits are earned over time, say, during 2002. If a firm is growing rapidly, year-end equity will be much larger than beginning-of-year equity, so the calculated rate of return on equity will be different depending on whether end-of-year, beginning-of-year, or average common equity is used as the denominator. Average common equity is conceptually the best figure to use.In public utility rate cases, people are reported to have deliberately used end-of-year or beginning-of-year equity to make returns on equity appear exces-sive or inadequate. Similar problems can arise when a firm is being evaluated.7-9 Source(+)2002 2001 or Use(-)?Cash $ 400 $ 500 +Accounts receivable 250 300 +Inventory 450 400 -Current assets 1,100 1,200Net property & equipment 1,000 950 -aTotal assets $2,100 $2,150Accounts payable $ 200 $ 400 -Accruals 300 250 +Notes payable 400 200 +Current liabilities 900 850Long-term debt 800 900 - Total liabilities 1,700 1,750Common stock 250 300 -Retained earnings 150 100 +bTotal liabilities $2,100 $2,150and equitya The book value of property & equipment is stated net of depreciation.Because the book value of fixed assets increased, and depreciation is an adjustment that reduces the account balance, Batelan must have purchased additional fixed assets; but, without more information we cannot determine the amount of the purchase.b The retained earning balance increased in 2002, so Batelan must havegenerated a positive net income. But, without additional information (i.e.the amount of net income), we cannot tell whether dividends were paid in 2002.7-10 Total EffectCurrent Current on NetAssets Ratio Incomea. Cash is acquired through issuanceof additional common stock. + + 0b. Merchandise is sold for cash. + + +(When merchandise is sold, its price is greater than its cost.)c. Federal income tax due forthe previous year is paid. ─ + 0(Both current assets and current liabilities decrease by the samedollar amount. But, because the current ratio is greater than 1.0,it increases as a result of the payment.)d. A fixed asset is sold forless than book value. + + ─e. A fixed asset is sold formore than book value. + + +f. Merchandise is sold on credit. + + +g. Payment is made to tradecreditors for previous purchases. ─ + 0h. A cash dividend is declaredand paid. ── 0i. Cash is obtained through short-term bank loans. + ─ 0j. Short-term notes receivableare sold at a discount. ───k. Marketable securities aresold below cost. ───l. Advances are made to employees. 0 0 0(There is no change in current assets or the current ratio because cash decreases by the same amount prepaid expenses increases.) m. Current operating expensesare paid. ───to trade creditors in exchangefor past due accounts payable. 0 0 0o. Ten-year notes are issued topay off accounts payable. 0 + 0p. A fully depreciated assetis retired. 0 0 0q. Accounts receivable are collected. 0 0 0r. Equipment is purchased withshort-term notes. 0 ─ 0s. Merchandise is purchased on credit. + ─ 0t. The estimated taxes payableare increased. 0 ──SOLUTIONS7-1a.Dollar amounts are in millions.Poor9.9% 7.7% 376$8.28$assets Total income Net averageNear 4.6% 4.1% 700$8.28$Sales income Net Marginal45.0% 48.1% 376$181$assets Total debt Total Average4.1 4.0 175$700$assets Fixed Sales Bad7.2 5.5 101$560$s Inventorie sold goods of Cost Poordays 33.5 days 41.1 )360/700($80$360/Sales receivable Accounts Average3.9 8.3 53$201$s liabilitie Current assets Current Comment Average Argile Industry======??==??====??==b.The ratios do not show any particular strengths. However, Argile does have a low inventory turnover, higher than normal days sales outstanding, and poor return on assets. According to its 2001 ratios, it appears Argile has liquidity problems. c.Ratio 20022001 TrendCurrent ratio 3.6?3.8? Worse Days sales outstanding 43.2 days 41.1 days Worse Inventory turnover4.4?5.5? Worse Fixed assets turnover 3.9? 4.0? Same Debt ratio51.1% 48.1% WorseProfit margin on sales 3.6% 4.1% Worse Return on assets 6.3%7.7%WorseThe above comparison shows that Argile's financial position worsened from 2001 to 2002.d. It would be helpful to know the future plans Argile has with respect to improving its currentfinancial position, introducing new products, liquidating unprofitable investments, and so on. Perhaps the fixed assets turnover ratio and return on assets figures are low because the firm has expanded its product distribution, and this process has a large cost "up front" with significant payoffs beginning in two or three years.7-2 a.60.0%61.90% 500,947$500,586$assets Total debt Total 9.0%7.56% 000,361$300,27$equity Common income Net 3.6%2.88% 500,947$300,27$assets Total income Net 1.2%1.70% 500,607,1$300,27$Sales income Net 3.0 1.70 500,947$500,607,1$assets Total Sales 5.6 5.60 500,241$000,353,1$s Inventorie sold goods of Cost days35.0 days 24.75 28.465,4$000,336$360/Sales receivable Accounts 2.0 98.1 000,330$000,655$s liabilitie Current assets Current Average Campsey Industry ========?========b.For Campsey, ROA = PM ? TA turnover = 1.7% ? 1.7 = 2.89%.For the industry, ROA = 1.2% ? 3.0 = 3.6%.c.Campsey's days sales outstanding is more than twice as long as the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While Campsey's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry--net income should be higher given the amount of equity and assets. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry. d.If 2002 represents a period of supernormal growth for Campsey, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning. Potential investors who look only at 2002 ratios will be misled, and a return to normal conditions in 2003 could hurt the firm's stock price.7-3(1) Total liabilities and equity = Total assets = $300,000.(2) Debt = (0.50)(Total assets) = (0.50)($300,000) = $150,000. (3) Accounts payable = Debt ─ Long-term debt = $150,000 ─$60,000= $90,000.(4) (5)Sales = (1.5)(Total assets) = (1.5)($300,000) = $450,000.(6)Cost of goods sold = Sales(1 - 0.25) = $450,000(.75) = $337,500(7)Inventory = (CGS)/5 = $337,500/5 = $67,500.(8)Accounts receivable = (Sales/360)(DSO)= ($450,000/360)(36) = $45,000.(9) (Cash + Accounts receivable)/(Accounts payable) = 0.80? Cash + Accounts receivable = (0.80)(Accts payable) Cash + $45,000 = (0.80)($90,000) Cash = $72,000 ─ $45,000= $27,000.(10) Fixed assets = Total assets ─ (Cash + Accts Rec. + Inventories) = $300,000 ─ ($27,000 + $45,000 + $67,500) = $160,500.$52,500= $97,500 $150,000 $300,000 = earnings Retained - Debt - equity and s liabilitie Total = stock Common ??? ????? ?? Balance Sheet Cash$ 27,000 Accounts payable $ 90,000Accounts receivables 45,000 Long-term debt 60,000 Inventories 67,500 Common stock 52,500 Fixed assets 160,500 Retained earnings 97,500 Total assets$300,000$300,0007-4 a.12.9%8.57% 315$27$ equity Total income Net equitytotal on Return 9.0%6.00% 450$27$ assets Total income Net assets total onReturned 3.0%3.40% 795$27$ Sales income Net margin Profit 3.0 1.77 450$795$ assets Total Sales Turnover assets Total 6.0 5.41 147$795$ assets Fixed Sales Turnoverassets Fixed days24.0 days 29.89 360/795$66$ 360/Sales receivable AccountsDSO 8.5 4.15 159$660$ s Inventorie sold goods of Cost turnoverInventory7.0 11.00 5.4$5.49$ Interest EBIT earned interestTimes 30.0%30.00% 450$135$ assets Total Debt assetstotal to Debt 2.0 2.73 111$303$ s liabilitie Current assets Current ratio Current Average Finnerty Industry==============================b. ROA = Profit margin ? Total assets turnover=Net income Sales Sales Total assets = 3.4% 1.77 = 6.0%=$27$795$795$450Finnerty Industry Comment Profit margin 3.4% 3.0% Good Total assets turnover 1.77? 3.0? Poor Return on total assets 6.0%9.0% Poorc. Analysis of the Du Pont equation and the set of ratios shows that the turnover ratio of sales toassets is quite low. Either sales should be increased at the present level of assets, or the current level of assets should be decreased to be more in line with current sales. Thus, the problem appears to be in the balance sheet accounts.d. The comparison of inventory turnover ratios shows that other firms in the industry seem to begetting along with about half as much inventory per unit of sales as Finnerty. If Finnerty's inventory could be reduced this would generate funds that could be used to retire debt, thus reducing interest charges and improving profits, and strengthening the debt position. There might also be some excess investment in fixed assets, perhaps indicative of excess capacity, as shown by a slightly lower than average fixed assets turnover ratio. However, this is not nearly as clear-cut as the over-investment in inventory.e. If Finnerty had a sharp seasonal sales pattern, or if it grew rapidly during the year, many ratiosmight be distorted. Ratios involving cash, receivables, inventories, and current liabilities, as well as those based on sales, profits, and common equity, could be biased. It is possible to correct for such problems by using average rather than end-of-period figures.7-5 a. Here are Cary's base case ratios and other data as compared to the industry:Cary Industry Comment Quick 0.85? 1.0? Weak Current 2.33 2.7? Weak Inventory turnover 4.00? 5.8? PoorDays sales outstanding 37 days 32 days Poor Fixed assets turnover 10.0? 13.0? Poor Total assets turnover 2.34? 2.6? Poor Return on assets 5.9% 9.1% Bad Return on equity 13.07% 18.2% Bad Debt ratio 54.8% 50.0% High Profit margin on sales 2.5% 3.5% Bad EPS $4.71 n.a. -- Stock Price $23.57 n.a. -- P/E ratio 5.0? 6.0? Poor M/B ratio 0.65 n.a. --Cary appears to be badly managed--all of its ratios are worse than the industry averages, and the result is low earnings, a low P/E, a low stock price, and a low M/B ratio. The company needs to do something to improve.b.A decrease in the inventory level would improve the inventory turnover, total assets turnover, and ROA, all of which are too low. It would have some impact on the current ratio, but it is difficult to say precisely how that ratio would be affected. If the lower inventory level allowed Cary to reduce its current liabilities, then the current ratio would improve. The lower cost of goods sold would improve all of the profitability ratios and, if dividends were not increased, would lower the debt ratio through increased retained earnings. All of this should lead to a higher market/book7-6We are given ROA = 3% and Sales/Total assets = 1.5?.From Du Pont equation: ROA = Profit margin ? Total assets turnover 3% = Profit margin (1.5) Profit margin = 3%/1.5 = 2%.We can also calculate Zumwalt's debt ratio in a similar manner, given the facts of the problem. We aregiven ROA, which is NI/A and ROE, which is NI/Equity; if we use the reciprocal of ROE we have the following equation: Debt/Assets = 1 - Equity/A = 1 - 0.60 = 0.40 = 40.0%Thus, Zumwalt's net profit margin = 2% and its debt ratio = 40%.7-7 Present current ratio = $1,312,500/$525,000 = 2.5Minimum current ratio = $1,312,500 + NP$525,000 + NP ?? = 2.0$1,312,500 + ΔNP = $1,050,000 + 2ΔNPΔNP = $262,500.Short-term debt can increase by a maximum of $262,500 without violating a 2-to-1 current ratio, assuming that the entire increase in notes payable is used to increase current assets. Because we assumed that the additional funds would be used to increase inventory, the inventory account will increase to $637,500, and current assets will total $1,575,000.Quick ratio = ($1,575,000 ─ $637,500)/$787,500 = $937,500/$787,500 = 1.19? 7-8 (1)Current liabilities = $270,000. (2)Inventories = $432,000.=?=0.3s liabilitie Current 000,810$0.3sliabilitie Current assetsCurrent ?=-?=4.1$270,000s Inventorie $810,000 4.1sliabilitie Current sInventorie -assets Current(3) Current assets = Cash & Marketable securities+ Accounts receivable + Inventories$810,000 = $120,000 + Accounts receivable + $432,000Accounts receivable = $258,000.(4) ?=?=0.5$432,000CGS0.5Inventory sold goods of CostCGS = $2,160,000.(5) CGS = 0.86 (Sales) 628,511,2$86.0000,160,2$Sales ==(6)7-9TIE = EBIT/INT, so find EBIT and INT. Interest = $500,000 ? 0.1 = $50,000.Net income = $2,000,000 ? 0.05 = $100,000.Taxable income (EBT) = $100,000/(1 - T) = $100,000/0.8 = $125,000. EBIT = $125,000 + $50,000 = $175,000. TIE = $175,000/$50,000 = 3.5?.7-10ROE = NI/EquityNow we need to determine the inputs for the equation from the data that were given. On the left we set up an incomestatement, and we put numbers in it on the right:Sales (given) $10,000- Cost na EBIT (given) $ 1,000 - INT (given) (300) EBT $ 700 - Taxes (30%) (210) NI $ 490Now we can use some ratios to get some more data:Total assets turnover = 2 = S/TA; TA = S/2 = $10,000/2 = $5,000.D/TA = 60%; so E/TA = 40%; therefore, equity = TA ? E/TA= $5,000 ? 0.40 = $2,000days37 360/628,511,2$$258,000 360/Sales receivableAccounts DSO ===ROE = NI/E = $490/$2,000 = 24.5%, and ROA = NI/TA = $490/$5,000 = 9.8%.7-11 a. Currently, ROE is ROE1 = $15,000/$200,000 = 7.5%.The current ratio will be set such that 2.5 = CA/CL. CL is $50,000, and it will not change, so we can solve to find the new level of current assets: CA = 2.5(CL) = 2.5($50,000) = $125,000. Thisis the level of current assets that will produce a current ratio of 2.5?.At present, current assets amount to $210,000, so they can be reduced by $210,000 ─ $125,000 = $85,000.If the $85,000 generated is used to retire common equity, then the new common equity balance will be $200,000 ─ $85,000 = $115,000.Assuming that net income is unchanged, the new ROE will be ROE2 = $15,000/$115,000 =13.04%. Therefore, ROE will increase by 13.04% ─ 7.50% = 5.54%.b. (1) Doubling the dollar amounts would not affect the answer; the ROE increase would still be5.54%.(2) Current assets would increase by $25,000, which would mean a new ROE of$15,000/$140,000 = 10.71%, which would mean a difference of 10.71% ─7.50% =3.21%.(3)If the company had 10,000 shares outstanding, then its EPS would be $15,000/10,000 = $1.50. The stock has a book value of $200,000/10,000 = $20, so the shares retiredwould be $85,000/$20 = 4,250, leaving 10,000 ─ 4,250 = 5,750 shares. The new EPSwould be $15,000/5,750 = $2.6087, so the increase in EPS would be $2.6087 ─ $1.50 =$1.1087, which is a 73.91% increase, the same as the increase in ROE.(4)If the stock was selling for twice book value, or 2 ? $20 = $40, then only half as manyshares could be retired ($85,000/$40 = 2,125), so the remaining shares would be 10,000─ 2,125 = 7,875, and the new EPS would be $15,000/7,875 = $1.9048, for an increase of$1.9048 ─ $1.5000 = $0.4048.c. We could have started with lower inventories and higher accounts receivable, then had youcalculate the DSO, then move to a lower DSO that would require a reduction in receivables, andthen determine the effects on ROE and EPS under different conditions. Similarly, we couldhave focused on fixed assets and the FA turnover ratio. In any of these cases, we could have hadyou use the funds generated to retire debt, which would have lowered interest charges and consequently increased net income and EPS.If we had to increase assets, then we would have had to finance this increase by adding eitherdebt or equity, which would have lowered ROE and EPS, other things held constant.Finally, note that we could have asked some conceptual questions about the problem, either as apart of the problem or without any reference to the problem. For example, "If funds are generatedby reducing assets, and if those funds are used to retire common stock, will the effect on EPSand/or ROE be affected by whether or not the stock sells above, at, or below book value?"7-12 a. Sources and Uses of Funds Analysis:Lloyd Lumber CompanyBalance Sheets (millions of dollars)Jan. 1 Dec. 31 Source UseCash $ 7 $ 15 $ 8Marketable securities 0 11 11Net receivables 30 22 $ 8Inventories 53 75 22Gross fixed assets $ 75 $125 50 Less: depreciation ( 25) ( 35) 10Net fixed assets $ 50 $ 90Total assets $140 $213Accounts payable $ 18 $ 15 3 Notes payable 3 15 12Other current liabilities 15 7 8 Long-term debt 8 24 16 Common stock 29 57 28 Retained earnings 67 95 28 Total liabilitiesand equity $140 $213 $102 $102b. Lloyd Lumber CompanyStatement of Cash Flows, 2002(millions of dollars)Operating Activities:Net income $ 33Other additions (sources of cash):Depreciation $ 10Decrease in accounts receivable 8Subtractions (uses of cash):Increase in inventories ($22)Decrease in accounts payable (3)Decrease in other current liabilities (8)Net cash flow from operations $ 18Long-term Investing Activities:Acquisition of fixed assets ($ 50)Financing Activities:Increase in notes payable $ 12Sale of long-term debt 16Sale of common stock 28Payment of dividends ( 5)Net cash flow from financing $ 51Net increase in cash and marketablesecurities $ 19Cash and marketable securities atbeginning of year 7Cash and marketable securities atend of year $ 26c. Investments were made in plant and inventories. Funds were also utilized to reduce accounts payable and other current liabilities and to increase the cash and marketable securities accounts. Most funds were obtained by increasing long-term debt, selling common stock, and retaining earnings. The remainder was obtained from increasing notes payable and reducing receivables. A quick check of the ratios shows that the company's credit has not deteriorated--the current and quick ratios have increased, and the debt ratio has gone down slightly. Ratio analysis and the sources and uses statement both indicate a healthy situation.7-13 a. Dollars are in millions.Income CashStatement FlowsSales revenues $12.0 $12.0Costs, except depreciation* (9.0) (9.0)Depreciation (1.5) ---Total operating costs (10.5) ( 9.0) (Cash costs)Earnings before taxes $ 1.5 $ 3.0 (Pre-tax CF)Taxes (40%) ( 0.6) ( 0.6) (Cash taxes)Net income (NI) $ 0.9Add back depreciation 1.5Net cash flow = NI + DEP $ 2.4 $ 2.4* Costs, except depreciation = 0.75 $12.0 = $9.0b. Depreciation doubles.Income CashStatement FlowsSales revenues $12.0 $12.0Costs, except depreciation (9.0) (9.0)Depreciation (3.0) ---Total operating costs (12.0) ( 9.0) (Cash costs)Earnings before taxes $ 0.0 $ 3.0 (Pre-tax CF)Taxes (40%) ( 0.0) ( 0.0) (Cash taxes)Net income (NI) $ 0.0Add back depreciation 3.0Net cash flow = NI + DEP $ 3.0 $ 3.0c. Depreciation halves.Income CashStatement FlowsSales revenues $12.00 $12.00Costs, except depreciation (9.00) (9.00)Depreciation (0.75) ---Total operating costs ( 9.75) ( 9.00) (Cash costs)Earnings before taxes $ 2.25 $ 3.00 (Pre-tax CF)Taxes (40%) ( 0.90) ( 0.90) (Cash taxes)Net income (NI) $ 1.35Add back depreciation 0.75Net cash flow = NI + DEP $ 2.10 $ 2.10d. The after-tax cash flows are greater if Congress increases the allowance for depreciation, so you should prefer greater depreciation.7-14 The solution is given in the Instructor's Manual, Solutions to Integrative Problems. 7-17 Computer-Related Problema. The revised data and ratios are shown below:INPUT DATA: KEY OUTPUT:2000 Cary IndustryCash $ 84,527 Quick 1.2 1.0A/R 395,000 Current 3.0 2.7Inventories 700,000 Inv. turn. 6.1 5.8Land and bldg 238,000 DSO 33 32Machinery 132,000 F.A.turn. 8.3 13.0Other F.A. 150,000 T.A.turn. 2.5 2.6ROA 10.5% 9.1% Accts & Notes Pay. $ 275,000 ROE 19.9% 18.2%Accruals 120,000 TD/TA 47.0% 50.0%Long-term debt 404,290 PM 4.2% 3.5%Common stock 575,000 EPS $7.78 n.a.Retained earnings 325,237 Stock Price $46.68 n.a.__________P/E ratio 6.0 6.0Total assets $1,699,527 M/B 1.19 n.a.Total claims $1,699,527Income statementSales $4,290,000Cost of G.S. 3,450,000Adm. & sales exp. 248,775Depreciation 159,000Misc. 134,000Net income $ 178,935P/E ratio 6No. of shares 23,000Cash dividend $ 0.95Under these new conditions, Cary Corporation looks much better. Its turnover ratiosare still low, but its ROA and ROE are above the industry average, its estimated P/Eratio is better, and its stock price is anticipated to double. There is still room forimprovement, but the company is in much better shape.b. The financial statements and ratios for the scenario in which the cost of goods solddecreases by an additional $125,000 are shown on the next page. As you can see, the profit ratios are quite high and the stock price has risen to $66.24.INPUT DATA: KEY OUTPUT:2000 Cary IndustryCash $ 159,527 Quick 1.4 1.0A/R 395,000 Current 3.2 2.7Inventories 700,000 Inv. turn. 4.8 5.8Land and bldg 238,000 DSO 33 32Machinery 132,000 F.A.turn. 8.3 13.0Other F.A. 150,000 T.A.turn. 2.4 2.6ROA 14.3% 9.1% Accts & Notes Pay. $ 275,000 ROE 26.0% 18.2%Accruals 120,000 TD/TA 45.0% 50.0%Long-term debt 404,290 PM 5.9% 3.5%Common stock 575,000 EPS $11.04 n.a.Retained earnings 400,237 Stock Price $66.24 n.a.__________P/E ratio 6.0 6.0Total assets $1,774,527 M/B 1.56 n.a.Total claims $1,774,527Income statementSales $4,290,000Cost of G.S. 3,325,000Adm. & sales exp. 248,775Depreciation 159,000Misc. 134,000__________Net income $ 253,935P/E ratio 6No. of shares 23,000Cash dividend $ 0.95c. The financial statements and ratios for the scenario in which the cost of goods soldincreases by $125,000 over the revised estimate are shown on the next page. As you can see, profits would decline sharply. The ROE would drop to 12.6%, EPS wouldfall to $4.52, the stock price would drop to $27.11, and the M/B ratio would be only0.76.INPUT DATA: KEY OUTPUT:2000 Cary IndustryCash $ 9,527 Quick 1.0 1.0A/R 395,000 Current 2.8 2.7Inventories 700,000 Inv. turn. 5.1 5.8Land and bldg 238,000 DSO 33 32Machinery 132,000 F.A.turn. 8.3 13.0Other F.A. 150,000 T.A.turn. 2.6 2.6ROA 6.4% 9.1%Accts & Notes Pay. $ 275,000 ROE 12.6% 18.2%Accruals 120,000 TD/TA 49.2% 50.0%Long-term debt 404,290 PM 2.4% 3.5%Common stock 575,000 EPS $4.52 n.a.Retained earnings 250,237 Stock Price $27.11 n.a.__________P/E ratio 6.0 6.0Total assets $1,624,527 M/B 0.76 n.a.Total claims $1,624,527Income statementSales $4,290,000Cost of G.S. 3,575,000Adm. & sales exp. 248,775Depreciation 159,000Misc. 134,000__________Net income $ 103,935P/E ratio 6No. of shares 23,000Cash dividend $ 0.95d. Computer models allow us to analyze quickly the impact of operating and financialdecisions on the firm's overall performance. A firm can analyze its financial ratios under different scenarios to see what might happen if a decision, such as the purchase of a new asset, did not produce the expected results. This gives the managers some idea about what might happen under the best and worst cases and helps them to make better decisions.。
金融学(博迪)英文版课后习题答案
金融学(博迪)英文版课后习题答案CONTENTSChapter 1: Financial Economics 1-1Chapter 2: Financial Markets and Institutions 2-1Chapter 3: Managing Financial Health and Performance 3-1Chapter 4: Allocating Resources Over Time 4-1Chapter 5: Household Saving and Investment Decisions 5-1Chapter 6: The Analysis of Investment Projects 6-1Chapter 7: Principles of Market Valuation 7-1Chapter 8: Valuation of Known Cash Flows: Bonds 8-1Chapter 9: Valuation of Common Stocks 9-1Chapter 10: Principles of Risk Management 10-1Chapter 11: Hedging, Insuring, and Diversifying 11-1Chapter 12 Portfolio Opportunities and Choice 12-1Chapter 13: Capital Market Equilibrium 13-1Chapter 14: Forward and Futures Markets 14-1Chapter 15: Markets for Options and Contingent Claims 15-1Chapter 16: Financial Structure of the Firm 16-1Chapter 17: Real Options 17-1CHAPTER 1 – Financial EconomicsEnd-of-Chapter ProblemsDefining Finance1. What are your main goals in life? How does finance play a part in achieving those goals? What are themajor tradeoffs you face?SAMPLE ANSWER:Finish schoolGet good paying job which I likeGetmarried and have childrenOwn my own homeProvide for familyPay for children’s educationRetireHow Finance Plays a Role:SAMPLE ANSWER:Finance helps me pay for undergraduate and graduate education and helps me decide whether spending themoney on graduate education will be a good investment decision or not.Higher education should enhance my earning power and ability to obtain a job I like.Once I am married and have children I will have additional financial responsibilities (dependents) and Iwill have to learn how to allocate resources among individuals in the householdand learn how to set aside enoughmoney to pay for emergencies, education, vacations etc. Finance also helps me understand how to manage risks suchas for disability, life and health.?Finance helps me determine whether the home I want to buy is a good value or not. The study of financealso helps me determine the cheapest source of financing for the purchase of that home.Finance helps me determine how much money I will have to save in order to pay for my children’seducation as well as my own retirement.Major Tradeoffs:SAMPLE ANSWERSpend money now by going to college (and possibly graduate school) but presumably make more moneyonce I graduate due to my higher education.Consume now and have less money saved for future expenditures such as for a house and/or car or savemore money now but consume less than some of my friends。
Essentials Of Investments 8th Ed Bodie 投资学精要(第八版)课后习题答案Chap007
CHAPTER 07CAPITAL ASSET PRICING AND ARBITRAGE PRICINGTHEORY1. The required rate of return on a stock is related to the required rate of return on thestock market via beta. Assuming the beta of Google remains constant, the increase in the risk of the market will increase the required rate of return on the market, and thus increase the required rate of return on Google.2. An example of this scenario would be an investment in the SMB and HML. As of yet,there are no vehicles (index funds or ETFs) to directly invest in SMB and HML. While they may prove superior to the single index model, they are not yet practical, even for professional investors.3. The APT may exist without the CAPM, but not the other way. Thus, statement a ispossible, but not b. The reason being, that the APT accepts the principle of risk and return, which is central to CAPM, without making any assumptions regardingindividual investors and their portfolios. These assumptions are necessary to CAPM.4. E(r P ) = r f + β[E(r M ) – r f ]20% = 5% + β(15% – 5%) ⇒ β = 15/10 = 1.55. If the beta of the security doubles, then so will its risk premium. The current riskpremium for the stock is: (13% - 7%) = 6%, so the new risk premium would be 12%, and the new discount rate for the security would be: 12% + 7% = 19%If the stock pays a constant dividend in perpetuity, then we know from the original data that the dividend (D) must satisfy the equation for a perpetuity:Price = Dividend/Discount rate 40 = D/0.13 ⇒ D = 40 ⨯ 0.13 = $5.20 At the new discount rate of 19%, the stock would be worth: $5.20/0.19 = $27.37The increase in stock risk has lowered the value of the stock by 31.58%.6. The cash flows for the project comprise a 10-year annuity of $10 million per year plus anadditional payment in the tenth year of $10 million (so that the total payment in the tenth year is $20 million). The appropriate discount rate for the project is:r f + β[E(r M ) – r f ] = 9% + 1.7(19% – 9%) = 26% Using this discount rate:NPV = –20 + +∑=101t t26.1101026.110= –20 + [10 ⨯ Annuity factor (26%, 10 years)] + [10 ⨯ PV factor (26%, 10 years)] = 15.64The internal rate of return on the project is 49.55%. The highest value that beta can take before the hurdle rate exceeds the IRR is determined by:49.55% = 9% + β(19% – 9%) ⇒ β = 40.55/10 = 4.055 7. a. False. β = 0 implies E(r) = r f , not zero.b. False. Investors require a risk premium for bearing systematic (i.e., market orundiversifiable) risk.c. False. You should invest 0.75 of your portfolio in the market portfolio, and theremainder in T-bills. Then: βP = (0.75 ⨯ 1) + (0.25 ⨯ 0) = 0.758.a. The beta is the sensitivity of the stock's return to the market return. Call theaggressive stock A and the defensive stock D . Then beta is the change in the stock return per unit change in the market return. We compute each stock's beta by calculating the difference in its return across the two scenarios divided by the difference in market return.00.2205322A =--=β70.0205145.3D =--=βb. With the two scenarios equal likely, the expected rate of return is an average ofthe two possible outcomes: E(r A ) = 0.5 ⨯ (2% + 32%) = 17%E(r B ) = 0.5 ⨯ (3.5% + 14%) = 8.75%c. The SML is determined by the following: T-bill rate = 8% with a beta equal tozero, beta for the market is 1.0, and the expected rate of return for the market is:0.5 ⨯ (20% + 5%) = 12.5%See the following graph.812.5%S M LThe equation for the security market line is: E(r) = 8% + β(12.5% – 8%) d. The aggressive stock has a fair expected rate of return of:E(r A ) = 8% + 2.0(12.5% – 8%) = 17%The security analyst’s estimate of the expected rate of return is also 17%.Thus the alpha for the aggressive stock is zero. Similarly, the required return for the defensive stock is:E(r D ) = 8% + 0.7(12.5% – 8%) = 11.15%The security analyst’s estimate of the expected return for D is only 8.75%, and hence:αD = actual expected return – required return predicted by CAPM= 8.75% – 11.15% = –2.4%The points for each stock are plotted on the graph above.e. The hurdle rate is determined by the project beta (i.e., 0.7), not by the firm’sbeta. The correct discount rate is therefore 11.15%, the fair rate of return on stock D.9. Not possible. Portfolio A has a higher beta than Portfolio B, but the expected returnfor Portfolio A is lower.10. Possible. If the CAPM is valid, the expected rate of return compensates only forsystematic (market) risk as measured by beta, rather than the standard deviation, which includes nonsystematic risk. Thus, Portfolio A's lower expected rate of return can be paired with a higher standard deviation, as long as Portfolio A's beta is lower than that of Portfolio B.11. Not possible. The reward-to-variability ratio for Portfolio A is better than that of themarket, which is not possible according to the CAPM, since the CAPM predicts that the market portfolio is the most efficient portfolio. Using the numbers supplied:S A =5.0121016=- S M =33.0241018=-These figures imply that Portfolio A provides a better risk-reward tradeoff than the market portfolio.12. Not possible. Portfolio A clearly dominates the market portfolio. It has a lowerstandard deviation with a higher expected return.13. Not possible. Given these data, the SML is: E(r) = 10% + β(18% – 10%)A portfolio with beta of 1.5 should have an expected return of: E(r) = 10% + 1.5 ⨯ (18% – 10%) = 22%The expected return for Portfolio A is 16% so that Portfolio A plots below the SML (i.e., has an alpha of –6%), and hence is an overpriced portfolio. This is inconsistent with the CAPM.14. Not possible. The SML is the same as in Problem 12. Here, the required expectedreturn for Portfolio A is: 10% + (0.9 ⨯ 8%) = 17.2%This is still higher than 16%. Portfolio A is overpriced, with alpha equal to: –1.2%15. Possible. Portfolio A's ratio of risk premium to standard deviation is less attractivethan the market's. This situation is consistent with the CAPM. The market portfolio should provide the highest reward-to-variability ratio.16.a.b.As a first pass we note that large standard deviation of the beta estimates. None of the subperiod estimates deviate from the overall period estimate by more than two standard deviations. That is, the t-statistic of the deviation from the overall period is not significant for any of the subperiod beta estimates. Looking beyond the aforementioned observation, the differences can be attributed to different alpha values during the subperiods. The case of Toyota is most revealing: The alpha estimate for the first two years is positive and for the last two years negative (both large). Following a good performance in the "normal" years prior to the crisis, Toyota surprised investors with a negative performance, beyond what could be expected from the index. This suggests that a beta of around 0.5 is more reliable. The shift of the intercepts from positive to negative when the index moved to largely negative returns, explains why the line is steeper when estimated for the overall period. Draw a line in the positive quadrant for the index with a slope of 0.5 and positive intercept. Then draw a line with similar slope in the negative quadrant of the index with a negative intercept. You can see that a line that reconciles the observations for both quadrants will be steeper. The same logic explains part of the behavior of subperiod betas for Ford and GM.17. Since the stock's beta is equal to 1.0, its expected rate of return should be equal to thatof the market, that is, 18%. E(r) =01P P P D -+0.18 =100100P 91-+⇒ P 1 = $10918. If beta is zero, the cash flow should be discounted at the risk-free rate, 8%:PV = $1,000/0.08 = $12,500If, however, beta is actually equal to 1, the investment should yield 18%, and the price paid for the firm should be:PV = $1,000/0.18 = $5,555.56The difference ($6944.44) is the amount you will overpay if you erroneously assume that beta is zero rather than 1.ing the SML: 6% = 8% + β(18% – 8%) ⇒β = –2/10 = –0.220.r1 = 19%; r2 = 16%; β1 = 1.5; β2 = 1.0a.In order to determine which investor was a better selector of individual stockswe look at the abnormal return, which is the ex-post alpha; that is, the abnormalreturn is the difference between the actual return and that predicted by the SML.Without information about the parameters of this equation (i.e., the risk-free rateand the market rate of return) we cannot determine which investment adviser isthe better selector of individual stocks.b.If r f = 6% and r M = 14%, then (using alpha for the abnormal return):α1 = 19% – [6% + 1.5(14% – 6%)] = 19% – 18% = 1%α2 = 16% – [6% + 1.0(14% – 6%)] = 16% – 14% = 2%Here, the second investment adviser has the larger abnormal return and thusappears to be the better selector of individual stocks. By making betterpredictions, the second adviser appears to have tilted his portfolio toward under-priced stocks.c.If r f = 3% and r M = 15%, then:α1 =19% – [3% + 1.5(15% – 3%)] = 19% – 21% = –2%α2 = 16% – [3%+ 1.0(15% – 3%)] = 16% – 15% = 1%Here, not only does the second investment adviser appear to be a better stockselector, but the first adviser's selections appear valueless (or worse).21.a.Since the market portfolio, by definition, has a beta of 1.0, its expected rate ofreturn is 12%.b.β = 0 means the stock has no systematic risk. Hence, the portfolio's expectedrate of return is the risk-free rate, 4%.ing the SML, the fair rate of return for a stock with β= –0.5 is:E(r) = 4% + (–0.5)(12% – 4%) = 0.0%The expected rate of return, using the expected price and dividend for next year: E(r) = ($44/$40) – 1 = 0.10 = 10%Because the expected return exceeds the fair return, the stock must be under-priced.22.The data can be summarized as follows:ing the SML, the expected rate of return for any portfolio P is:E(r P) = r f + β[E(r M) – r f ]Substituting for portfolios A and B:E(r A) = 6% + 0.8 ⨯ (12% – 6%) = 10.8%E(r B) = 6% + 1.5 ⨯ (12% – 6%) = 15.0%Hence, Portfolio A is desirable and Portfolio B is not.b.The slope of the CAL supported by a portfolio P is given by:S =P fP σr)E(r-Computing this slope for each of the three alternative portfolios, we have:S (S&P 500) = 6/20S (A) = 5/10S (B) = 8/31Hence, portfolio A would be a good substitute for the S&P 500.23.Since the beta for Portfolio F is zero, the expected return for Portfolio F equals therisk-free rate.For Portfolio A, the ratio of risk premium to beta is: (10% - 4%)/1 = 6%The ratio for Portfolio E is higher: (9% - 4%)/(2/3) = 7.5%This implies that an arbitrage opportunity exists. For instance, you can create aPortfolio G with beta equal to 1.0 (the same as the beta for Portfolio A) by taking a long position in Portfolio E and a short position in Portfolio F (that is, borrowing at the risk-free rate and investing the proceeds in Portfolio E). For the beta of G to equal 1.0, theproportion (w) of funds invested in E must be: 3/2 = 1.5The expected return of G is then:E(r G) = [(-0.50) ⨯ 4%] + (1.5 ⨯ 9%) = 11.5%βG = 1.5 ⨯ (2/3) = 1.0Comparing Portfolio G to Portfolio A, G has the same beta and a higher expected return.Now, consider Portfolio H, which is a short position in Portfolio A with the proceedsinvested in Portfolio G:βH = 1βG + (-1)βA = (1 ⨯ 1) + [(-1) ⨯ 1] = 0E(r H) = (1 ⨯ r G) + [(-1) ⨯ r A] = (1 ⨯ 11.5%) + [(- 1) ⨯ 10%] = 1.5%The result is a zero investment portfolio (all proceeds from the short sale of Portfolio Aare invested in Portfolio G) with zero risk (because β = 0 and the portfolios are welldiversified), and a positive return of 1.5%. Portfolio H is an arbitrage portfolio.24.Substituting the portfolio returns and betas in the expected return-beta relationship, weobtain two equations in the unknowns, the risk-free rate (r f ) and the factor return (F):14.0% = r f + 1 ⨯ (F – r f )14.8% = r f + 1.1 ⨯ (F – r f )From the first equation we find that F = 14%. Substituting this value for F into the second equation, we get:14.8% = r f + 1.1 ⨯ (14% – r f ) ⇒ r f = 6%25.a.Shorting equal amounts of the 10 negative-alpha stocks and investing the proceedsequally in the 10 positive-alpha stocks eliminates the market exposure and creates azero-investment portfolio. Using equation 7.5, and denoting the market factor as R M,the expected dollar return is [noting that the expectation of residual risk (e) inequation 7.8 is zero]:$1,000,000 ⨯ [0.03 + (1.0 ⨯ R M)] – $1,000,000 ⨯ [(–0.03) + (1.0 ⨯ R M)]= $1,000,000 ⨯ 0.06 = $60,000The sensitivity of the payoff of this portfolio to the market factor is zero because theexposures of the positive alpha and negative alpha stocks cancel out. (Notice thatthe terms involving R M sum to zero.) Thus, the systematic component of total riskalso is 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 returnsfrom the positions in the 20 firms is:20 ⨯ [(100,000 ⨯ 0.30)2] = 18,000,000,000The standard deviation of dollar returns is $134,164.b.If n = 50 stocks (i.e., 25 long and 25 short), $40,000 is placed in each position,and the variance of dollar returns is:50 ⨯ [(40,000 ⨯ 0.30)2] = 7,200,000,000The standard deviation of dollar returns is $84,853.Similarly, if n = 100 stocks (i.e., 50 long and 50 short), $20,000 is placed ineach position, and the variance of dollar returns is:100 ⨯ [(20,000 ⨯ 0.30)2] = 3,600,000,000The standard deviation of dollar returns is $60,000.Notice that when the number of stocks increases by a factor of 5 (from 20 to 100),standard deviation falls by a factor of 5= 2.236, from $134,164 to $60,000. 26.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).27.The APT factors must correlate with major sources of uncertainty, i.e., sources ofuncertainty that are of concern to many investors. Researchers should investigatefactors 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 highlycorrelated with uncertainties related to investment and consumption opportunities in the economy.28.The revised estimate of the expected rate of return of the stock would be the oldestimate plus the sum of the unexpected changes in the factors times the sensitivitycoefficients, as follows:Revised estimate = 14% + [(1 ⨯ 1) + (0.4 ⨯ 1)] = 15.4%29.Equation 7.11 applies here:E(r P) = r f + βP1[E(r1) - r f] + βP2[E(r2) – r f]We need to find the risk premium for these two factors:γ1 = [E(r1) - r f] andγ2 = [E(r2) - r f]To find these values, we solve the following two equations with two unknowns: 40% = 7% + 1.8γ1 + 2.1γ210% = 7% + 2.0γ1 + (-0.5)γ2The solutions are: γ1 = 4.47% and γ2 = 11.86%Thus, the expected return-beta relationship is:E(r P) = 7% + 4.47βP1 + 11.86βP230.The first two factors (the return on a broad-based index and the level of interest rates)are most promising with respect to the likely impa ct on Jennifer’s firm’s cost of capital.These are both macro factors (as opposed to firm-specific factors) that can not bediversified away; consequently, we would expect that there is a risk premiumassociated with these factors. On the other hand, the risk of changes in the price ofhogs, while important to some firms and industries, is likely to be diversifiable, andtherefore is not a promising factor in terms of its impact on the firm’s cost of capital.31.Since the risk free rate is not given, we assume a risk free rate of 0%. The APT required(i.e., equilibrium) rate of return on the stock based on Rf and the factor betas is:Required E(r) = 0 + (1 x 6) + (0.5 x 2) + (0.75 x 4) = 10%According to the equation for the return on the stock, the actually expected return onthe stock is 6 % (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.CFA 1a, c and dCFA 2a.E(r X) = 5% + 0.8(14% – 5%) = 12.2%αX = 14% – 12.2% = 1.8%E(r Y) = 5% + 1.5(14% – 5%) = 18.5%αY = 17% – 18.5% = –1.5%b.(i)For an investor who wants to add this stock to a well-diversified equityportfolio, Kay should recommend Stock X because of its positivealpha, while Stock Y has a negative alpha. In graphical terms, StockX’s expected return/risk profile plots above the SML, while Stock Y’sprofile plots below the SML. Also, depending on the individual riskpreferences of Kay’s clients, Stock X’s lower beta may have abeneficial impact on overall portfolio risk.(ii)For an investor who wants to hold this stock as a single-stock portfolio,Kay should recommend Stock Y, because it has higher forecastedreturn and lower standard deviation than S tock X. Stock Y’s Sharperatio is:(0.17 – 0.05)/0.25 = 0.48Stock X’s Sharpe ratio is only:(0.14 – 0.05)/0.36 = 0.25The market index has an even more attractive Sharpe ratio:(0.14 – 0.05)/0.15 = 0.60However, given the choice between Stock X and Y, Y is superior.When a stock is held in isolation, standard deviation is the relevantrisk measure. For assets held in isolation, beta as a measure of risk isirrelevant. Although holding a single asset in isolation is not typicallya recommended investment strategy, some investors may hold what isessentially a single-asset portfolio (e.g., the stock of their employercompany). For such investors, the relevance of standard deviationversus beta is an important issue.CFA 3a.McKay should borrow funds and i nvest those funds proportionally in Murray’sexisting portfolio (i.e., buy more risky assets on margin). In addition toincreased expected return, the alternative portfolio on the capital market line(CML) will also have increased variability (risk), which is caused by the higherproportion of risky assets in the total portfolio.b.McKay should substitute low beta stocks for high beta stocks in order to reducethe overall beta of York’s portfolio. By reducing the overall portfolio beta,McKay will reduce the systematic risk of the portfolio and therefore theportfolio’s volatility relative to the market. The security market line (SML)suggests such action (moving down the SML), even though reducing beta mayresult in a slight loss of portfolio efficiency unless full diversification ismaintained. York’s primary objective, however, is not to maintain efficiencybut to reduce risk exposure; reducing portfolio beta meets that objective.Because York does not permit borrowing or lending, McKay cannot reduce riskby selling equities and using the proceeds to buy risk free assets (i.e., by lendingpart of the portfolio).CFA 4c.“Both the CAPM and APT require a mean-variance efficient market portfolio.”This statement is incorrect. The CAPM requires the mean-variance efficientportfolio, but APT does not.d.“The CAPM assumes that one specific factor explains security returns but APTdoes not.” This statement is c orrect.CFA 5aCFA 6dCFA 7d You need to know the risk-free rate.CFA 8d You need to know the risk-free rate.CFA 9Under the CAPM, the only risk that investors are compensated for bearing is the riskthat cannot be diversified away (i.e., systematic risk). Because systematic risk(measured by beta) is equal to 1.0 for each of the two portfolios, an investor wouldexpect the same rate of return from each portfolio. Moreover, since both portfolios are well diversified, it does not matter whether the specific risk of the individual securities is high or low. The firm-specific risk has been diversified away from both portfolios. CFA 10b r f = 8% and E(r M) = 16%E(r X) = r f + βX[E(r M) – r f] = 8% + 1.0(16% - 8%) = 16%E(r Y) = r f + βY[E(r M) – r f] = 8% + 0.25(16% - 8%) = 10%Therefore, there is an arbitrage opportunity.CFA 11cCFA 12dCFA 13cInvestors will take on as large a position as possible only if the mis-pricingopportunity is an arbitrage. Otherwise, considerations of risk anddiversification will limit the position they attempt to take in the mis-pricedsecurity.CFA 14d。
投资学精要(博迪)(第五版)习题答案英文版chapter2,4,5
Net asset value =
4,000,000
= 10.49
8. a. Start of year price = $12.00 × 1.02 = $12.24
End of year price = $12.10 × 0.93 = $11.25
Although NAV increased, the price of the fund fell by $0.99.
Distributions + ∆(Price) $1.50 – $0.99 Rate of return = Start of year price = $12.24 = .042 = 4.2%
b. An investor holding the same portfolio as the manager would have earned a rate of return based on the increase in the NAV of the portfolio:
$1000 × (1.095)4 = $1,437.66,
which after paying the exit fee will leave you with: $1,437.66 × .99 = 1423.28.
Class B is better if your horizon is 4 years.
Chapter 4:
2. The offer price includes a 6% front-end load, or sales commission, meaning that every dollar paid results in only $.94 going toward purchase of shares. Therefore,
投资学(双语)11
2. Types of agreements
Best-efforts agreement
— make best effort to sell securities — return all the unsold shares to the issuing firm — commission — the risk rests with the issuing company — limited to less well known firms
Stop-loss Order (止损交易指令) — Stop Price (止损价格). 止损卖出交易指令，止损价格要低 于交易指令时的市价；止损买入交易指令，止损价格必须高 于交易指令的市价。 — 只能保证成交，不能保证价格。 Stop Limit Order (止损限价交易指令) — 同时注明止损价和限价的交易指令。
The Issuing and Selling of New Securities
1. The Role of Investment Bankers in IPO
Brokerage firm: channal money from investors to firms, do not claims on themselves. Consultant: how to price and sell new stock Underwriting: 当一家发行人通过证券市场筹集资金时，就 要聘请证券经营机构来帮助它销售证券。证券经营机构借 助自己在证券市场上的信誉和营业网点，在规定的发行有 效期限内将证券销售出去，这一过程称为承销。承销分为 包销（firm commitment）和代销（best-efforts agreement）。投资银行在两种承销方式中承担的风险有 所区别。 Syndicate and lead underwriter
投资学精要(博迪)(第五版)习题答案英文版chapter8
Essentials of Investments (BKM 5th Ed.)Answers to Selected Problems – Lecture 5Chapter 8:2. Zero. If not, one could use returns from one period to predict returns in later periods andmake abnormal profits.3. c. “The January Effect” implies that one can predict January prices based on past Januaryprices. This is a predictable pattern in returns which should not occur if weak-form EMH is valid.4. c. This is a classic filter rule which should not be profitable in an efficient market.7. c. The P/E ratio is public information and should not predict abnormal security returns.8. No. This empirical tendency does not provide investors with a tool to earn abnormalreturns - in other words, it does not suggest that investors are failing to use all availableinformation. You could not use this information to choose undervalued stocks today. This phenomenon actually reflects the fact that stock splits usually occur because the firm has performed well in the past.9. No. This empirical tendency does not provide investors a tool to earn abnormal returns --in other words, it does not suggest that investors are failing to use all available information.You could not use this phenomenon to choose undervalued stocks today. The phenomenon instead reflects the fact that stock splits occur as a response to good performance (positive abnormal returns) which drives up the stock price above a desired "trading range" andleads managers to split the stock. After the fact, the stocks that happen to have performed the best will be split candidates, but this does not imply that you can identify the bestperformers early enough to earn abnormal returns.14. Buy. The firm is in your view not as bad as everyone else believes it to be. Therefore, youview the firm as undervalued by the market. You are less pessimistic about the firm’sprospects than the beliefs built into the stock price.16. a) The grandson is referring to (i) the small-firm effect (which can also be described as theJanuary effect) and (ii) the weekend anomaly.b) 1 - Building a portfolio of only small firms results in increased risk, as the portfolio isdiversified.less2 - Because the anomaly has existed in the past is not a predictor that the anomaly willexist in the future.3 - After the results of these studies became publicly known, investorsmay bid up the prices of these securities to reflect the now-known opportunity.17. a. Consistent. Half of managers should beat the market based on pure luck in any year.b. Inconsistent. This would be the basis of an "easy money" rule: simply invest with lastyear's best managers.c. Consistent. Predictable volatility does not convey a means to earn abnormal returns.d. Inconsistent. The abnormal performance ought to occur in January when earnings areannounced.e. Inconsistent. Reversals offer a means to earn easy money: just buy last week's losers.21. If one could expect the effects to continue in the future, the firm might wish to add moresmall firms and more firms with low P/E ratios to their portfolio. However, in doing so, the firm must be certain that it is not taking on more risk and achieving less diversificationthan desired. That is, small firms are more risky than larger firms; also, there is someindication that low P/E ratio firms sell for lower prices because these firms are more risky.In addition, by investing heavily in small firms, a portfolio manager is investing heavily in similar type firms and thus decreasing diversification (and increasing risk).22. The firm might not want to adopt this new strategy for the following reasons: (1) thediversification of the portfolio would likely decrease resulting in more risk in the portfolio - in other words, the risk-adjusted performance may not be higher, (2) investmentconstraints written into the statement of investment policy might make it necessary toobtain permission from the fund owners to implement such a strategy, (3) these effects may not continue in the future now that they are widely known.。
投资学第7版TestBank答案07
投资学第7版TestBank答案07Multiple Choice Questions1. Market risk is also referred to asA) systematic risk, diversifiable risk.B) systematic risk, nondiversifiable risk.C) unique risk, nondiversifiable risk.D) unique risk, diversifiable risk.E) none of the above.Answer: B Difficulty: EasyRationale: Market, systematic, and nondiversifiable risk are synonyms referring to the risk that cannot be eliminated from the portfolio. Diversifiable, unique, nonsystematic, and firm-specific risks are synonyms referring to the risk that can be eliminated from the portfolio by diversification.2. The risk that can be diversified away isA) firm specific risk.B) beta.C) systematic risk.D) market risk.E) none of the above.Answer: A Difficulty: EasyRationale: See explanations for 1 and 2 above.3. The variance of a portfolio of risky securitiesA) is a weighted sum of the securities' variances.B) is the sum of the securities' variances.C) is the weighted sum of the securities' variances and covariances.D) is the sum of the securities' covariances.E) none of the above.Answer: C Difficulty: ModerateRationale: The variance of a portfolio of risky securities is a weighted sum taking into account both the variance of the individual securities and the covariances betweensecurities.4. The expected return of a portfolio of risky securitiesA) is a weighted average of the securities' returns.B) is the sum of the securities' returns.C) is the weighted sum of the securities' variances and covariances.D) A and C.E) none of the above.Answer: A Difficulty: Easy5. Other things equal, diversification is most effective whenA) securities' returns are uncorrelated.B) securities' returns are positively correlated.C) securities' returns are high.D) securities' returns are negatively correlated.E) B and C.Answer: D Difficulty: ModerateRationale: Negative correlation among securities results in the greatest reduction of portfolio risk, which is the goal of diversification.6. The efficient frontier of risky assets isA) the portion of the investment opportunity set that lies above the global minimumvariance portfolio.B) the portion of the investment opportunity set that represents the highest standarddeviations.C) the portion of the investment opportunity set which includes the portfolios with thelowest standard deviation.D) the set of portfolios that have zero standard deviation.E) both A and B are true.Answer: A Difficulty: ModerateRationale: Portfolios on the efficient frontier are those providing the greatest expected return for a given amount of risk. Only those portfolios above the global minimum variance portfolio meet this criterion.7. The Capital Allocation Line provided by a risk-free security and N risky securities isA) the line that connects the risk-free rate and the global minimum-variance portfolioof the risky securities.B) the line that connects the risk-free rate and the portfolio of the risky securities thathas the highest expected return on the efficient frontier.C) the line tangent to the efficient frontier of risky securities drawn from the risk-freerate.D) the horizontal line drawn from the risk-free rate.E) none of the above.Answer: C Difficulty: ModerateRationale: The Capital Allocation Line represents the most efficient combinations of the risk-free asset and risky securities. OnlyC meets that definition.8. Consider an investment opportunity set formed with two securities that are perfectlynegatively correlated. The global minimum variance portfolio has a standard deviation that is alwaysA) greater than zero.B) equal to zero.C) equal to the sum of the securities' standard deviations.D) equal to -1.E) none of the above.Answer: B Difficulty: DifficultRationale: If two securities were perfectly negatively correlated, the weights for the minimum variance portfolio for those securities could be calculated, and the standard deviation of the resulting portfolio would be zero.9. Which of the following statements is (are) true regarding the variance of a portfolio oftwo risky securities?A) The higher the coefficient of correlation between securities, the greater thereduction in the portfolio variance.B) There is a linear relationship between the securities' coefficient of correlation andthe portfolio variance.C) The degree to which the portfolio variance is reduced depends on the degree ofcorrelation between securities.D) A and B.E) A and C.Answer: C Difficulty: ModerateRationale: The lower the correlation between the returns of the securities, the more portfolio risk is reduced.10. Efficient portfolios of N risky securities are portfolios thatA) are formed with the securities that have the highest rates of return regardless of theirstandard deviations.B) have the highest rates of return for a given level of risk.C) are selected from those securities with the lowest standard deviations regardless oftheir returns.D) have the highest risk and rates of return and the highest standard deviations.E) have the lowest standard deviations and the lowest rates of return.Answer: B Difficulty: ModerateRationale: Portfolios that are efficient are those that provide the highest expected return for a given level of risk.11. Which of the following statement(s) is (are) true regarding the selection of a portfoliofrom those that lie on the Capital Allocation Line?A) Less risk-averse investors will invest more in the risk-free security and less in theoptimal risky portfolio than more risk-averse investors.B) More risk-averse investors will invest less in the optimal risky portfolio and more inthe risk-free security than less risk-averse investors.C) Investors choose the portfolio that maximizes their expected utility.D) A and C.E) B and C.Answer: E Difficulty: ModerateRationale: All rational investors select the portfolio that maximizes their expectedutility; for investors who are relatively more risk-averse, doing so means investing less in the optimal risky portfolio and more in the risk-free asset.Use the following to answer questions 12-18:Consider the following probability distribution for stocks A and B:12. The expected rates of return of stocks A and B are _____ and _____ , respectively.A) 13.2%; 9%B) 14%; 10%C) 13.2%; 7.7%D) 7.7%; 13.2%E) none of the aboveAnswer: C Difficulty: EasyRationale: E(RA) = 0.1(10%) + 0.2(13%) + 0.2(12%) + 0.3(14%) + 0.2(15%) = 13.2%;E(RB) = 0.1(8%) + 0.2(7%) + 0.2(6%) + 0.3(9%) + 0.2(8%) = 7.7%.13. The standard deviations of stocks A and B are _____ and _____, respectively.A) 1.5%; 1.9%B) 2.5%; 1.1%C) 3.2%; 2.0%D) 1.5%; 1.1%E) none of the aboveAnswer: D Difficulty: ModerateRationale: s A = [0.1(10% - 13.2%)2 + 0.2(13% - 13.2%)2 + 0.2(12% - 13.2%)2 +0.3(14% - 13.2%)2 + 0.2(15% - 13.2%)2]1/2 = 1.5%; s B = [0.1(8% - 7.7%)2 + 0.2(7% -7.7%)2 + 0.2(6% - 7.7%)2 + 0.3(9% - 7.7%)2 + 0.2(8% - 7.7%)2 = 1.1%.14. The coefficient of correlation between A and B isA) 0.47.B) 0.60.C) 0.58D) 1.20.E) none of the above.Answer: A Difficulty: DifficultRationale: covA,B = 0.1(10% - 13.2%)(8% - 7.7%) + 0.2(13% - 13.2%)(7% - 7.7%) +0.2(12% - 13.2%)(6% - 7.7%) + 0.3(14% - 13.2%)(9% - 7.7%) + 0.2(15% - 13.2%)(8%- 7.7%) = 0.76; rA,B = 0.76/[(1.1)(1.5)] = 0.47.15. If you invest 40% of your money in A and 60% in B, what would be your portfolio'sexpected rate of return and standard deviation?A) 9.9%; 3%B) 9.9%; 1.1%C) 11%; 1.1%D) 11%; 3%E) none of the aboveAnswer: B Difficulty: DifficultRationale: E(R P) = 0.4(13.2%) + 0.6(7.7%) = 9.9%; s P = [(0.4)2(1.5)2 + (0.6)2(1.1)2 + 2(0.4)(0.6)(1.5)(1.1)(0.46)]1/2 = 1.1%.16. Let G be the global minimum variance portfolio. The weights of A and B in G are__________ and __________, respectively.A) 0.40; 0.60B) 0.66; 0.34C) 0.34; 0.66D) 0.76; 0.24E) 0.24; 0.76Answer: E Difficulty: DifficultRationale: w A = [(1.1)2 - (1.5)(1.1)(0.46)]/[(1.5)2 + (1.1)2 - (2)(1.5)(1.1)(0.46) = 0.23;w B = 1 - 0.23 = 0.77.Note that the above solution assumes the solutions obtained in question 13 and 14.17. The expected rate of return and standard deviation of the global minimum varianceportfolio, G, are __________ and __________, respectively.A) 10.07%; 1.05%B) 9.04%; 2.03%C) 10.07%; 3.01%D) 9.04%; 1.05%E) none of the aboveAnswer: D Difficulty: ModerateRationale: E(R G) = 0.23(13.2%) + 0.77(7.7%) = 8.97% . 9%; s G = [(0.23)2(1.5)2 +(0.77)2(1.1)2 + (2)(0.23)(0.77)(1.5)(1.1)(0.46)]1/2 = 1.05%.18. Which of the following portfolio(s) is (are) on the efficient frontier?A) The portfolio with 20 percent in A and 80 percent in B.B) The portfolio with 15 percent in A and 85 percent in B.C) The portfolio with 26 percent in A and 74 percent in B.D) The portfolio with 10 percent in A and 90 percent in B.E) A and B are both on the efficient frontier.Answer: C Difficulty: DifficultRationale: The Portfolio's E(Rp), sp, Reward/volatility ratios are 20A/80B: 8.8%,1.05%, 8.38; 15A/85B: 8.53%, 1.06%, 8.07; 26A/74B: 9.13%, 1.05%, 8.70; 10A/90B:8.25%, 1.07%, 7.73. The portfolio with 26% in A and 74% in B dominates all of theother portfolios by the mean-variance criterion.Use the following to answer questions 19-21:Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10% and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of 12%.19. The weights of A and B in the global minimum variance portfolio are _____ and _____,respectively.A) 0.24; 0.76B) 0.50; 0.50C) 0.57; 0.43D) 0.43; 0.57E) 0.76; 0.24Answer: D Difficulty: ModerateRationale: wA = 12 /(16 + 12) = 0.4286; wB = 1 - 0.4286 = 0.5714.20. The risk-free portfolio that can be formed with the two securities will earn _____ rate ofreturn.A) 8.5%B) 9.0%C) 8.9%D) 9.9%E) none of the aboveAnswer: C Difficulty: DifficultRationale: E(R P) = 0.43(10%) + 0.57(8%) = 8.86%.21. Which of the following portfolio(s) is (are) most efficient?A) 45 percent in A and 55 percent in B.B) 65 percent in A and 35 percent in B.C) 35 percent in A and 65 percent in B.D) A and B are both efficient.E) A and C are both efficient.Answer: D Difficulty: DifficultRationale: The Portfolio E(Rp), sp, and Reward/volatility ratios are 45A/55B: 8.9%,0.6%, 14.83; 65A/35B: 9.3%, 6.2%, 1.5; 35A/65B: 8.7%, 2.2%, 3.95. Both A and B areefficient according to the mean-variance criterion. A has a much higherReward/volatility ratio.22. An investor who wishes to form a portfolio that lies to the right of the optimal riskyportfolio on the Capital Allocation Line must:A) lend some of her money at the risk-free rate and invest the remainder in the optimalrisky portfolio.B) borrow some money at the risk-free rate and invest in the optimal risky portfolio.C) invest only in risky securities.D) such a portfolio cannot be formed.E) B and CAnswer: E Difficulty: ModerateRationale: The only way that an investor can create portfolios to the right of the Capital Allocation Line is to create a borrowing portfolio (buy stocks on margin). In this case, the investor will not hold any of the risk-free security, but will hold only risky securities.23. Which one of the following portfolios cannot lie on the efficient frontier as describedby Markowitz?A) Only portfolio W cannot lie on the efficient frontier.B) Only portfolio X cannot lie on the efficient frontier.C) Only portfolio Y cannot lie on the efficient frontier.D) Only portfolio Z cannot lie on the efficient frontier.E) Cannot tell from the information given.Answer: A Difficulty: ModerateRationale: When plotting the above portfolios, only W lies below the efficient frontier as described by Markowitz. It has a higher standard deviation than Z with a lower expected return.24. Which one of the following portfolios cannot lie on the efficient frontier as describedby Markowitz?A) Only portfolio A cannot lie on the efficient frontier.B) Only portfolio B cannot lie on the efficient frontier.C) Only portfolio C cannot lie on the efficient frontier.D) Only portfolio D cannot lie on the efficient frontier.E) Cannot tell from the information given.Answer: D Difficulty: ModerateRationale: When plotting the above portfolios, only W lies below the efficient frontier as described by Markowitz. It has a higher standard deviation than Z with a lower expected return.25. Portfolio theory as described by Markowitz is most concerned with:A) the elimination of systematic risk.B) the effect of diversification on portfolio risk.C) the identification of unsystematic risk.D) active portfolio management to enhance returns.E) none of the above.Answer: B Difficulty: ModerateRationale: Markowitz was concerned with reducing portfolio risk by combining risky securities with differing return patterns.26. The measure of risk in a Markowitz efficient frontier is:A) specific risk.B) standard deviation of returns.C) reinvestment risk.D) beta.E) none of the above.Answer: B Difficulty: ModerateRationale: Markowitz was interested in eliminating diversifiable risk (and thuslessening total risk) and thus was interested in decreasing the standard deviation of the returns of the portfolio.27. A statistic that measures how the returns of two risky assets move together is:A) variance.B) standard deviation.C) covariance.D) correlation.E) C and D.Answer: E Difficulty: ModerateRationale: Covariance measures whether security returns move together or inopposition; however, only the sign, not the magnitude, of covariance may be interpreted.Correlation, which is covariance standardized by the product of the standard deviations of the two securities, may assume values only between +1 and -1; thus, both the sign and the magnitude may be interpreted regarding the movement of one security's returnrelative to that of another security.28. The unsystematic risk of a specific securityA) is likely to be higher in an increasing market.B) results from factors unique to the firm.C) depends on market volatility.D) cannot be diversified away.E) none of the above.Answer: B Difficulty: ModerateRationale: Unsystematic (or diversifiable or firm-specific) risk refers to factors unique to the firm. Such risk may be diversified away; however, market risk will remain.29. Which statement about portfolio diversification is correct?A) Proper diversification can reduce or eliminate systematic risk.B) The risk-reducing benefits of diversification do not occur meaningfully until at least50-60 individual securities have been purchased.C) Because diversification reduces a portfolio's total risk, it necessarily reduces theportfolio's expected return.D) Typically, as more securities are added to a portfolio, total risk would be expectedto decrease at a decreasing rate.E) None of the above statements is correct.Answer: D Difficulty: ModerateRationale: Diversification can eliminate only nonsystematic risk; relatively fewsecurities are required to reduce this risk, thus diminishing returns result quickly.Diversification does not necessarily reduce returns.30. The individual investor's optimal portfolio is designated by:A) The point of tangency with the indifference curve and the capital allocation line.B) The point of highest reward to variability ratio in the opportunity set.C) The point of tangency with the opportunity set and the capital allocation line.D) The point of the highest reward to variability ratio in the indifference curve.E) None of the above.Answer: A Difficulty: ModerateRationale: The indifference curve represents what is acceptable to the investor; the capital allocation line represents what is available in the market. The point of tangency represents where the investor can obtain the greatest utility from what is available.31. For a two-stock portfolio, what would be the preferred correlation coefficient betweenthe two stocks?A) +1.00.B) +0.50.C) 0.00.D) -1.00.E) none of the above.Answer: D Difficulty: ModerateRationale: The correlation coefficient of -1.00 provides the greatest diversificationbenefits.32. In a two-security minimum variance portfolio where the correlation between securitiesis greater than -1.0A) the security with the higher standard deviation will be weighted more heavily.B) the security with the higher standard deviation will be weighted less heavily.C) the two securities will be equally weighted.D) the risk will be zero.E) the return will be zero.Answer: B Difficulty: DifficultRationale: The security with the higher standard deviation will be weighted less heavily to produce minimum variance. The return will not be zero; the risk will not be zero unless the correlation coefficient is -1.33. Which of the following is not a source of systematic risk?A) the business cycle.B) interest rates.C) personnel changesD) the inflation rate.E) exchange rates.Answer: C Difficulty: EasyRationale: Personnel changes are a firm-specific event that is a component ofnon-systematic risk. The others are all sources of systematic risk.34. The global minimum variance portfolio formed from two risky securities will beriskless when the correlation coefficient between the two securities isA) 0.0B) 1.0C) 0.5D) -1.0E) negativeAnswer: D Difficulty: ModerateRationale: The global minimum variance portfolio will have a standard deviation of zero whenever the two securities are perfectly negatively correlated.35. Security X has expected return of 12% and standard deviation of 20%. Security Y hasexpected return of 15% and standard deviation of 27%. If the two securities have a correlation coefficient of 0.7, what is their covariance?A) 0.038B) 0.070C) 0.018D) 0.013E) 0.054Answer: A Difficulty: ModerateRationale: Cov(r X, r Y) = (.7)(.20)(.27) = .037836. When two risky securities that are positively correlated but not perfectly correlated areheld in a portfolio,A) the portfolio standard deviation will be greater than the weighted average of theindividual security standard deviations.B) the portfolio standard deviation will be less than the weighted average of theindividual security standard deviations.C) the portfolio standard deviation will be equal to the weighted average of theindividual security standard deviations.D) the portfolio standard deviation will always be equal to the securities' covariance.E) none of the above is true.Answer: B Difficulty: ModerateRationale: Whenever two securities are less than perfectly positively correlated, the standard deviation of the portfolio of the two assets will be less than the weightedaverage of the two securities' standard deviations. There is some benefit todiversification in this case.37. The line representing all combinations of portfolio expected returns and standarddeviations that can be constructed from two available assets is called theA) risk/reward tradeoff lineB) Capital Allocation LineC) efficient frontierD) portfolio opportunity setE) Security Market LineAnswer: D Difficulty: EasyRationale: The portfolio opportunity set is the line describing all combinations ofexpected returns and standard deviations that can be achieved by a portfolio of risky assets.38. Given an optimal risky portfolio with expected return of 14% and standard deviation of22% and a risk free rate of 6%, what is the slope of the best feasible CAL?A) 0.64B) 0.14C) 0.08D) 0.33E) 0.36Answer: E Difficulty: ModerateRationale: Slope = (14-6)/22 = .363639. The risk that can be diversified away in a portfolio is referred to as ___________.I)diversifiable riskII)unique riskIII)systematic riskIV)firm-specific riskA) I, III, and IVB) II, III, and IVC) III and IVD) I, II, and IVE) I, II, III, and IVAnswer: D Difficulty: ModerateRationale: All of these terms are used interchangeably to refer to the risk that can be removed from a portfolio through diversification.40. As the number of securities in a portfolio is increased, what happens to the averageportfolio standard deviation?A) It increases at an increasing rate.B) It increases at a decreasing rate.C) It decreases at an increasing rate.D) It decreases at a decreasing rate.E) It first decreases, then starts to increase as more securities are added.Answer: D Difficulty: ModerateRationale: Statman's study showed that the risk of the portfolio would decrease asrandom stocks were added. At first the risk decreases quickly, but then the rate ofdecrease slows substantially, as shown in Figure 7.2. The minimum portfolio risk in the study was 19.2%.41. In words, the covariance considers the probability of each scenario happening and theinteraction betweenA) securities' returns relative to their variances.B) securities' returns relative to their mean returns.C) securities' returns relative to other securities' returns.D) the level of return a security has in that scenario and the overall portfolio return.E) the variance of the security's return in that scenario and the overall portfoliovariance.Answer: B Difficulty: DifficultRationale: As written in equation 7.4, the covariance of the returns between twosecurities is the sum over all scenarios of the product of three things. The first item is the probability that the scenario will happen. The second and third terms represent the deviations of the securities' returns in that scenario from their own expected returns. 42. The standard deviation of a two-asset portfolio is a linear function of the assets' weightswhenA) the assets have a correlation coefficient less than zero.B) the assets have a correlation coefficient equal to zero.C) the assets have a correlation coefficient greater than zero.D) the assets have a correlation coefficient equal to one.E) the assets have a correlation coefficient less than one.Answer: D Difficulty: ModerateRationale: When there is a perfect positive correlation (or a perfect negative correlation), the equation for the portfolio variance simplifies to a perfect square. The result is that the portfolio's standard deviation is linear relative to the assets' weights in the portfolio.43. A two-asset portfolio with a standard deviation of zero can be formed whenA) the assets have a correlation coefficient less than zero.B) the assets have a correlation coefficient equal to zero.C) the assets have a correlation coefficient greater than zero.D) the assets have a correlation coefficient equal to one.E) the assets have a correlation coefficient equal to negative one.Answer: E Difficulty: ModerateRationale: When there is a perfect negative correlation, the equation for the portfolio variance simplifies to a perfect square. The result is that the portfolio’s standarddeviation equals |w AσA– w BσB|, which can be set equal to zero. The solution w A = σB/(σA+ σB) and w B = 1 – w A will yielda zero-standard deviation portfolio.44. When borrowing and lending at a risk-free rate are allowed, which Capital AllocationLine (CAL) should the investor choose to combine with the efficient frontier?I)with the highest reward-to-variability ratio.II)that will maximize his utility.III)with the steepest slope.IV)with the lowest slope.A) I and IIIB) I and IVC) II and IVD) I onlyE) I, II, and IIIAnswer: E Difficulty: DifficultRationale: The optimal CAL is the one that is tangent to the efficient frontier. This CAL offers the highest reward-to-variability ratio, which is the slope of the CAL. It will also allow the investor to reach his highest feasible level of utility.45. Which Excel tool can be used to find the points along an efficient frontier?A) RegressionB) SolverC) ScenariosD) Goal SeekE) Data AnalysisAnswer: B Difficulty: ModerateRationale: Even if the student isn't familiar with Excel's Solver tool, he shouldrecognize it from the discussion in the text.46. The separation property refers to the conclusion thatA) the determination of the best risky portfolio is objective and the choice of the bestcomplete portfolio is subjective.B) the choice of the best complete portfolio is objective and the determination of thebest risky portfolio is objective.C) the choice of inputs to be used to determine the efficient frontier is objective and thechoice of the best CAL is subjective.D) the determination of the best CAL is objective and the choice of the inputs to beused to determine the efficient frontier is subjective.E) investors are separate beings and will therefore have different preferences regardingthe risk-return tradeoff.Answer: A Difficulty: DifficultRationale: The determination of the optimal risky portfolio is purely technical and can be done by a manager. The complete portfolio, which consists of the optimal riskyportfolio and the risk-free asset, must be chosen by each investor based on preferences. Use the following to answer questions 47-50:Consider the following probability distribution for stocks A and B:47. The expected rates of return of stocks A and B are _____ and _____, respectively.A) 13.2%; 9%.B) 13%; 8.4%C) 13.2%; 7.7%D) 7.7%; 13.2%E) none of the aboveAnswer: B Difficulty: EasyRationale: E(RA) = 0.15(8%) + 0.2(13%) + 0.15(12%) + 0.3(14%) + 0.2(16%) = 13%;E(RB) = 0.15(8%) + 0.2(7%) + 0.15(6%) + 0.3(9%) + 0.2(11%) = 8.4%.48. The standard deviations of stocks A and B are _____ and _____, respectively.A) 1.56%; 1.99%B) 2.45%; 1.68%C) 3.22%; 2.01%D) 1.54%; 1.11%E) none of the aboveAnswer: B Difficulty: ModerateRationale: s A = [0.15(8% - 13%)2 + 0.2(13% - 13%)2 + 0.15(12% - 13%)2 + 0.3(14% - 13%)2 + 0.2(16% - 13%)2] 1/2 = 2.449%; sB = [0.15(8% - 8.4%)2 + 0.2(7% - 8.4%)2 +0.15(6% - 8.4%)2 + 0.3(9% - 8.4%)2 + 0.2(11% - 8.4%)2 ] 1/2= 1.676%.49. The coefficient of correlation between A and B isA) 0.474.B) 0.612.C) 0.583.D) 1.206.E) none of the above.Answer: C Difficulty: DifficultRationale: covA,B = 0.15(8% - 13%)(8% - 8.4%) + 0.2(13% - 13%)(7% - 8.4%) +0.15(12% - 13%)(6% - 8.4%) + 0.3(14% - 13%)(9% - 8.4%) + 0.2(16% - 13%)(11% -8.4%) = 2.40; rA,B = 2.40/[(2.45)(1.68)] = 0.583.50. If you invest 35% of your money in A and 65% in B, what would be your portfolio'sexpected rate of return and standard deviation?A) 9.9%; 3%B) 9.9%; 1.1%C) 10%; 1.7%D) 10%; 3%E) none of the aboveAnswer: C Difficulty: DifficultRationale: E(R P) = 0.35(13%) + 0.65(8.4%) = 10.01%; s P = [(0.35)2(2.45%)2 +(0.65)2(1.68)2 + 2(0.35)(0.65)(2.45)(1.68)(0.583)]1/2 = 1.7%.Use the following to answer questions 51-52:Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 12% and a standard deviation of 17%. B has an expected rate of return of 9% and a standard deviation of 14%.51. The weights of A and B in the global minimum variance portfolio are _____ and _____,respectively.A) 0.24; 0.76B) 0.50; 0.50C) 0.57; 0.43D) 0.45; 0.55E) 0.76; 0.24Answer: D Difficulty: ModerateRationale: wA = 14 /(17 + 14) = 0.45; wB = 1 - 0.45 = 0.55.52. The risk-free portfolio that can be formed with the two securities will earn _____ rate ofreturn.A) 9.5%B) 10.4%C) 10.9%D) 9.9%E) none of the aboveAnswer: B Difficulty: DifficultRationale: E(R P) = 0.45(12%) + 0.55(9%) = 10.35%.53. Security X has expected return of 14% and standard deviation of 22%. Security Y hasexpected return of 16% and standard deviation of 28%. If the two securities have a correlation coefficient of 0.8, what is their covariance?。
投资学选择题及答案英文版
投资学选择题及答案英文版(总7页)--本页仅作为文档封面，使用时请直接删除即可----内页可以根据需求调整合适字体及大小--INVESTMENTTUTORIAL 1SUMISSION DEADLINE: OCT 221. Primary market refers to the market ____________.A. that attempts to identify mispriced securities and arbitrage opportunities.B. in which investors trade already issued securities.C. where new issues of securities are offered.D. in which securities with custom-tailored characteristics are designed.2. Asset allocation refers to the _________.A. allocation of the investment portfolio across broad asset classesB. analysis of the value of securitiesC. choice of specific assets within each asset classD. none of the answers define asset allocation3. An example of a derivative security is _________.A. a common share of General MotorsB. a call option on Intel stockC. a Ford bondD. a . Treasury bond4. Money Market securities are characterized by ________.I. maturity less than one yearII. safety of the principal investmentIII. low rates of returnA. I onlyB. I and II onlyC. I and III onlyD. I, II and III5. __________ assets generate net income to the economy and __________ assets define allocation of income among investors.A. Financial, financialB. Financial, realC. Real, financialD. Real, real6. An important trend that has changed the contemporary investment market is_________.A. financial engineeringB. globalizationC. securitizationD. all three of the other answers7. Securitization refers to the creation of new securities by _________.A. selling individual cash flows of a security or loanB. repackaging individual cash flows of a security or loan into a new payment patternC. taking an illiquid asset and converting it into a marketable securityD. selling financial services overseas as well as in the .8. Individuals may find it more advantageous to purchase claims from a financial intermediary rather than directly purchasing claims in capital markets becauseI. intermediaries are better diversified than most individualsII. intermediaries can exploit economies of scale in investing that individual investors cannotIII. intermediated investments usually offer higher rates of return than direct capital market claimsA. I onlyB. I and II onlyC. II and III onlyD. I, II and III9. Stone Harbor Products takes out a bank loan. It receives $100,000 and signs a promissory note to pay back the loan over 5 years.A. A new financial asset was created in this transaction.B. A financial asset was traded for a real asset in this transaction.C. A financial asset was destroyed in this transaction.D. A real asset was created in this transaction.10. In recent years the greatest dollar amount of securitization occurred for which type loanA. Home mortgagesB. Credit card debtC. Automobile loansD. Equipment leasing11. An investment advisor has decided to purchase gold, real estate, stocks, and bonds in equal amounts. This decision reflects which part of the investment processA. Asset allocationB. Investment analysisC. Portfolio analysisD. Security selection12. A dollar denominated deposit at a London bank is called _____.A. eurodollarsB. LIBORC. fed fundsD. banker's acceptance13. The German stock market is measured by which market indexA. FTSEB. Dow Jones 30C. DAXD. Nikkei14. Which one of the following is a true statement regarding the Dow Jones Industrial AverageA. It is a value-weighted average of 30 large industrial stocksB. It is a price-weighted average of 30 large industrial stocksC. It is a price-weighted average of 100 large stocks traded on the New York Stock ExchangeD. It is a value-weighted average of all stocks traded on the New York Stock Exchange15. Preferred stock is like long-term debt in that ___________.A. it gives the holder voting power regarding the firm's managementB. it promises to pay to its holder a fixed stream of income each yearC. the preferred dividend is a tax-deductible expense for the firmD. in the event of bankruptcy preferred stock has equal status with debt16. Three stocks have share prices of $12, $75, and $30 with total market values of $400 million, $350 million and $150 million respectively. If you were to construct a price-weighted index of the three stocks what would be the index valueA. 300B. 39C. 43D. 3017. In a ___________ index changes in the value of the stock with the greatest market value will move the index value the most everything else equal.A. value weighted indexB. equal weighted indexC. price weighted indexD. bond price index18. A benchmark index has three stocks priced at $23, $43, and $56. The number of outstanding shares for each is 350,000 shares, 405,000 shares, and 553,000 shares, respectively. If the market value weighted index was 970 yesterday and the prices changed to $23, $41, and $58, what is the new index valueA. 960B. 970C. 975D. 98519. Under firm commitment underwriting the ______ assumes the full risk that the shares cannot be sold to the public at the stipulated offering price.A. red herringB. issuing companyC. initial stockholderD. underwriter20. Barnegat Light sold 200,000 shares in an initial public offering. Theunderwriter's explicit fees were $90,000. The offering price for the shares was $35,but immediately upon issue, the share price jumped to $43. What is the best estimate of the total cost to Barnegat Light of the equity issueA. $90,000B. $1,290,000C. $2,390,000D. $1,690,00021. Which one of the following statements about IPOs is not trueA. IPOs generally underperform in the short run.B. IPOs often provide very good initial returns to investors.C. IPOs generally provide superior long-term performance as compared to other stocks.D. Shares in IPOs are often primarily allocated to institutional investors.22. The NYSE recently acquired the ECN _______ and NASDAQ recently acquired the ECN ________.A. Archipelago; InstinetB. Instinet; ArchipelagoC. Island; InstinetD. LSE; Euronext23. Which one of the following is not an example of a brokered marketA. Residential real estate marketB. Market for large block security transactionsC. Primary market for securitiesD. NASDAQ24. An order to buy or sell a security at the current price is a ______________.A. limit orderB. market orderC. stop loss orderD. stop buy order25. If an investor places a _________ order the stock will be sold if its price falls to the stipulated level. If an investor places a __________ order the stock will be bought if its price rises above the stipulated level.A. stop-buy; stop-lossB. market; limitC. stop-loss; stop-buyD. limit; market26. On a given day a stock dealer maintains a bid price of $ for a bond and an ask price of $. The dealer made 10 trades which totaled 500 bonds traded that day. What was the dealer's gross trading profit for this securityA. $1,375B. $500C. $275D. $1,45027. The bulk of most initial public offerings (IPOs) of equity securities go to___________.A. institutional investorsB. individual investorsC. the firm's current shareholdersD. day traders28. The _________ price is the price at which a dealer is willing to purchase a security.A. bidB. askC. clearingD. settlement29. The bid-ask spread exists because of _______________.A. market inefficienciesB. discontinuities in the marketsC. the need for dealers to cover expenses and make a profitD. lack of trading in thin markets30. Both the NYSE and Nasdaq have lost market share to ECNs in recent years. Part of Nasdaq's response to the growth of ECNs has been to _______.I. Purchase Instinet, a major ECNII. Enable automatic trade execution through its new Market CenterIII. Switch from stock ownership to mutual ownershipA. I onlyB. II and III onlyC. I and II onlyD. I, II and III31. You purchased XYZ stock at $50 per share. The stock is currently selling at $65. Your gains could be protected by placing a _________.A. limit-buy orderB. limit-sell orderC. market orderD. stop-loss order32. You find that the bid and ask prices for a stock are $ and $ respectively. If you purchase or sell the stock you must pay a flat commission of $25. If you buy 100 shares of the stock and immediately sell them, what is your total implied and actual transaction cost in dollarsA. $50B. $25C. $30D. $5533. Assume you purchased 500 shares of XYZ common stock on margin at $40 per share from your broker. If the initial margin is 60%, the amount you borrowed from the broker is _________.A. $20,000B. $12,000C. $8,000D. $15,00034. You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible gain ignoring transactions costA. $50B. $150C. $10,000D. unlimited35. You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you wish to limit your loss to $2,500, you should place a stop-buy order at ____.A. $B. $C. $D. $36. You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margincall if the stock drops below ________. (Assume the stock pays no dividends andignore interest on the margin loan.)A. $B. $C. $D. $37. You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65% and the stock pays no dividend. Your rate of return would be __________ if you sell the stock at $32 per share. Ignore interest on margin.A. 35%B. 39%C. 43%D. 28%38. Which one of the following invests in a portfolio that is fixed for the life of the fundA. Mutual fundB. Money market fundC. Managed investment companyD. Unit investment trust39. A __________ is a private investment pool open only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds.A. commingled poolB. unit trustC. hedge fundD. money market fund40. A contingent deferred sales charge is commonly called a ____.A. front-end loadB. back-end loadC. 12b-1 chargeD. top end sales commission41. Assume that you have just purchased some shares in an investment company reporting $500 million in assets, $50 million in liabilities, and 50 million shares outstanding. What is the Net Asset Value (NAV) of these sharesA. $B. $C. $D. $42. The Vanguard 500 Index Fund tracks the performance of the S&P 500. To do so the fund buys shares in each S&P 500 company __________.A. in proportion to the market value weight of the firm's equity in the S&P500B. in proportion to the price weight of the stock in the S&P500C. by purchasing an equal number of shares of each stock in the S&P 500D. by purchasing an equal dollar amount of shares of each stock in the S&P500who wish to liquidate their holdings in a closed-end fund may ___________________.A. sell their shares back to the fund at a discount if they wishB. sell their shares back to the fund at net asset valueC. sell their shares on the open marketD. sell their shares at a premium to net asset value if they wish44. __________ funds stand ready to redeem or issue shares at their net asset value.A. Closed-endB. IndexC. Open-endD. Hedge45. Consider a mutual fund with $300 million in assets at the start of the year, and 12 million shares outstanding. If the gross return on assets is 18% and the total expense ratio is 2% of the year end value, what is the rate of return on the fundA. %B. %C. %D. %46. A/an _____ is an example of an exchange-traded fund.A. SPDR or spiderB. samuraiC. VanguardD. open-end fund47. The Wildwood Fund sells Class A shares with a front-end load of 5% and Class B Shares with a 12b-1 fees of 1% annually. If you plan to sell the fund after 4 years, are Class A or Class B shares the better choice Assume a 10% annual return net of expenses.A. Class AB. Class BC. There is no difference.D. There is insufficient information given.48. Advantages of ETFs over mutual funds include all but which one of the followingA. ETFs trade continuously so investors can trade throughout the dayB. ETFs can be sold short or purchased on margin, unlike fund sharesC. ETF providers do not have to sell holdings to fund redemptionsD. ETF values can diverge from NAV49. A mutual fund has $50 million in assets at the beginning of the year and 1million shares outstanding throughout the year. Throughout the year assets grow at 12%. The fund imposes a 12b-1 fee on all shares equal to 1%. The fee is imposed on year end asset values. If there are no distributions what is the end of year NAV for the fundA. $B. $C. $D. $50. You pay $21,600 to the Laramie Fund which has a NAV of $ per share at the beginning of the year. The fund deducted a front-end load of 4%. The securities in the fund increased in value by 10% during the year. The fund's expense ratio is % and is deducted from year end asset values. What is your rate of return on the fund if you sell your shares at the end of the yearA. %B. %C. %D. %。
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Essentials of Investments (BKM 5th Ed.)Answers to Selected Problems – Lecture 4Note: The solutions to Example 6.4 and the concept checks are provided in the text.Chapter 6:23. In the regression of the excess return of Stock ABC on the market, the square of thecorrelation coefficient is 0.296, which indicates that 29.6% of the variance of the excesss return of ABC is explained by the market (systematic risk).Chapter 7:3. E(R p) = R f + βp[E(R M) - R f]0.20 = 0.05 + β(0.15 - 0.05)β = 0.15/0.10 = 1.5β=0 implies E(R)=R f, not zero.6. a) False:b) False: Investors of a diversified portfolio require a risk premium for systematic risk. Only thesystematic portion of total risk is compensated.c) False: 75% of the portfolio should be in the market and 25% in T-bills.βp=(0.75 * 1) + (0.25 * 0) = 0.758. Not possible. Portfolio A has a higher beta than B, but a lower expected return.9. Possible. If the CAPM is valid, the expected rate of return compensates only for market risk (beta),rather than for nonsystematic risk. Part of A’s risk may be nonsystematic.10. Not possible. If the CAPM is valid, the market portfolio is the most efficient and a higher reward-to-variability ratio than any other security. In other words, the CML must be better than the CAL for any other security. Here, the slope of the CAL for A is 0.5 while the slope of the CML is 0.33.11. Not possible. Portfolio A clearly dominates the market portfolio with a lower standard deviationand a higher expected return. The CML must be better than the CAL for security A.12. Not possible. Security A has an expected return of 22% based on CAPM and an actual return of16%. Security A is below the SML and is therefore overpriced. It is also clear that security A has a higher beta than the market, but a lower return which is not consistent with CAPM.13. Not possible. Security A has an expected return of 17.2% and an actual return of 16%. Security A isbelow the SML and is therefore overpriced.14. Possible. Portfolio A has a lower expected return and lower standard deviation than the market andthus plots below the CML.17. Using the SML: 6 = 8 + β(18 – 8)β = –2/10 = –.221. The expected return of portfolio F equals the risk-free rate since its beta equals 0. Portfolio A’sratio of risk premium to beta is: (10-4)/1 = 6.0%. You can think of this as the slope of the pricing line for Security A. Portfolio E’s ratio of risk premium to beta is: (9-4)/(2/3) = 7.5%, suggesting that Portfolio E is not on the same pricing line as security A. In other words, there is an arbitrage opportunity here.For example, if you created a new portfolio by investing 1/3 in the risk-free security and 2/3 insecurity A, you would have a portfolio with a beta of 2/3 and an expected return equal to (1/3)*4% + (2/3)*10% = 8%. Since this new portfolio has the same beta as security E (2/3) but a lowerexpected return (8% vs. 9%) there is clearly an arbitrage opportunity.26. The APT factors must correlate with major sources of uncertainty in the economy. These factorswould correlate with unexpected changes in consumption and investment opportunities. DNP, the rate of inflation, and interest rates are candidates for factors that can be expected to determine risk premia. Industrial production varies with the business cycle, and thus is a candidate for a factor that is correlated with uncertainties related to investment opportunities in the economy.27. A revised estimate of the rate of return on this stock would be the old estimate plus the sum of the expectedchanges in the factors multiplied by the sensitivity coefficients to each factor:revised R i = 14% + 1.0(1%) + 0.4(1%) = 15.4%28. E(R P) = r f + βP1[E(R1) - R f] + βP2[E(R2) - R f]Use each security’s sensitivity to the factors to solve for the risk premia on the factors:Portfolio A: 40% = 7% + 1.8γ1 + 2.1γ2Portfolio B: 10% = 7% + 2.0γ1 + (-0.5)γ2Solving these two equations simultaneously gives γ1 = 4.47 and γ2 = 11.88.This gives the following expected return beta relationship for the economy:E(R P) = 0.07 + 4.47βP1 + 11.88βP230. d. From the CAPM, the fair expected return = 8% + 1.25 (15% - 8%) = 16.75%Actually expected return = 17%α = 17% - 16.75% = 0.25%31. d. The risk-free rate34. d. You need to know the risk-free rate. For example, if we assume a risk-free rate of 4%, then the alphaof security R is 2.0% and it lies above the SML. If we assume a risk-free rate of 8%, then the alpha ofsecurity R is zero and it lies on the SML.40. d.。