2023年资产组合知识点.doc

CAPM What are the advantages of the index model compared to the Markowitz procedure for obtaining an efficiently diversified portfolio? What are its disadvantages? The advantage of the index model, compared to the Markowitz procedure, is the vastly reduced number of estimates required. In addition, the large number of estimates required for the Markowitz procedure can result in large aggregate estimation errors when implementing the procedure. The disadvantage of the index model arises from the model's assumption that return residuals are uncorrelated. This assumption will be incorrect if the index used omits a significant risk factor.
What is the basic trade-off when departing from pure indexing in favor of an actively managed portfolio? The trade-off entailed in departing from pure indexing in favor of an actively managed portfolio is between the probability (or the possibility) of superior performance against the certainty of additional management fees.
How does the magnitude of firm-specific risk affect the extent to which an active investor will be willing to depart from an indexed portfolio? The answer to this question can be seen from the formulas for w 0 (equation 8.20) and w (equation 8.21). Other things held equal, w 0 is smaller the greater the residual variance of a candidate asset for inclusion in the portfolio. Further, we see that regardless of beta, when w 0 decreases, so does w. Therefore, other things equal, the greater the residual variance of an asset, the smaller its position in the optimal risky portfolio. That is, increased firm-specific risk reduces the extent to which an active investor will be willing to depart from an indexed portfolio.
The concept of beta is most closely associated with:
d) Systematic risk
Beta and standard deviation differ as risk measures in that beta measures:b) Only systematic risk, while standard deviation measures total risk.
Assume the correlation coefficient between Baker Fund and the S&P 500 stock index is .70. What percentage of Baker Fund's total risk is specific (i.e., nonsystematic)? The R^2 of the regression is .70^2 = .49Therefore, 51% of total variance is unexplained by the market; this is nonsystematic risk.
The correlation between the Charlottesville International Fund Market Index is 1.0. The expected return on the EAFE Index is 11%, the expected return is 9%, and the risk-free return is 3%. beta of Charlottesville International? 9 = 3 + β (11 − 3) ==> β = 0.75
INTEREST RATE AND TERM STRUCTURE
Treasury bonds paying an 8% coupon rate with semiannual payments currently sell at par value. What coupon rate would they have to pay in order to sell at par if these bonds instead paid their coupons annually? The effective annual yield on the semiannual coupon bonds is 8.16% = (1+8%/2)2 - 1. If the annual coupon bonds are to sell at par, then they must offer the same yield, which will require an annual coupon rare of 8.16%.
Two bonds have identical times to maturity and coupons rates. One is callable at 105, the other at 110. Which should have the higher yield to maturity? Why? The bond callable at 105 (110) requires the issuing firm to pay bondholders 105% (110%) of the bond’s face value if the firm decides to call the bond. The first bond should therefore sell for a lower price because the call provision is more valuable to the firm that issued it. Therefore, that bond’s yield to maturity should be higher than that of the bond callable at 110.
Consider a newly issued bond that pays its coupon once annually, and whose coupon rate is 5%; the maturity is 20 years, and yield to maturity is 8%.(a) The initial price is: P0 = $705.46, for [n = 20; PMT = 50; FV = 1000; i = 8] The next year’s price is: P1 = $793.29, for [n = 19; PMT = 50; FV = 1000; i = 7] Thus, the holding period return (HPR) is given by: HPR = [$50 + ($793.29 – $705.46)]/$705.46 => HPR = 0.195 = 19.5% (b) Using OID tax rules, the price path of the bond under the constant yield method is obtained by discounting at an 8% yield, and reducing maturity by one year at a time: Constant yield prices: P0 = $705.46 P1 = $711.89 (implies implicit interest over first year = $6.43) P2 = $718.84 (implies implicit interest over second year = $6.95) Tax on explicit plus implicit interest in the first year = 0.40 x ($50 + $6.43) = $22.57 • Capital gain in the first year = actual price – constant yield price = $793.29 – 711.89 = $81.40 • Tax on capital gain = 0.30 x $81.40 = $24.42 • Total taxes = $22.57 + $24.42 = $46.99 (d) The after-tax HPR = [$50 + ($793.29-$705.46)-$46.99]/$705.46 = 0.129 = 12.9%
Assume you have a one-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first bond is a zero-coupon bond that pays $1,000 at maturity. The second one has an 8% coupon rate and pays the $80 coupon once per year. The third bond has a 10% coupon rate and pays the $100 coupon once per year.

You have the following information about a convertible bond issue: Burroughs Corporation 7 ¼% Due 8-1-2023(a) Market conversion price = value if converted into stock = market price of common stock x conversion ratio = 12.882 x $66 = $850.21 (b) Conversion premium = Bond price – value if converted into stock = $1020 – (12.882 x $66) = $1020 - $850.21 = $169.79 Thus, the conversion premium per share = ($169.79/12.882) = $13.18 (c) Current yield = (coupon/price) = ($72.50/$1020) = 0.0711 = 7.11%
(d) Dividend yield on common = (dividend per share/price) = ($2.60/$66) = 3.94%
The yield to maturity on one-year zero-coupon bonds is currently 7%, and the ytm on two-year zeros is 8%. The Treasury plans to issue a two-year maturity coupon bond, paying coupons once per year with a coupon rate of 9%. The face value of the bond is $100. (a) P = [(9/1.07) + (109/1.082)] = $101.86
(b) YTM = 7.958%, which is the solution to: 9 PA(y,2) + 100 PF(y,2) = 101.86 (c) The forward rate for next year, derived from the zero-coupon yield curve, is approximately 9%: 1 + f2 = [1.082/1.07] = 1.0901, which implies f 2 = 9.01%. Therefore, using an expected rate for next year of r2 = 9%, we can find that the forecast bond price is P = (109/1.09) = $100
(d) If the liquidity premium is 1%, then the forecast interest rate is: E[r2] = f2 – liquidity premium = 9% - 1% = 8%, and you forecast the bond to sell at: (109/1.08) = $100.93.
U.S. Treasuries represent a significant holding in many pension portfolios. You decide to analyze the yield curve for U.S. Treasury Notes?(a) 1000 = [70/(1 + y1)] + [70/(1 + y2)2] + [70/(1 + y3)3] + [70/(1 + y4)4] + [1070/(1 + y5)5] (b) The spot rate at 4 years is 7.16%. Therefore, 7.16% is the theoretical yield to maturity for the zero coupon U.S. Treasury note. The price of the zero coupon at 7.16% is the present value of $1000 to be received in 4 years. Annual compounding: PV = [1000/1.07164)=$758.35Withsemi-annual compounding, we would have: PV = [1000/(1 + (0.0716/2))8] = $754.73
The yield to maturity on one-year-maturity zero coupon bonds is 5% and the yield to maturity on two-year-maturity zero coupon bonds is 6%. The yield to maturity on two-year-maturity coupon bonds with coupon rates of 12% (paid annually) is 5.8%. The price of the coupon bond, based on its yield to maturity, is: 120 PA(5.8%, 2) + 1000 PF(5.8%, 2) = $1,113.99. If the coupons were stripped and sold separately as zeros, then based on the yield to maturity of zeros with maturities of one and two years, the coupon payments could be sold separately for [120/1.05] + [1,120/1.062] = 1,111.08.The arbitrage strategy is to buy zeros with face values of $120 and $1,120 and respective maturities of one and two years, and simultaneously sell the coupon bond. The profit equals $2.91 on each bond.
EVALUATION An investor buys three shares of XYZ at the beginning of 1991, buys another two shares at the beginning of 1992, sells one share at the beginning of 1993, and sells all four remaining shares at the beginning of 1994.(a) What are the arithmetic and geometric average time-weighted rates of return for the investor a ) Time-weighted average returns are based on year-by-year rates of return. Year Return [(capital gains + dividend)/price)] 1991-1992 [(110-100) + 4]/100 = 14%,1992-1993 [(90 – 110) + 4]/110 = -14.55% 1993-1994 [(95 – 90) + 4 ]/90 = 10% Arithmetic mean = 3.15% Geometric mean = 2.33% (b)Time Cash Flow Explanation0 -300 Purchase of 3 shares at $100 each.1 -208 Purchase of 2 shares at $110 less dividend income on 3 shares held.2 110 Dividends on 5 shares plus sale of one share at price of $90 each.3 396 Dividends on 4 shares plus sale of 4 shares at price of $95 each.Dollar-weighted return = Internal rate of return of cash-flow series = -0.1661%
Consider the two (excess return) index-model regression results for Stocks A and B. The risk-free rate over the period was 6%, and the market’s average return was 14%. rA - rf = 1% + 1.2(rM - rf);R-square = 0.576; residual std deviation , s(eA) =10.3%;standard deviation of (rA -rf) = 26.1%.(i) a is the intercept of the regression 1% 2%(ii) Appraisal ratio = a/s(e) 0.097 0.1047(iii) Sharpe measure = (rp – rf)/ s0.4061 0.3373(iv) Treynor measure = (rp – rf)/ b 8.833 10.5) Which stock is the best choice under the following circumstances?i. This is the only risky asset to be held by the investor(a) (i) If this is the only risky asset, then Sharpe’s measure is the one to use.A’s is higher, so it is preferred.(ii) If the portfolio is mixed with the index fund, the contribution to the overall Sharpe measure is determined by the appraisal ratio. Therefore, B is preferred. (iii) If it is one of many portfolios, then Treynor’s measure counts, and B is preferred.Consider the following information regarding the performance of a money manager in a recent month. (a) What was the manager’s return in the month? What was his or her overperformance or underperformance? (a) Bogey: 0.60 x 2.5% + 0.30 x 1.2% + 0.10 x 0.5% = 1.91%Actual: 0.70 x 2.0% + 0.20 x 1.0% + 0.10 x 0.5% = 1.65%Underperformance: 0.26%

EFFICIFENCY OF SECURLTIES 1.If you believe in the
 ________ form of the EMH, you believe that stock prices reflect all relevant information including historical A) semistrong2.Proponents of the EMH typically advocateB) investing in an index fund.   C) a passive investment strategy3.If you believe in the _______ form of the EMH,you believe that stock prices reflect all information that can be derived by examining marketC) weak4.If you believe in the _________ form of the EMH, you believe that stock prices reflect all available information, including information that is available only to insidersB) strong5.If you believe in the reversal effect, you should C) buy stocks this period that performed poorly last period.6.D) Technical analystsFocus more on past price movements of a firm's stock than 7. ________ above which it is difficult for the market to riseB) Resistance level is a value8.___________ the return on a stock beyond what would be predicted from market movements alone. A) An excess economic return is C) An abnormal return is 8.The debate over whether markets are efficient will probably never be resolvedD) all of the above. 9.A common strategy for passive management isA) creating an index fund10. Proponents of the EMH think technical analysts E) are wasting their time.11.On November 22, 2023 the stock price of Walmart was $39.50A) outperforming, buying 12. A market decline of 23% on a dayD) would 
not be, it was not a clear response to macroeconomic news.13. The weakform of the efficient market 
hypothesis asserts thatB) future changes in stock prices cannot be predicted from past pricesC) technicians cannot expect to outperform the market14.A support level is the price range at which a technical analyst would expect theC) demand for a stock to increase substantially 15. The weak form of the efficient market
 hypothesis contradictsD) technical analysis, but is silent on the possibility of successful16.Two basic assumptions of technical analysis are that security prices adjust C) gradually to new information and market prices are determined by the interaction of supply and demand 17. In an efficient market the correlation 
coefficient betweenC) zero 18. In an efficient market 
one would expect the price of Florida Orange's stock to  A) drop immediately. 19. Matthews Corporation
 has a beta of 1.2. B) good news about Matthews was announced yesterday 20. You observe that Nicholas 
had an abnormal return of -1.2% yesterday. C) investors expected the earnings increase to be larger than what was actually announced. 21. If stock 
prices follow a random walkD) price changes are random.22.The main difference between the three forms of market efficiencyD) the definition of information differs. 23. Chartists practice   A) technical analysis. 24the best strategy for a small investor with a 
portfolio worth $40,000 is probably to E) invest in mutual funds24. Google has a beta of 1.0. B) good news
 about Google was announced yesterday 25. Music
 Doctors has a beta of 2.25.  A)  bad news about Music Doctors was announced yesterday.26. AG has a 
beta of 1.7. C) no significant news about  AG was 
announced yesterday.27. AG just announced 
yesterday that its 4th quarterC) investors expected the earnings increase to be larger than what was actually announced. 28. LJP Corporation just announced 
yesterdayD) investors view the international joint venture as good news.29. Music Doctors just announced 
yesterday that its 1st quarter C) investors expected the sales increase to be larger than what was actually announced. 30.The Food and Drug Administration (FDA) just announced yesterdayD) the approval was already anticipated by the market  31.Your professor finds a stocktrading rule that generatesB) selection bias  32. At freshman orientation, 1,500 students areD) the lucky event issue 33. If you believe in the reversal effect
, you should C) sell stocks this period that performed well last period.34. Tests of serial correlation in stock returns 35. Changes in variance are somewhat predictable from past data36. accounting anomalies37. Volatility effect 38. firms that are owned by few institutions tend to have higher returns 39. Returns on closed-end funds that trade at a discount tend to be higher40. technical analysis, but is silent on the possibility of successful fundamental analysis41. security prices are seldom far above or below their justified level42. future price changes are uncorrelated with past price changes43. Earnings announcement reactions take considerable time44. Changes in variance are somewhat predictable from past data.
SECURITY ANALYSIS AND STOCK
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