Chapter Thirteen
Capital Market Equilibrium
This chapter contains 43 multiple choice questions, 19 short problems, and 9 longer problems. Multiple Choice
1.If one holds a diversified portfolio in which securities are held in the same relative proportions as in
a broad market index, this is referred to as ________.
(a)eliminating
(b)discounting risk
(c)indexing
(d)capitalizing
Answer: (c)
2.The CAPM provides a way of estimating ________ for use in a variety of financial applications.
(a)actual rates of return
(b)expected rates of return
(c)expected standard deviation
(d)actual standard deviation
Answer: (b)
3.The CAPM may be used to provide ________.
(a)inputs to DCF valuation model for stocks
(b)inputs to DCF valuation model for bonds
(c)estimation of a “fair” rate of return on invested capital
(d)both (a) and (c)
Answer: (d)
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4.A(n) ________ is a portfolio that holds all assets in proportion to their observed market values.
(a)market portfolio
(b)riskless portfolio
(c)efficient riskless portfolio
(d)both (b) and (c)
Answer: (a)
5.Suppose there are three assets: BB stock, REM stock, and a risk-free asset. The total market values of
each at current prices are $40 million of BB stock, $80 million of REM stock, and $10 million of the risk-free asset. The composition of the market portfolio is ________.
(a)61.5% BB stock; 7.7% REM stock; 30.8% risk-free asset
(b)33.33% BB stock; 66.67% REM stock; 0 risk-free asset
(c)30.8% BB stock; 61.5% REM stock; 7.7% risk-free asset
(d)30.8% BB stock; 66.67% REM stock; 7.7% risk-free asset
Answer: (c)
6.Suppose there are three assets: BB stock, REM stock, and a risk-free asset. The total market value of
each at current prices are $40 million of BB stock, $80 million of REM stock, and $10 million of the risk-free asset. The composition of the risky part of any investor's portfolio will be ________
(a)30.8% BB stock; 61.5% REM stock
(b)33.33% BB stock; 66.67% REM stock
(c)30.8% BB stock; 66.67% REM stock
(d)66.67% BB stock; 33.33% REM stock
Answer: (b)
7.Suppose there are four securities: BB stock, REM stock, ACX stock, and a risk-free asset. The total
market values of each at current prices are $50 million of BB stock, $40 million of REM stock, $80 million of ACX stock, and $30 million of the risk-free asset. The composition of the market portfolio is ________.
(a)25% BB stock; 20% REM stock; 40% ACX stock; 30% risk-free asset
(b)25% BB stock; 40% REM stock; 40% ACX stock; 15% risk-free asset
(c)25% BB stock; 20% REM stock; 40% ACX stock; 15% risk-free asset
(d)50% BB stock; 40% REM stock; 80% ACX stock; 30% risk-free asset
Answer: (c)
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8. Suppose there are four securities: BB stock, REM stock, ACX stock, and a risk-free asset. The total
market values of each at current prices are $50 million of BB stock, $40 million of REM stock, $80
million of ACX stock, and $30 million of the risk-free asset. Determine the holdings of the three
risky assets of a trader who invests $60,000 of a $300,000 portfolio in the riskless security.
(a) $70,000 in BB stock, $50,000 in REM stock, $120,000 in ACX stock
(b) $60,000 in BB stock, $48,000 in REM stock, $96,00 in ACX stock
(c) $70,588 in BB stock, $56,471 in REM stock, $112,941 in ACX stock
(d) $88,235 in BB stock, $70,588 in REM stock, $141,176 in ACX stock
Answer: (c)
9. In the CAPM, the trade-off line is called the ________.
(a) capital market line
(b) portfolio market line
(c) asset market line
(d) capital asset line
Answer: (a)
10. The correct equation for the Capital Market Line (CML) is ________.
(a) ()M f E r r σσ
+=
(b) ()()M f f M E r r E r r σσ??-=+??????
(c) ()()M f M
E r r E r σ-= (d) ()M f M E r r σ=+
Answer: (b)
11.Investors must be offered an expected rate of return that ________ the risk-free rate of interest when
being induced to accept a market portfolio.
(a)is less than
(b)is the same as
(c)exceeds
(d)minimizes
Answer: (c)
12.The ________ the average degree of risk aversion of the population, the ________ the risk premium
required.
(a)greater; lower
(b)greater; greater the insignificance of
(c)lower; higher
(d)greater; higher
Answer: (d)
13.The slope of the Capital Market Line represents the:
(a)volatility of interest rates
(b)market reward-to-risk ratio
(c)individual risk-to-reward ratio
(d)individual preference
Answer: (b)
14.Suppose the standard deviation of the market portfolio is 0.15 and the average degree of risk aversion
is 1.5. Then the risk premium on the market portfolio is:
(a)0.034
(b)0.051
(c)0.225
(d)0.340
Answer: (a)
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15. Suppose the standard deviation of the market portfolio is 0.15 and the average degree of risk aversion
is 1.5. If the expected return on the market portfolio is 0.15 per year, what is the slope of the Capital
Market Line?
(a) 0.034
(b) 0.180
(c) 0.225
(d) 0.516
Answer: (c)
16. Suppose the standard deviation of the market portfolio is 0.25 and the average degree of risk aversion
is 3. If the expected return on the market portfolio is 0.24, what is the slope of the Capital Market
Line?
(a) 0.1875
(b) 0.6912
(c) 0.7500
(d) 0.7813
Answer: (d)
17. ________ is a measure of a security’s market-related risk and it tells us how much the security’s
rate of return tends to change when the return on the market portfolio changes.
(a) alpha
(b) beta
(c) delta
(d) gamma
Answer: (b)
18. The equation for the Security Market Line (SML) is ________.
(a) ()
()()j f j f j M f E r r E r r E r r ββ??=?=?-?? (b) ()()j f j M f E r r E r r β??=+-??
(c) ()()f j j M f r E r E r r β=??-??
(d) ()()j j M f f
E r E r r r β??=--??
Answer: (b)
19.If a security is more volatile than the market as a whole, it will have a beta ________, whereas if a
security is less volatile than the market as a whole, it will have a beta ________.
(a)equal to 1; less then 1
(b)greater than 2; greater than 1
(c)less than 1; greater than 1
(d)greater than 1; less than 1
Answer: (d)
20.If you are examining a stock that has a beta of 2, according to the CAPM, what should be its
expected rate of return? Let the market risk premium = 0.07.
(a)the risk-free rate plus 0.035
(b)the risk-free rate plus 0.07
(c)the risk-free rate plus 0.14
(d)the risk-free rate plus 2.00
Answer: (c)
21.________ refers to the difference between the average rate of return on a security or a portfolio of
securities and its SML relation.
a. Alpha
b. Beta
c. Delta
d. Gamma
Answer: (a)
22.A beta of 1.5 for a security indicates ________.
(a)the security has below average market-related risk
(b)the security has no market-related risk
(c)the security has above average market-related risk
(d)the security has average market-related risk
Answer: (c)
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23.The risk-free rate of return for a security is 6%. The expected return on the market is 13%. What is
the required rate of return for the security if it has a beta of 1.25?
(a)22.25%
(b)16.25%
(c)14.75%
(d)8.75%
Answer: (c)
24.Determine the beta of a portfolio consisting of the following stocks:
Security % Invested Beta
REM 30% 1.1
ACX 20% 0.95
BGB 40% 1.2
CRY 10% 0.7
(a)0.92
(b)0.99
(c)1.07
(d)1.17
Answer: (c)
25.If the Treasury bill rate is currently 4% and the expected return on the market portfolio for the same
period is 13%, determine the risk premium on the market.
(a)0.52%
(b)8.50%
(c)9.00%
(d)11.00%
Answer: (b)
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26.If the Treasury bill rate is currently 4% and the expected return on the market portfolio for the same
period is 13%, what is the equation of the CML if the standard deviation is 0.25?
(a)E(r) = 0.04 + 0.36σ
(b)E(r) = 0.04+ 0.09σ
(c)E(r) = 0.09 + 0.36σ
(d)E(r) = 0.09 + 0.16σ
Answer: (a)
27.Peggy has just been informed that the expected return from her portfolio is 15.5%. If 45% of Peggy's
securities have an expected return of 10.8% and 25% have an expected return of 16.5%, what is the expected return of the remaining portion of Peggy's portfolio?
(a)21.72%
(b)19.55%
(c)13.64%
(d)6.52%
Answer: (a)
28.ZB Enterprises pays a current dividend of $1.80 and dividends are expected to grow at a rate of 6%
annually in the foreseeable future. ZB Enterprises has a beta of 1.1. If the risk-free rate is 8.5 and the market risk premium is 5%, at what price would a share of ZB stock be expected to sell?
(a)$20.50
(b)$23.85
(c)$32.40
(d)$32.90
Answer: (b)
29.Two industrial firms are considering a merger. Drysler has a beta of 0.95 and Bendz has a beta of
1.25. Drysler's stock sells for $25 per share and there are 12 million shares outstanding. Bendz has 3
million shares outstanding and its stock sells for $50 per share. What will be the merged firm's beta if the merger is carried out?
(a)1.05
(b)1.10
(c)1.54
(d)2.20
Answer: (a)
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30.Monet Industries currently does not pay a dividend but expects to pay a dividend of $1.70 next year.
Thereafter, the dividend is expected to grow at a rate of 5% per year. The risk-free rate is currently 6% and the expected return on the market portfolio is 12%. What is the price you would expect to pay for a share of Monet today if the beta for this stock is 1.05?
(a)$12.50
(b)$13.13
(c)$23.29
(d)$24.45
Answer: (c)
31.Joe Citizen is considering venturing into the sports utility vehicle field. As a result of such a venture,
the beta would increase from 1.07 to 1.15 and the expected growth rate in earnings would increase from 10% to 12%. Determine whether this is a worthwhile venture if Joe also has the following
information: the risk-free rate is 6%, the current dividend is $0.95, and the expected return on the market portfolio is 13%.
(a)No, it is not worthwhile since there is no change in stock price
(b)Yes, it is worthwhile since the stock price increases by $21.96
(c)Yes, it is worthwhile since the stock price increases by $29.94
(d)No, it is not worthwhile - stock price decreases by $19.12
Answer: (b)
32.Consider a share of Rooble Less. If it has a beta of 0.7, and we also know that the risk-free rate is 7%,
and the expected return on the market portfolio is 15%, what is the required rate of return for a share of Rooble Less stock?
(a)10.5%
(b)11.9%
(c)12.6%
(d)17.5%
Answer: (c)
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33.Determine the beta of a portfolio containing the following stocks ________.
Stock Market Value Beta
REM $30,000 0.82
Rooble $20,000 0.65
Drysler $40,000 1.25
Fourx $60,000 1.32
Wotan $80,000 1.65
(a)0.95
(b)1.14
(c)1.30
(d)5.69
Answer: (c)
34.Kanga Enterprises stock currently sells for $33 a share and its current dividend is $1.90. Kanga
enterprise stock is considered to be twice as volatile than the market as a whole. The expected return on the market portfolio is 14% and the risk-free rate is 6%. If dividends are expected to grow at a constant rate, g%, into the foreseeable future, then calculate this growth rate.
(a)15.36%
(b)16.24%
(c)22.00%
(d)26.71%
Answer: (a)
35.LLJ has a beta of 1.02. If the risk-free rate is 8% and the required return on LLJ’s stock is 16%,
what is the required rate of return of the market?
(a)12.00%
(b)15.84%
(c)16.16%
(d)16.48%
Answer: (b)
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36.Hulot Corp. has a beta of 1.27. If the risk-free rate is 7.5% and the required return on the market is
14%, what is the required return on Hulot stock?
(a)8.23%
(b)14.00%
(c)15.76%
(d)21.5%
Answer: (c)
37.Consider a market portfolio that has a standard deviation of 0.25. The average degree of risk aversion
is 1.6. If the expected return on the market portfolio is 0.20, what is the equation for the Capital Market Line?
(a)E(r) = 0.10 + 0.10σ
(b)E(r) = 0.10 + 0.40σ
(c)E(r) = 0.13 + 0.10σ
(d)E(r) = 0.13 + 0.40σ
Answer: (d)
38.According to the CAPM, the risk premium on any asset is equal to ________.
(a)its beta
(b)its beta times the risk premium on the market portfolio
(c)its market risk premium times alpha
(d)its market risk premium divided by beta
Answer: (b)
39.The market portfolio has a standard deviation of return of 0.22 and the expected return on the market
portfolio is 21%. Calculate the market degree of risk aversion if the risk-free rate of return is 10%.
(a)0.50
(b)1.41
(c)2.27
(d)6.40
Answer: (c)
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40.If a portfolio manager can consistently produce a positive alpha, then her performance is considered
to be ________.
(a)superior
(b)average
(c)below average
(d)indeterminate
Answer: (a)
41.Consider the following information: the risk-free rate is 5% and the expected rate of return on the
market portfolio is 12%. If you have a stock with a beta of 1.50 and you expect it to offer a rate of return of 13%, then you
(a)consider it fairly priced
(b)sell short the stock because it is overpriced
(c)sell the stock because it is fairly priced
(d)buy the stock because it is underpriced
Answer: (b)
Questions 42 and 43 refer to the following information:
Consider a portfolio exhibiting an expected return of 21% in an economy in which the riskless interest rate is 8%, the expected return to the market portfolio is 14%, and the standard deviation of the return to the market is 0.30. Assuming this portfolio is efficient, complete the following problems:
42.Determine the beta.
(a)0.46
(b)0.93
(c)2.17
(d)3.50
Answer: (c)
43.Determine the standard deviation of its return.
(a)0.13
(b)0.65
(c)0.70
(d)1.39
Answer: (b)
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Short Problems
1.Explain the importance of the CAPM as a tool in finance.
Answer:
(1) It provides a theoretical justification for the practice of passive investing known as indexing.
(2) The CAPM provides a way of estimating expected rates of return for uses in financial
applications. Such financial applications include the discounted-cash-flow valuation model
for stocks and in models used in making capital-budgeting decisions.
2.List two assumptions of the CAPM model. How is an investor expected or assumed to behave in the
world of the CAPM model?
Answer:
(1) Investors have the same expectations or agree in their forecasts of expected rates of return,
standard deviations, and correlations of the risky securities, and will therefore hold risky
assets in the same relative proportions.
(2) Investors will generally behave optimally. In equilibrium, the prices of securities adjust so
that when investors are holding their optimal portfolios, the aggregate demand for each
security is equal to its supply.
3.Suppose there are four securities: Oz stock, Xanadu stock, Ragtime stock, and a risk-free asset. The
total market values of each at current prices are $30 billion of Oz stock, $50 billion of Xanadu stock, $90 billion of Ragtime stock, and $30 billion of the risk-free asset.
a. Determine the composition of the market portfolio.
b. If an investor has a $500,000 portfolio with $90,000 invested in the risk-free asset, determine
the holdings of the three risky assets.
Answer:
(a) The total market value of all assets is $200 billion.
The composition of the market portfolio is therefore 15% Oz stock, 25% Xanadu stock, 45%
Ragtime stock, and 15% of the risk-free asset.
(b) $72,352.94 in Oz stock, $120,588.24 in Xanadu stock and $217,058.82 in Ragtime stock.
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4.Consider a market portfolio that has a standard deviation of 0.30. The average degree of risk aversion
is 2. If the expected return on the market portfolio is 0.25, what is the equation for the Capital Market Line?
Answer:
E(r M) - r f= 2 x (0.3)2
= 0.18
r f= 0.25 – 0.18
= 0.07
The equation for CML:
E(r) = 0.07 + 0.60σ
5.Apart from portfolio selection, discuss other applications of the CAPM in finance.
Answer:
Risk premiums derived from the CAPM are used in capital-budgeting decisions of the firm and in discounted cash flow valuation models. The CAPM is also used to establish "fair" rates of return on invested capital in regulated firms and in “cost plus” pricing.
6.Two industrial firms are considering a merger. Comdat has a beta of 1.15 and BioTech has a beta of
1.95. Comdat's stock sells for $60 per share and there are 6 million shares outstanding. BioTech has 4
million shares outstanding and its stock sells for $90 per share. If the merger is carried out, what will be the merged firm's beta?
Answer:
Comdat's market value = $60 x 6 million
= $360,000,000
BioTech's market value = $90 x 4,000,000
= $360,000,000
Comdat weight = 0.5
BioTech weight = 0.5
Merged beta = (0.5)(1.15) + (0.5)(1.95)
= 1.55
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7.Consider a portfolio exhibiting an expected return of 22% in an economy where the riskless interest
rate is 7%, the expected return on the market portfolio is 14% and the standard deviation of the return to the market portfolio is 0.18. Assuming that the portfolio is efficient, determine:
(a) its beta
(b) the standard deviation of its return
Answer:
(a) E(r j) – r f= β[E(r M) – r f]
0.22 – 0.07 = β[0.14 – 0.07]
2.14 = β
(b) Use CML:
.22 = 0.07 + [(0.17 – 0.07)/0.18]σ
0.3 = σ
8.During the most recent 3-year period, Tartar Inc. earned an average annualized rate of return of 14%
and had an annualized standard deviation of 20%. The average risk-free rate was 4.5% per year. The average rate of return in the market index over that same period was 10% with a standard deviation of 15%. How well did Tartar Inc. perform on a risk adjusted basis?
Answer:
Compare their reward-to-risk ratios:
Tartar Inc. Market
(0.14 – 0.45)/0.2 = 0.475 (0.10 – 0.045)/0.15 = 0.367
On a risk adjusted basis, Tartar performed better than the market index.
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9.Joe Citizen is considering venturing into the sports accessories field. As a result of this investment,
the beta would increase from 1.02 to 1.20 and the expected growth rate in earnings would increase from 6% to 9%. Determine whether this is a worthwhile venture if Joe also has the following
information: the risk-free rate is 4.5%, the current dividend is $1.05, and the expected return on the market portfolio is 12%.
Answer:
βold = 1.02 βnew = 1.20
k old= r f+ βold [E(r M) – r f]
= 4.5 + 1.02 [12 – 4.5]
= 12.15%
P old= $18.10
Now look at βnew.
k new= r f+ βnew [E(r M) – r f]
= 4.5 + 1.20 [12 – 4.5]
= 13.50%
P new= $25.43
Yes, it is a worthwhile venture since the stock price increases by $7.33.
10.The market portfolio has a variance of return of 0.16 and the expected return on the market portfolio
is 21%. Calculate the market degree of risk aversion if the risk-free rate of return is 10%.
Answer:
E(r M) – r f = Aσ2
0.18 – 0.10 = A(0.035)2
3.125 = A
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11.Consider the following information: the risk-free rate is 5%, and the expected rate of return on the
market portfolio is 18%. If you have a stock with a beta of 1.5, and you expect it to offer a rate of return of 13%, what should you do?
Answer:
Look at: E(r j) = r f+ β(E(r M) – r f)
= 0.05 + 1.5(0.12 – 0.05)
= 15.5%
You expect the stock to offer 13%. Since this is below the SML, its expected return is too low to support equilibrium.
12.If the Treasury bill rate is currently 5%, and the expected return to the market portfolio over the same
period is 14%, determine the risk premium on the market. If the standard deviation of the return on the market is 0.25, what is the equation of the Capital Market Line?
Answer:
Market risk premium = 14% – 5%
= 9%
CML equation:
E(r) = 0.05 + 0.09/0.25σ
= 0.05 + 0.36σ
13.If the Treasury bill rate is currently 6 %, and the expected return to the market portfolio over the
same period is 15%, determine the risk premium on the market. If the standard deviation of the return on the market is 0.4, what is the equation of the Capital Market Line?
Answer:
Market risk premium = 15% – 6
= 9%
CML equation:
E(r) = 0.06 + 0.09/0.4σ
= 0.06 + 0.225σ
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14.Consider a portfolio exhibiting an expected return of 20% in an economy in which the riskless
interest rate is 6%, the expected return to the market portfolio is 12%, and the standard deviation of the return to the market is 0.25. Assuming this portfolio is efficient, determine:
(i)its beta
(ii)the standard deviation of its return
Answer:
(i) E(r j) – r f= β[E(r M) – r f]
0.20 – 0.06 = β[0.12 – 0.06]
2.33 = β
(ii) Use CML:
.20 = 0.06 + [(0.12 – 0.06)/0.25]σ
0.583 = σ
15.Consider a market portfolio that has a standard deviation of 0.35. The average degree of risk aversion
is 1.5. If the expected return on the market portfolio is 0.23, what is the equation for the Capital Market Line?
Answer:
E(r m) - r f= 1.5 x (0.35)2
= 0.1838
r f= 0.23 – 0.1838
= 0.0462
E(r) = 0.0462 + 0.1838/0.35σ
The equation for the CML is:
(r) = 0.0462 + 0.525σ
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16.Roland Corporation’s stock recently paid a dividend of $2.50 per share (D0 = $2.50). The company
has a constant growth rate of 5% and a beta equal to 1.5. The rate of return on the market portfolio is 15%, and the risk-free rate is 7%. Roland is considering a change in policy that will increase its beta coefficient to 1.75. If market conditions remain unchanged, what new constant growth rate will cause the price of Roland stock to remain unchanged?
Answer:
k = r f + β[E(r M) - r f]
= 7 + 1.5(15 – 7)
= 19%
Current stock price, P o = D o (1+g)/(k-g)
= 2.50(1.05)/(0.19 – 0.05)
= $18.75
After policy change, β = 1.75
New k = 21%
For stock price to be unchanged:
$18.75 = $2.50(1+g)/(0.21 – g)
solve for g:
g = 6.76%
17.An all equity firm, Lyrebird Futures Inc. is considering the creation of a new division which will
increase the assets of the firm from $2,000,000 to $4,000,000 (that is, by 100%). Lyrebird currently has a required rate of return of 17%, the risk-free rate is 7%, and the return on the market portfolio is 16%. Lyrebird wants to reduce its required rate of return to 13%. What is the maximum beta
coefficient the new division could have?
Answer:
Solve for current beta:
17 = 7 + β(16 – 7)
βcurrent = 1.11
If the required return is to equal 13%, then recalculate beta.
13 = 7 + β(16 – 7)
β = 0.67
Lyrebird will have created two new divisions of equal weight.
0.5(1.11) + 0.5(βnew) = 0.67
βnew= 0.23
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18.An all equity firm, Rush Inc., has been growing at a 15% annual rate and is expected to do so for the
next three years. After year 3, dividend growth is expected to slow to a constant 6% rate. Currently, the firm maintains a 40% payout ratio, and this year’s retained earnings net of dividends was $1.8 million. The market risk premium is 7.5%, the risk-free rate is 8%, the beta is 1.55 and the firm has 1,500,000 shares outstanding. Given this information, what is the market value of the firm’s
common equity?
Answer:
k = 8 + 1.55(7.5) = 19.625%
D o = ($1,800,000/0.6) x 0.4 = $1,200,000
D1 = $1,380,000
D2 = $1,587,000
D3 = $1,825,050
D4 = $1,934,553
P3 = D4/(0.19625 – 0.06)
= $14,198,554
P o = $12,935,780
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Chapter Six The Analysis of Investment Projects This chapter contains 41 multiple choice problems, 20 short problems and 8 longer problems. Multiple Choice 1.The objective of a firm's management is to only undertake the projects that ________ the market value of shareholders' equity. a)decrease b)do not decrease c)change d)do not change Answer: (b) 2.The decision rule that management uses with the net present value is to undertake only those projects with ________ NPV. a) a discounted b) a contingent c) a positive d)negative Answer: (c) 3.If a firm decides to invest in automated machines that will allow the firm to reduce labor costs, this is an example of a ________ capital expenditures project. a)new products b)replacement of existing assets c)cost reduction d)advertising Answer: (c) 4.The NPV of a project represents the amount by which it is expected to increase ________. a)the break-even point b)capital budgeting c)capital expenditures d)shareholder wealth Answer: (d)
Chapter Nine Valuation of Common Stocks This chapter contains 47 multiple choice questions, 17 short problems, and 9 longer problems. Multiple Choice 1.In a quote listing of stocks, the ________ is defined as the annualized dollar dividend divided by the stock’s price, and is usually expressed as a percentage. (a)cash dividend (b)dividend payout (c)dividend coverage (d)dividend yield Answer: (d) 2.According to the discounted-dividend model, the price of a share of stock is the ________ value of all expected ________ dividends per share, discounted at the market capitalization rate. (a)present; current (b)present; future (c)future; future (d)future; current Answer: (b) 3.The value of common stock is determined by which of the following expected cash flows? (a)dividends and interest payments (b)dividends and maturity value of stock (c)dividends and net cash flows from operations of the firm (d)interest payments and maturity value Answer: (c)
Chapter Seven Principles of Market Valuation This chapter contains 30 multiple choice questions，10 short problems and 5 longer problems. Multiple Choice 1.In regard to an asset，the ________ is defined as the process well-informed investors must pay for it in a free and competitive market. (a)analyst value (b)technical value (c)competitive value (d)fundamental value Answer：(d) 2.In corporate finance decision making，an extremely important rule is to choose the investment that ________ current shareholders’ wealth. (a)minimizes (b)maximizes (c)provides zero change in (d)jeopardizes Answer：(b) 3.In asset valuation，the method used to accomplish the estimation depends on the ________. (a)number of participants (b)quality of calculating instruments
CHAPTER 12 CHOOSING AN INVESTMENT PORTFOLIO Objectives ?To understand the process of personal investing in theory and in practice. ?To build a quantitative model of the tradeoff between risk and reward. Outline 12.1 The Process of Personal Portfolio Selection 12.2 The Trade-off between Expected Return and Risk 12.3 Efficient Diversification with Many Risky Assets Summary ?There is no single portfolio selection strategy that is best for all people. ?Stage in the life cycle is an imp ortant determinant of the optimal composition of a person’s optimal portfolio of assets and liabilities. ?Time horizons are important in portfolio selection. We distinguish among three time horizons: the planning horizon, the decision horizon, and the trading horizon. ?In making portfolio selection decisions, people can in general achieve a higher expected rate of return only by exposing themselves to greater risk. ?One can sometimes reduce risk without lowering expected return by diversifying more completely either within a given asset class or across asset classes. ?The power of diversification to reduce the riskiness of an investor’s portfolio depends on the correlations among the assets that make up the portfolio. In practice, the vast majority of assets are positively correlated with each other because they are all affected by common economic factors. Consequently, one’s ability to reduce risk through diversification among risky assets without lowering expected return is limited. ?Although in principle people have thousands of assets to choose from, in practice they make their choices from a menu of a few final products offered by financial intermediaries such as bank accounts, stock and bond mutual funds, and real estate. In designing and producing the menu of assets to offer to their customers these intermediaries make use of the latest advances in financial technology.
Chapter Five Household Savings and Investment Decisions This chapter contains 28 multiple choice questions, 10 short problems, and 9 longer problems. Multiple Choice 1.Getting a professional degree can be evaluated as ________. a) a social security decision b)an investment in human capital c)an investment in a consumer durable d) a tax exempt decision Answer: (b) 2.Suppose you will face a tax rate of 20% before and after retirement. The interest rate is 8%. You are 30 years before your retirement date and invest $10,000 to a tax deferred retirement plan. If you choose to withdraw the total accumulated amount at retirement, what will you be left with after paying taxes? a)$51,445 b)$64,000 c)$80,501 d)$100,627 Answer: (c) 3.Suppose you will face a tax rate of 20% before and after retirement. The interest rate is 8%. You are 30 years before your retirement date and have $10,000 to invest. If you invest this in an ordinary savings plan instead of a tax deferred retirement plan, what amount will you have accumulated at retirement? a)$51,445 b)$64,000 c)$80,501 d)$100,627 Answer: (a)
Chapter Four Allocating Resources Over Time This chapter contains 46 multiple-choice questions, 18 short problems and 9 longer problems. Multiple Choice 1.________ is the process of going from present value to future value, whereas ________ is finding the present value of some future amount. (a)Discounting; compounding (b)Compounding; annualizing (c)Compounding; discounting (d)Discounting; leasing Answer: (c) 2.________ refers to the interest rate at which money received before the end of the planning horizon can be reinvested. (a)Internal rate (b)Reinvestment rate (c)Cost of equity (d)Compound interest Answer: (b) 3.The difference between an immediate annuity and an ordinary annuity is ________. (a)the number of periods (b)the amount of the payments (c)the interest rate (d)the timing of the payments Answer: (d)
CHAPTER 1 – Financial Economics End-of-Chapter Problems Defining Finance 1. What are your main goals in life? How does finance play a part in achieving those goals? What are the major tradeoffs you face? SAMPLE ANSWER: ? ? ? ? ? ? ? Finish school Get good paying job which I like Get married and have children Own my own home Provide for family Pay for children’s education Retire How Finance Plays a Role: SAMPLE ANSWER: ? Finance helps me pay for undergraduate and graduate education and helps me decide whether spending the money 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 I will have to learn how to allocate resources among individuals in the household and learn how to set aside enough money to pay for emergencies, education, vacations etc. Finance also helps me understand how to manage risks such as 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 finance also 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’s ? education as well as my own retirement. Major Tradeoffs: SAMPLE ANSWER ? Spend money now by going to college (and possibly graduate school) but presumably make more money once 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 save ? more money now but consume less than some of my friends Financial Decisions of Households 2. What is your net worth? What have you included among your assets and your liabilities? Would you list the value of your potential lifetime earning power as an asset or liability? How does it compare in value to other assets you have listed?
Chapter Two Financial Markets and Institutions This chapter contains 49 multiple-choice questions, 20 short problems and 10 longer problems. Multiple Choice 1. A market that has no one specific location is termed a(n) ________ market. (a)over-the-counter (b)geographic location (c)intermediary (d)conceptual Answer: (a) 2. ________ problems arise because parties to contracts often cannot easily monitor or control one another. (a)Payment (b)Counter (c)Incentive (d)Exchange Answer: (c) 3. Incentive problems take a variety of forms and include: (a)moral hazard (b)adverse selection (c)principal-agent (d)all of the above Answer: (d) 4. The ________ problem exists when having insurance against some risk causes the insured party to take greater risk or to take less care in preventing the event that gives rise to the loss. (a)moral hazard (b)adverse selection (c)principal-agent (d)all of the above Answer: (a)
Chapter Eight Valuation of Known Cash Flows: Bonds This chapter contains 50 multiple choice questions, 18 short problems and 9 longer problems. Multiple Choice 1. A ________ is a quantitative method used to infer an asset's value from market information about the prices of other assets and market interest rates. (a)fixed model (b)perpetual valuation model (c)valuation model (d)variable model Answer: (c) 2.________ are examples of fixed-income securities. (a)Common stock and pension funds (b)Mortgages and pension annuities (c)Mutual funds and common stock (d)Preferred stock and common stock Answer: (b) 3.Consider a fixed-income security that promises to pay $150 each year for the next five years. How much is this five-year annuity worth if the appropriate discount rate is 7% per year? (a)$534.74 (b)$615.03 (c)$802.50 (d)$867.96 Answer: (b) 8-1
博迪《金融学》（第2版）笔记和课后习题详解（修订版）完整版>精研学习?>无偿试用20％资料 全国547所院校视频及题库全收集 考研全套>视频资料>课后答案>往年真题>职称考试 第1部分金融和金融体系 第1章金融学 1.1复习笔记 1.2课后习题详解 第2章金融市场和金融机构 2.1复习笔记 2.2课后习题详解 第3章管理财务健康状况和业绩 3.1复习笔记 3.2课后习题详解 第2部分时间与资源配置 第4章跨期配置资源 4.1复习笔记 4.2课后习题详解 第5章居民户的储蓄和投资决策 5.1复习笔记 5.2课后习题详解 第6章投资项目分析 6.1复习笔记 6.2课后习题详解 第3部分价值评估模型 第7章市场估值原理 7.1复习笔记 7.2课后习题详解 第8章已知现金流的价值评估：债券 8.1复习笔记 8.2课后习题详解 第9章普通股的价值评估 9.1复习笔记 9.2课后习题详解 第4部分风险管理与资产组合理论 第10章风险管理的原理 10.1复习笔记 10.2课后习题详解
第11章对冲、投保和分散化 11.1复习笔记 11.2课后习题详解 第12章资产组合机会和选择 12.1复习笔记 12.2课后习题详解 第5部分资产定价 第13章资本市场均衡 13.1复习笔记 13.2课后习题详解 第14章远期市场与期货市场 14.1复习笔记 14.2课后习题详解 第15章期权市场与或有索取权市场 15.1复习笔记 15.2课后习题详解 第6部分公司金融 第16章企业的财务结构 16.1复习笔记 16.2课后习题详解 第17章实物期权 17.1复习笔记 17.2课后习题详解
Chapter Ten Principles of Risk Management This chapter contains 30 multiple choice questions, 10 short problems, and 5 longer problems. Multiple Choice 1.________ that “matters” because if affects people's welfare. ________ exists whenever one does not know for sure what will occur in the future. (a)Uncertainty is risk; Uncertainty (b)Risk is uncertainty; Uncertainty (c)Risk is uncertainty; Risk (d)Uncertainty is risk; Risk Answer: (b) 2.________ is a measure of willingness to pay to reduce one's exposure to risk. (a)Risk aversion (b)Risk avariciousness (c)Risk predilection (d)Risk inflation Answer: (a) 3.When choosing among investment alternatives with the same expected rate of return, a risk averse individual chooses the one with the ________ risk. (a)surest (b)most uncertain (c)lowest (d)highest Answer: (c) 10-1
博迪《金融学》第2版课后习题及详解 第1章金融学 一、概念题 1．金融学（finance） 答：金融学是一项针对人们怎样跨期配置稀缺资源的研究。其主要研究货币领域的理论及货币资本资源的配置与选择、货币与经济的关系及货币对经济的影响、现代银行体系的理论和经营活动的经济学科，是当代经济学的一个相对独立而又极为重要的分支。金融学所涵盖的内容极为丰富，诸如货币原理、货币信用与利息原理、金融市场与银行体系、储蓄与投资、保险、信托、证券交易、货币理论、货币政策、汇率及国际金融等。 2．金融体系（financial system） 答：金融体系是金融市场以及其他金融机构的集合，这些集合被用于金融合同的订立以及资产和风险的交换。金融体系是由连接资金盈余者和资金短缺者的一系列金融中介机构和金融市场共同构成的一个有机体，包括股票、债券和其他金融工具的市场、金融中介（如银行和保险公司）、金融服务公司（如金融咨询公司）以及监控管理所有这些单位的管理机构等。研究金融体系如何发展演变是金融学科的重要方面。 3．资产（assets） 答：资产是指个人、公司或者组织拥有的具有商业或交换价值的任何物品，它能在未来产生经济利益，资产有三个非常重要的特征：①能在未来产生经济利益；②由实体控制；③由过去发生的事项或交易产生。
在国民账户体系中，资产是指经济资产，即所有者能对其行使所有权，并在持有或使用期间可以从中获得经济利益的资源或实体。资产可分为金融资产和非金融资产两大类。金融资产是指以价值形态或以金融工具形式存在的资产，它包括金融债权以及货币黄金和特别提款权。非金融资产是指非金融性的资产，它包括生产资产和非生产资产。 在企业财务会计中，资产是指由过去的交易和事项所形成的，并由企业拥有或控制，预期会给企业带来经济利益的资源。按流动性可分为流动资产和非流动资产两大类。流动资产是指企业可以在一年或超过一年的一个营业周期内变现或者耗用的资产。非流动资产是指不能在一年或者超过一年的一个营业周期内变现或耗用的资产。 4．资产配置（asset allocation） 答：资产分配是指将投资在各种资产（如股票、债券、不动产和现金等）中进行分配的过程。根据某人或者某机构特定情况和目标进行资产分配，可使投资的风险—收益组合最优化。资产配置是财务规划和资金管理中的一个重要概念。 5．负债（liability） 答：负债是指一个经济主体对另一个经济主体应尽的偿还义务，即应偿付的债务。常用的负债概念有金融负债和企业负债。金融负债指金融交易中的负债，它与金融债权相对应。金融债权和金融债务产生于一个经济主体向另一个经济主体提供资金时所缔结的契约关系，是同时对应存在的。企业负债指过去的交易、事项形成的现时义务，履行该义务预期会导致经济利益流出企业。企业负债按流动性分为流动负债和长期负债。流动负债指应在一年或者在超过一年的一个营业周期内偿还的债务；长期负债指偿还期在一年以上或者在超过一年的一个营业周期以上的负债。
博迪莫顿版金融学(第二版)课后习题答案
金融学（第二版）答案 博迪默顿 第一章课后习题答案 一 . 我的生活目标： ●完成学业 ●找到一份自己喜欢且收入不菲的工作 ●结婚和生养子女 ●拥有我自己的房子 ●供养我的家庭生活 ●供养孩子上学 ●退休 在我实现目标的过程中，金融所扮演的角色： 答案样例：1，金融现在可以为我提供大学本科及研究生教育的学费并帮我完成学业，帮我决定投资于上学是否是一个好的投资决定 2，高等教育可以帮助提高我赚钱的能力以及获得一个我喜欢的工作的能力 3，当我结婚并且有了孩子以后，我就有了额外的金融责任（以具体情况
负债包括：学生贷款 信用卡结余的差额 各种租用金的协定（不包括转租） 应付车款 在计算净值时学生会特别地排除了他们一生潜在的赚钱能力的价值 三．一个单身汉之需要养活他自己，所以他可以独立自主的作出金融决策。如果他不想购买健康保险（而愿意承担由这个决定而带来的金融风险）那么除了这个单身汉自身，没谁会受这个决定的影响。另外，他不需要在家庭成员之间分配收入这件事上做任何决定。单身汉是很灵活自由的，可以选择住在几乎任何地方。他主要是在今天的消费（开支）和为明天储蓄之间做出权衡决策。既然他只需要养活他自己，那么他储蓄的重要性就比对一家之主的重要性小。 有许多孩子的一家之长必须在这些家庭成员中分配资源[或者说是收入].他们必须随时准备着处理各种风险,比如说潜在财政危机的突然发生[诸如家庭成员经历的严重健康问题,或者
因为火灾和其他疏忽导致的保险问题].因为在一般一个家庭里人会比较多,有些人生病或受伤的风险就会更大.并且因为家庭中有许多依赖性的个体,所以薪水收入者得认真地考虑生活和残疾保险.还有,家庭并不像个体那样富有机动性,这是因为有了适龄儿童的缘故,这个家庭会想离所谓好的学校近一点,同时良好的教育会对孩子将来的生活和财政状况有所裨益.因此一家之主的资源配置会更加的复杂:要有更多的钱于目前的消费（这也是他或她需要来抚养成员的）,但是同时又需要更多的钱储蓄起来以支付未来的费用,诸如教育和房屋购置,还有风险投资,比如生活和残障保险. 四．在双收入家庭中,家庭失去全部经济收入的风险比单收入家庭要小,同时,单收入家庭比双收入家庭更愿意购买残疾保险,人身保险.然而,如果单收入家庭需要有人照顾放学后回家的孩子,他们还要再支付照看小孩的额外费用. 五．学生们结合他们具体的经历和看法会给出不同的答案。很多的人很可能会说应该是在完成学业，并获得一份可观收入的工作之后实现经济上的独立。
Chapter Thirteen Capital Market Equilibrium This chapter contains 43 multiple choice questions, 19 short problems, and 9 longer problems. Multiple Choice 1.If one holds a diversified portfolio in which securities are held in the same relative proportions as in a broad market index, this is referred to as ________. (a)eliminating (b)discounting risk (c)indexing (d)capitalizing Answer: (c) 2.The CAPM provides a way of estimating ________ for use in a variety of financial applications. (a)actual rates of return (b)expected rates of return (c)expected standard deviation (d)actual standard deviation Answer: (b) 3.The CAPM may be used to provide ________. (a)inputs to DCF valuation model for stocks (b)inputs to DCF valuation model for bonds (c)estimation of a “fair” rate of return on invested capital (d)both (a) and (c) Answer: (d) 13-1
CHAPTER 10 AN OVERVIEW OF RISK MANAGEMENT Objectives ?To explore how risk affects financial decision-making. ?To provide a conceptual framework for the management of risk. ?To explain how the financial system facilitates the efficient allocation of risk-bearing. Outline 10.1 What Is Risk? 10.2 Risk and Economic Decisions 10.3 The Risk Management Process 10.4 The Three Dimensions of Risk Transfer 10.5 Risk Transfer and Economic Efficiency 10.6 Institutions for Risk Management 10.7 Portfolio Theory: Quantitative Analysis for Optimal Risk Management 10.8 Probability Distributions of Returns Summary ?Risk is defined as uncertainty that matters to people. Risk management is the process of formulating the benefit-cost trade-offs of risk-reduction and deciding on a course of action to take. Portfolio theory is the quantitative analysis of those trade-offs to find an optimal course of action. ?All risks are ultimately borne by people in their capacity as consumers, stakeholders of firms and other economic organizations, or taxpayers. ?The riskiness of an asset or a transaction cannot be assessed in isolation or in the abstract; it depends on the specific frame of reference. In one context, the purchase or sale of a particular asset may add to one’s risk exposure; in another, the same transaction may be risk-reducing. ?Speculators are investors who take positions that increase their exposure to certain risks in the hope of increasing their wealth. In contrast, hedgers take positions to reduce their exposures. The same person can be a speculator on some exposures and a hedger on others. ?Many resource-allocation decisions, such as saving, investment, and financing decisions, are significantly influenced by the presence of risk and therefore are partly risk-management decisions. ?We distinguish among five major categories of risk exposures for households: sickness, disability, and death; job loss; consumer-durable asset risk; liability risk; and financial asset risk. ?Firms face several categories of risks: production risk, price risk of outputs, and price risk of inputs. ?There are five steps in the risk-management process: risk identification, risk assessment, selection of risk-management techniques, implementation, review. ?There are four techniques of risk management: r isk avoidance, loss prevention and control, risk retention, risk transfer. ?There are three dimensions of risk transfer: hedging, insuring, and diversifying. ?Diversification improves welfare by spreading risks among many people, so that the existing uncertainty matters less. ?From society’s perspective risk-management institutions contribute to economic efficiency in two important ways. First, they shift risk away from those who are least willing or able to bear it to those who are most willing to bear it. Second, they cause a reallocation of resources to production and consumption in accordance with the new distribution of risk-bearing. By allowing people to reduce their exposure to the risk of undertaking certain business ventures, they may encourage entrepreneurial behavior that can have a benefit to society. ?Over the centuries, various economic organizations and contractual arrangements have evolved to facilitate a more efficient allocation of risk-bearing by expanding the scope of diversification and the types of risk that are shifted. ?Among the factors limiting the efficient allocation of risks are transactions costs and problems of adverse selection and moral hazard.