Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Chapter 2, Problem 22PS
What would happen to the divisor of the Dow Jones Industrial Average if FedEx, with a current price of around $210 per share, replaced Intel with a current value of about $40 per share)? (LO 2-2)
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51339694.5
Suppose that you have the following utility function:
U=E(r) – ½ Aσ2 and A=3
Suppose that you have $10 million to invest for one year and you want to invest that money into ETFs tracking the S&P 500 (US) and S&P/TSX 60 (Canada) index, which are often used as proxies for the US and Canadian stock markets, respectively, and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-bill is 0.35% per annum.
You have found two ETFs that you are interested in. From a set of their historical data between 2001 and 2019, you have estimated the annual expected returns, standard deviations, and covariance as follows:
ETFUS :
E(r)= 0.070584
0.173687
ETFCDA :
E(r)= 0.073763
0.16816
Covariance between ETFUS and ETFCDA = 0.02397
Answer the following questions using Excel:
Draw the opportunity set offered by these two securities (with increments of 0.01 in weight). Hint: In Excel, calculate the portfolio expected return and…
Suppose that you have the following utility function:
U=E(r) – ½ Aσ2 and A=3
Suppose that you have $10 million to invest for one year and you want to invest that money into ETFs tracking the S&P 500 (US) and S&P/TSX 60 (Canada) index, which are often used as proxies for the US and Canadian stock markets, respectively, and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-bill is 0.35% per annum.
You have found two ETFs that you are interested in. From a set of their historical data between 2001 and 2019, you have estimated the annual expected returns, standard deviations, and covariance as follows:
ETFUS :
E(r)= 0.070584
0.173687
ETFCDA :
E(r)= 0.073763
0.16816
Covariance between ETFUS and ETFCDA = 0.02397
Answer the following questions using Excel:
What is the optimal portfolio of ETFUS and ETFCDA?
Also submit an Excel file to show your work.
Chapter 2 Solutions
Essentials Of Investments
Ch. 2 - Prob. 1PSCh. 2 - Why do most professionals consider the Wilshire...Ch. 2 - Prob. 3PSCh. 2 - What are the major components of the money market?...Ch. 2 - Describe alternative ways that an investor may add...Ch. 2 - Why are hightaxbracket investors more inclined to...Ch. 2 - Prob. 7PSCh. 2 - How does a municipal revenue bond differ from a...Ch. 2 - Prob. 9PSCh. 2 - 10. What is meant by limited liability? (LO 2-1)
Ch. 2 - Which of the following correctly describes a...Ch. 2 - Why are money market securities sometimes referred...Ch. 2 - A municipal bond carries a coupon rate of 4.25%...Ch. 2 - Suppose that short-term municipal bonds currently...Ch. 2 - An investor is in a 30% combined federal plus...Ch. 2 - Find the equivalent taxable yield of the municipal...Ch. 2 - Prob. 17PSCh. 2 - Prob. 18PSCh. 2 - Prob. 19PSCh. 2 - Using the data in the previous problem, calculate...Ch. 2 - Prob. 21PSCh. 2 - What would happen to the divisor of the Dow Jones...Ch. 2 - A T-hill with face value $10.000 and 87 days to...Ch. 2 - Prob. 24PSCh. 2 - Prob. 25PSCh. 2 - What options position is associated with: (LO 2-3)...Ch. 2 - Why do call options with exercise prices higher...Ch. 2 - Both a call and a put currently are traded on...Ch. 2 - Prob. 30PSCh. 2 - Examine the stocks listed in Figure 2.8. For what...Ch. 2 - Find the after-tax return lo a corporation that...Ch. 2 - Prob. 33CCh. 2 - Prob. 34CCh. 2 - Prob. 1CPCh. 2 - Go to the website for The Walt Disney Co (DIS) and...Ch. 2 - Prob. 2WM
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- Suppose that you have the following utility function: U=E(r) – ½ Aσ2 and A=3 Suppose that you have $10 million to invest for one year and you want to invest that money into ETFs tracking the S&P 500 (US) and S&P/TSX 60 (Canada) index, which are often used as proxies for the US and Canadian stock markets, respectively, and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-bill is 0.35% per annum. You have found two ETFs that you are interested in. From a set of their historical data between 2001 and 2019, you have estimated the annual expected returns, standard deviations, and covariance as follows: ETFUS : E(r)= 0.070584 0.173687 ETFCDA : E(r)= 0.073763 0.16816 Covariance between ETFUS and ETFCDA = 0.02397 Answer the following questions using Excel: Determine your optimal asset allocation among ETFUS , ETFCDA , and T-bill, in percentage and in dollar amounts. Also submit an Excel file to show your…arrow_forward• Exercise 13.3 P416-445 a. Calculate the price of a firm with a plowback ratio of .60 if its ROE is 20%. Current earnings E., will be $5 per share, and k = 12.5%. b. What if ROE is 10%, which is less than the market capitalization rate? Compare the firms price in this instance to that of a firm with the same ROE and E, but a plowback ratio of b=0.arrow_forwardSuppose Microsoft has no debt and a WACC of 8.8%. The average debt-to-value ratio for the software industry is 11.5%. What would be its cost of equity if it took on the average amount of debt for its industry at a cost of debt of 6.3%? The cost of equity is %. (Round to two decimal places.)arrow_forward
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