The following payoffs are observed in frictionless markets: Dividend next period Price next period Price today Asset 1 9 138 P1 Asset 2 9 75 80 A. In the absence of arbitrage opportunities, p₁= 127. B. In the absence of arbitrage opportunities, p₁= 140. C. In the absence of arbitrage opportunities, p₁= 142. D. If arbitrage opportunities are absent, the rate of return on asset 1 equals 9% E. None of the above.

The following payoffs are observed in frictionless markets: Dividend next period Price next period Price today Asset 1 9 138 P1 Asset 2 9 75 80 A. In the absence of arbitrage opportunities, p₁= 127. B. In the absence of arbitrage opportunities, p₁= 140. C. In the absence of arbitrage opportunities, p₁= 142. D. If arbitrage opportunities are absent, the rate of return on asset 1 equals 9% E. None of the above.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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If you observe open interest is increasing and prices are moving higher, which of the following would be the most likely explanation? A. New short positions are entering the market B. Old short positions are exiting the market C. New long positions are entering the market D. Old long positions are exiting the market
What is the shape of the yield curve given the term structure below? What expectations are investors likely to have about future interest rates? 5 yr 7 yr 10 yr 20 yr 1 yr 2 yr 3 yr Term 4.13 4.93 3.32 3.74 2.38 2.73 1.98 Rate (EAR %) ... What is the shape of the yield curve given the term structure below? (Select the best choice below.) A. The yield curve is an inverted yield curve (decreasing). B. It is hard to tell because we are not given an EAR for every year. C. The yield curve is a flat yield curve. D. The yield curve is a normal yield curve (increasing).
Which of the following is TRUE? a. The convenience yield measures the average return earned by holding futures contracts. b. The convenience yield is always positive for an investment asset. c. The convenience yield is always negative for a consumption asset. d. The convenience yield is always positive or zero.
Remember the following the 1-factor model or CAPM is defined as re-rf beta * [rm -rf] what is the return on equity (re) if rf = 0.05 rm = 1.88 beta = 1.47
A normal yield curve a.has an upward slope b.is a sign of a coming recession c.indicates that the interest rate will decrease in the future d.All of the above.
Consider a two-period monopoly facing the negatively sloped inverse demand function pt = p(qt) in each period t = 0,1. The firm maximizes the present discounted value of profits, PDV = E:=0(1+r)-tnt, where r > 0 is the market interest rate, and T is period-t profit. In each of the following, assume that costs each period are increasing in that period's output and a strictly convex, and that PDV is strictly concave. (a) If costs are c; = c(q:) for t = 0,1, show that the firm will "short-run profit maximize" in each period by choosing output to equate marginal cost and marginal revenue in each period. (b) Now suppose that the firm can "learn by doing". Its first period costs are simply Co = co(q0). Its second period costs, however, depend on first period output; c = c(q1, 90), where dc/dq0 < 0. Does the firm still "short-run profit maximize" in each period? Why or why not? Interpret your results.
If the yield curve is upward sloping: Hint: When there is an increase in the demand for an asset, the price of the asset goes up. You expect returns from investing in such ("higher-priced") asset to be lower in the future. Conversely, when there is a decrease in the demand for an asset, the price of the asset goes down. You expect returns from investing in such ("lower-priced") asset to be higher in the future. O investors expect the short-term interest rates to fall in the future. investors often shift their investment holdings away from long-term securities. investors often short sell short-term securities. investors often shift their investment holdings away from short-term securities.
Which of the following investments will experience the largest change in its market value as a result of changes in the level of interest rates (we are talking about the absolute value of the change, up or down)? Suppose interest rates go up or down by 50 basis points (0.5%). Rank the investments from 1 to 4 where a 1 is the most affected (largest absolute change in value) while a 4 is the least affected (smallest absolute change in value). A: $1 million invested in 3-month Treasury bills. 请选择~ B: $1 million invested in STRIPS (zero coupons) maturing in three years. |请选择 C: $1 million invested in a Treasury note maturing in three years. The note pays a 5% annual coupon. |请选择︾ D: $1 million invested in a Treasury note maturing in three years. The note pays a 10.0% annual coupon. |请选择

Consider a European call and a European put with the same strike price and time to maturity. Show that they change in value by the same amount when the volatility increases from a level ₁ to a new level 2 within a short period of time. (Hint: Use put-call parity.)
Provide a numerical example of an arbitrage strategy for situations where the forward is trading above, and below the theoretical forward price.
An investor takes as large a position as possible when an equilibrium pricerelationship is violated. This is an example of:A. A dominance argument.B. The mean-variance efficient frontier.C. Arbitrage activity.D. The capital asset pricing model.
Dividend policy may be affected by firm level as well as macroeconomic level factors. Select FIVE variables (at least 2 firm-level factors/variables and at least 2 macroeconomic factors/variables) from the list shown below. Explain and discuss the predicted impact of selected factors on dividend policy using relevant theories. i.e. what theories help to predict the positive or negative impact on the dividend payout and why. FIRM-LEVEL FACTOR/VARIABLE Asset growth rate Positive NPV investment opportunities Capital intensity of the production process Free cash flow generated Number of individual shareholders Relative tightness of ownership coalition Size of largest block holder MACROECONOMIC FACTOR/VARIABLE Transaction costs of security issuance Personal tax rates on dividend income Personal tax rates on capital gain Importance of institutional investors Corporate governance power of institutional investors Capital market, relative to intermediated (bank) financing

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