Chapter Eleven
Hedging, Insuring, and Diversifying
This chapter contains 35 multiple choice questions, 10 short problems and 5 longer problems. Multiple Choice
1.One is said to ________ a risk if reducing one’s exposure to a loss requires giving up the
possibility of a gain, whereas ________ means paying a premium to avoid possible losses.
(a)diversify; hedging
(b)insure; hedging
(c)hedge; insuring
(d)hedge; diversifying
Answer: (c)
2.A(n) ________ insures creditors against losses stemming from a debtor’s failure to make
promised payments.
(a)hedge
(b)credit guarantee
(c)option
(d)asset guarantee
Answer: (b)
3.In a forward contract, the price for immediate delivery of an item is termed the ________.
(a)spot price
(b)forward price
(c)face value
(d)long position
Answer: (a)
4.In a forward contract, the party who commits to sell an item is said to take a ________, and
the party who commits to buy the specified item is said to take a ________.
(a)long position; short position
(b)short position, spot position
(c)short position; long position
(d)long position; spot position
Answer: (c)
5.________ are traded on organized exchanges.
(a)Forward contracts
(b)Futures contracts
(c)Options
(d)b and c
Answer: (d)
6.A(n) ________ is an agreement between two parties to exchange a series of cash flows at
specified intervals over a specified period of time.
(a)futures contract
(b)swap contract
(c)option contract
(d)credit contract
Answer: (b)
7.The swap contract is equivalent to ________.
(a)a series of forward contracts
(b)a series of credit contracts
(c)a series of option contracts
(d)a series of diversification contracts
Answer: (a)
8.For a savings bank with customer liabilities that are short-term deposits earning an interest
rate that changes with market conditions, one appropriate hedging strategy might be to roll over short-term bonds. This is termed ________.
(a)a swaps contract
(b)an options contract
(c)matching assets to liabilities
(d)an insurance contract
Answer: (c)
9.________ are limits placed on compensation for particular losses covered under an insurance
contract.
(a)exclusions
(b)caps
(c)deductibles
(d)copayments
Answer: (b)
10.Life insurance policies pay benefits if an insured party dies, but such policies do not pay
death benefits if the insured person takes his or her own life. This is known as a(n):
(a)exclusion
(b)cap
(c)deductible
(d)copayment
Answer: (a)
11.________ create incentives for insured parties to control their losses, and represent the
amount of money the insured party must pay out of his or her own resources before receiving any compensation from the insurer.
(a)exclusions
(b)caps
(c)deductibles
(d)loan guarantees
Answer: (c)
12.________ means that the insured party must cover a fraction of the loss.
(a)exclusions
(b)caps
(c)copayments
(d)loan guarantees
Answer: (c)
13.A(n) ________ is a contract that obliges the guarantor to make the promised payment on a
loan if the borrower fails to do so.
(a)exclusion
(b)loan guarantee
(c)copayment
(d)interest-rate cap
Answer: (b)
14.An interest rate insurance policy which guarantees a maximum interest rate is known as, or
takes the form of ________.
(a)loan guarantee
(b)interest-rate guarantee
(c)interest-rate floor
(d)interest-rate cap
Answer: (d)
15.________ protect against losses from a decline in stock prices.
(a)Expiration options
(b)Call options
(c)Put options
(d)Strike options
Answer: (c)
16.The ________ is the fixed price specified in an option contract.
(a)strike price
(b)exercise price
(c)spot price
(d)a and b
Answer: (d)
17.A(n) ________ is the right, but not the obligation, to buy or sell something at an exercise
price in the future.
(a)forward contract
(b)option
(c)swap
(d)deductible
Answer: (b)
18.A(n) ________ can be exercised on the expiration date only, whereas a(n) ________ can be
exercised at any time up to and including the expiration date.
(a)American-type option; European-type option
(b)European-type option; American-type option
(c)European-type option; Asian-type option
(d)American-type option; Asian-type option
Answer: (b)
19.You are the Chief Financial Officer of a soybean oil company. In your job you receive dozens
of different proposals each month regarding ways to hedge the company’s exposure to
falling soybean oil prices. How do you decide among the different proposals?
(a)Choose the hedge with the best investment bank participating.
(b)Choose the hedge that achieves the desired reduction in risk through the best
insurance policy.
(c)Choose the hedge that minimizes the cost of achieving the desired reduction in risk.
(d)none of the above
Answer: (c)
20.Which of the following are ways to avoid losses through insuring?
(a)Lock in a fifteen hundred dollar fare for a holiday airfare.
(b)Agree to purchase an apartment in six months for three hundred thousand dollars.
(c)As a soybean grower, enter into a forward contract to sell your soybeans at a fixed
price in a month.
(d)none of the above
Answer: (d)
21.Which of the following are ways to avoid losses through hedging?
(a)Pay a premium for healthcare coverage.
(b)Purchase a put option on a stock you do own.
(c)Pay for a credit guarantee on a loan you are worried about collecting.
(d)Enter into a swap to exchange a series of cash flows at specified intervals over a
specified period of time.
Answer: (d)
22.Which of the following are ways to avoid losses through insuring?
(a)Pay a premium for health care coverage
(b)Purchase a put option on a stock you do own
(c)Both a and b
(d)Neither a nor b
Answer: (c)
Questions 23-25 refer to the following information:
An old college friend of your invests in cocoa futures and options contracts. He has told
you that he believes cocoa prices are escalating. You decide to go ahead and purchase a
call option on cocoa with a strike price of $0.80 per pound. That way, if cocoa prices go
up, you can exercise the call, buy the cocoa and sell them at a higher spot price.
Assume the price of an option on fifty thousand pounds is one thousand five hundred
dollars, and you purchase six options for nine thousand dollars on three hundred thousand pounds.
23.What type of transaction is this for you?
(a)hedged position
(b)speculative
(c)insured position
(d)none of the above
Answer: (b)
24.Calculate the downside risk in dollars and percentage terms.
(a)$1,500; +100%
(b)$1,500; –100%
(c)$9,000; –100%
(d)$9,000; +100%
Answer: (c)
25.If the price increases to $0.85 cents per pound, how much would you net after paying for the
options?
(a)$15,000
(b)$13,500
(c)$9,000
(d)$6,000
Answer: (d)
26.You are interested in taking a vacation to Yemen next year, but you are worried about the
price of the trip. Over the past three years, the price of a trip to Yemen has ranged between $3,500 and $4,500. The current price is $4,000. You wish to maintain the possibility of a lower price. How would you eliminate the possibility of rising prices, but still maintain the possibility of a gain from lower prices?
(a)Purchase an option today from the sponsor, which would allow you to pay the lower
of $4,000 or the market price at the time you take your Yemen vacation.
(b)Purchase an option today from the sponsor, which would allow you to pay the higher
of $4,000 or the market price at the time you take your vacation to Yemen.
(c)Leave it to the market.
(d)Arrange a futures contract through the newspaper.
Answer: (a)
Questions 27-30 refer to the following information.
You are Chief Financial Officer of GreenShrimp and you purchase a large quantity of
coffee each month. You are concerned about the price of coffee one month from now.
You want to guarantee that you will not pay more than $1.60 per pound for fifty thousand pounds. You do not want to pay for insurance, but you do want to lock in a price of $1.60 per pound for fifty thousand pounds.
27.What is the economics of a futures transaction if the spot price on delivery date is $1.35?
(a)Cost of coffee purchased from supplier = $67,500; cash flow from futures contract =
$12,500 paid by GreenShrimp; total outlay = $80,000
(b)Cost of coffee purchased from supplier = $67,500; cash flow from futures contract =
$12,500 paid to GreenShrimp; total outlay = $55,000
(c)Cost of coffee purchased from supplier = $80,000; cash flow from futures contract =
$0 paid to GreenShrimp; total = $80,000
(d)Cost of coffee purchased from supplier = $80,000; cash flow from futures contract =
$12,500 paid to GreenShrimp; total =$92,500
Answer: (a)
28.What is the economics of a futures transaction if the spot price on delivery date is $1.80?
(a)Cost of coffee purchased from supplier = $62,500; cash flow from futures contract =
$12,500 paid by GreenShrimp; total outlay = $80,000
(b)Cost of coffee purchased from supplier = $80,000; cash flow from futures contract =
$0 paid by GreenShrimp; total outlay = $80,000
(c)Cost of coffee purchased from supplier = $90,000; cash flow from futures contract =
$10,000 paid to GreenShrimp; total outlay = $80,000
(d)Cost of coffee purchased from supplier = $90,000; cash flow from futures contract =
$10,000 paid by GreenShrimp; total outlay = $100,000
Answer: (c)
29.You enter a coffee futures contract at a futures price of $1.60 per pound. What is the
variability of GreenShrimp’s total outlays under the futures contract?
(a)$10,000
(b)$90,000
(c)Outlays are fixed at $80,000
(d)Outlays are fixed at $90,000
Answer: (c)
30.You enter a coffee futures contract at a futures price of $1.60 per pound. At the time of
delivery, coffee is $1.35 per pound. Should you have foregone entering into the futures
contract?
(a)You should have consulted an investment bank
(b)You made the right move since your goal was to avoid paying more than $1.60 per
pound
(c)Bad move! You gave up the opportunity to pay a lower price
(d)You should have done nothing and left it to the market
Answer: (b)
Use the following information to answer questions 31-33.
You are the Treasurer of Savvy Software, Inc. The U.S., your headquarter country,
accounts for fifty percent of Savvy sales, while thirty percent are in Germany and twenty percent are spread throughout the rest of the world. Over the next six years, you have
forecasted that German sales are expected to be 35,170,000 euros each year for the next six years. The current USD/EUR exchange rate is 0.7359 euros to the dollar, and you
would be happy for this to remain so during all six years.
31.How can you use a swap contract in this case?
(a)Enter into a swap contract where you agree to receive or pay each year an amount of
cash equal to 35,170,000 euros times the difference between the 0.7359 USD/EUR
spot rate and delivery rate at the time.
(b)Enter into a swap contract where you agree to receive or pay each year an amount of
cash equal to 35,170,000 euros times the difference between the 0.7359 USD/EUR
forward rate and spot rate at the time.
(c)Enter into a swap contract where you agree to receive or pay each year an amount of
cash equal to 35,170,000 euros times the spot rate at the time.
(d)none of the above
Answer: (c)
32.What is the notional amount of your swap contract per year?
(a)477,918,195 EUR
(b)35,170,000 EUR
(c)2,588,160 EUR
(d)0.7359 EUR
Answer: (b)
33.Who might take the opposite side of this swap contract?
(a)Another U.S. company with sales in Germany
(b)A German company with sales in the U.S.
(c)Another European company with worldwide sales
(d)Another U.S. company with worldwide sales
Answer: (b)
34.The diversification principle states that by diversifying across risky assets people can
sometimes achieve a(n) ________ in their overall risk exposure with ________ in their expected return.
(a)increase; no decrease
(b)increase; a minimal decrease
(c)decrease; a minimal increase
(d)decrease; no decrease
Answer: (d)
35.The part of portfolio volatility that remains no matter how many stocks are added is
________.
(a)diversifiable risk
(b)nondiversifiable risk
(c)correlated risk
(d)uncorrelated risk
Answer: (b)
Short Problems
1.Describe the main features of forwards contracts. How do forwards contracts differ from
futures contracts?
Answer:
Main features of forwards contracts:
?Two parties agree to exchange some item in the future at a price specified now – this specified price is called the forward price.
?The spot price is the price for immediate delivery of the item.
?No money is paid in the present by either party to the other.
?The face value of the contract is the quantity of the item specified in the contract multiplied by the forward price.
?The party who commits to buy the specified item is said to take a long position and the party who commits to sell the item is said to take a short position.
A futures contract is essentially a standardized forward contract that is traded on an
organized exchange. The exchange interposes itself between the buyer and the seller, so
that each has a separate contract with the exchange. Standardization means that the
terms of the futures contract are the same for all contracts.
2.Suppose you are Chief Financial Officer at Beazley Confectionery, Inc. and you purchase a
large quantity of cocoa each month. You are concerned about the price of cocoa one month from now. You want to guarantee that you will not pay more than $0.80 per pound for forty-five thousand pounds. You do not want to pay for insurance, but you do want to lock in a price of $0.80 per pound for forty-five thousand pounds.
(a)Show the economics of a futures transaction for spot prices on delivery date of $0.70,
$0.80, and $0.95.
(b)What is the variability of Beazley’s total outlays under the futures contract?
(c)If at the time of delivery, cocoa is $0.70 per pound, should you have foregone
entering into the futures contract? Why or why not?
Answer:
(b)Outlays are fixed at $36,000.
(c)Regardless of the outcome of the price of cocoa at delivery date, you did the right
thing since your goal was to lock the price in at $0.80 per pound. Although you gave
up any opportunity to pay a lower price, you also guaranteed that you would never
pay more than $0.80 per pound.
3.You are a consultant living in the United States and have been engaged by a Japanese
company to perform a project over the next year. The Japanese company is intending to pay you 2,081,300.05 yen per month. The current exchange rate is $0.009609 per yen. However, your concern is that the yen will strengthen versus the dollar and, that as a result, you will receive fewer U.S. dollars each month. The Japanese company is not willing to agree to a fixed exchange rate of $0.009609 per yen; nor does the Japanese company want to come up with dollars to pay you each month. So your next step is to approach a financial intermediary about ways of eliminating your risk.
(a)How do you use swap contracts in this instance to eliminate your risk?
(b)In the third month, if the spot price of the yen is $0.009321,what would your cash
revenues be with the swap contract? What would the cash revenues be without the
contract?
(c)In the ninth month, if the spot price of the yen is $0.010089, what will your cash
revenues be with the swap contract? What will your cash revenues be without the
swap contract?
Answer:
(a)On each settlement date you agree to receive or pay an amount of cash equal to
2,081,300.05 JPY times the difference between $0.009609 and the spot price.
(b)Without the swap: 2,081,300.05 JPY x $0.009321/JPY = $19,399.80
With the swap: you will receive 2,081,300.05 JPY, which you sell for $19,399.80.
You then receive 2,081,300.05 JPY x ($0.009609 – $0.009321) = $599.41 from the
counterparty to your swap contract. Total = $19,999.21
(c)Without the swap: 2,081,300.05 JPY x $0.010089/JPY = $20,998.24
With the swap: you will receive 2,081,300.05 JPY, which you sell for $20,998.24.
You then pay 2,081,300.05 JPY x ($0.010089 – $0.009609) = $999.03 to the
counterparty of your swap contract. Total = $19,999.21
4.Suppose you are interested in an adventure tour to Siberia next year. However, you are
worried about the price of such a trip, which in the past has ranged from $4,500 to $5,500.
The current price of such a trip is $5,000.
(a)How could you enter into a forward contract with a tour operator to eliminate your
price risk?
(b)Why would the operator be interested in accepting your forward contract?
Answer:
(a)You could enter into a forward contract with a tour operator today with an
agreement to pay $5,000 next year.
(b)The tour operator would be happy to lock in your reservation at the current price of
$5,000 due to a concern that prices may fall below $5,000.
5.An old college friend of yours invests in coffee futures and options contracts. He has told you
that he believes coffee prices are escalating. You decide to go ahead and purchase a call
option on coffee with a strike price of $1.25 per pound. That way, if coffee prices go up, you can exercise the call, buy the coffee and sell them at a higher spot price. Assume the price of an option on fifty thousand pounds is $1,250 and you purchase four options for $5,000 on two hundred thousand pounds.
(a)What type of transaction is this for you?
(b)Calculate the downside risk in dollars and percentage terms.
(c)If the price increases to $1.30 per pound, how much would you net after paying for
the options?
Answer:
(a)This is a speculative transaction for you since this is an unhedged position.
(b)In this case, the options expire and are worthless, so the downside risk is $5,000 or
–100%.
(c)You net [($1.30 - $1.25) x 200,000 pounds] – $5,000 = $10,000 – $5,000 = $5,000
6.You are the Treasurer of BlairNotes, Inc. The United States, your headquarter country,
accounts for fifty percent of Blair’s sales, while forty percent are in Switzerland, and the remaining ten percent are spread throughout the world. You expect that Swiss sales are
expected to be 36,607,500 Swiss Francs each year over the next six years. The current
exchange rate is 1.25005 Swiss Francs to the U.S. dollar, and you would be happy for this to remain so during the next six years.
(a)How can you use a swap contract in this case?
(b)What is the notional amount of your swap contract per year?
(c)Who might be a logical counterparty in this swap contract?
Answer:
(a)Enter into a swap contract where you agree to receive or pay each year an amount of
cash equal to 36,607,500 Swiss Francs times the difference between the 1.25005
CHF/USD forward rate and spot rate at the time.
(b)The notional amount is 36,607,500 Swiss Francs per year.
(c)Anyone interested in hedging a possible appreciation in the dollar versus Swiss
Franc, or a Swiss company with sales in the United States.
7.Suppose you are Chief Financial Officer at Beazley Confectionery, Inc. and you purchase a
large quantity of cocoa each month. You are concerned about the price of cocoa one month from now. You want to guarantee that you will not pay more than $0.80 per pound for fifty thousand pounds. You decide to purchase a call option on fifty thousand pounds with a strike price of $0.80.
(a)Show the economics of purchasing a call for $2,500 for spot prices on the delivery
date of $0.70, $0.80 and $0.95.
(b)If at the time of delivery cocoa is $0.70 per pound, should you have foregone
purchasing the call option? Why or why not?
Answer:
(c) You did the right thing since you wanted to lock in the price at $0.80 per pound.
Although you ended up spending $2,500 on an option that you did not use, you still
save from the lower price.
8.You have just found a home for which you have signed the purchase and sale agreements.
However, you have only a matter of weeks to obtain a mortgage. You have a number of
interest rate alternatives available to you. One is to lock in a fixed seven and one-half percent APR for twenty-five years. Rates are at the moment falling, so another alternative is a twenty-five year variable rate loan which is currently at five percent and which is tied to the six month Treasury bill rate. Another alternative is a variable rate loan that starts at six percent and cannot fall below four percent, but which can increase by only as much as one and one-half percent per year up to a maximum of ten and one-half percent.
(a)Which financing plan would you choose if you wanted to hedge all risk of interest
rate exposure?
(b)For a twenty-five year fixed rate mortgage, what would be your monthly payment on
a loan of one hundred twenty thousand dollars?
(c)If interest rates increased to ten and one-half percent, what would happen to your
monthly payment if you took out a fixed rate mortgage?
Answer:
(a)Choose the twenty-five year fixed rate loan.
(b) N I PV FV PMT?
300 0.625 $120,000 0 PMT = $886.79
(b)Your monthly payment would still be $886.79.
9.You own a coffee plantation and are very concerned about price risk associated with this
commodity. You want to guarantee that you will receive $1.25 per pound in a month
regardless of what the spot price is at the time. You are selling three hundred thousand
pounds. Suppose you purchase insurance in the form of a put option on three hundred
thousand pounds, which guarantees you a minimum of $1.25 per pound. Suppose the option costs you $30,000.
Show the economics of such a transaction if the spot price on delivery date is $1.15 per
pound, $1.25 per pound or $1.35 per pound. Under what circumstances would you
exercise your option?
10.Discuss the concept of correlation.
Answer:
Intuitively, correlation means the degree to which the rates of return on the assets tend to “move together.” Correlation coefficients can range from values of +1 (perfect positive correlation) to –1 (perfect negative correlation). If the correlation coefficient is 0, the
two stocks are said to be uncorrelated. Correlation measures the degree of linear
relationship between the returns. If the paired return combination all lie exactly along a straight line the correlation coefficient will be either +1 or –1, depending on whether the line slopes upward or downward.
Longer Problems
1.Marco owns 500 shares of Omni stocks. Its current price is $75 per share. Discuss how he can
use put options to help protect against losses from a decline in stock prices. If he wants
market value insurance on these shares with a deductible of $5 per share and a copayment of 10%, how could he achieve these with Omni put options?
Answer:
An Omni put option gives him the right to sell a share of Omni stock at a fixed
exercise price, thus insuring him that he will receive at least the exercise price at
the option’s expiration date. The put option provides him with protection from
losses that stem from a decline in their market price for the period until the
expiration date. He can lower the cost of the insurance on the Omni stock by
choosing puts with a lower exercise price. If the current stock price is $100 and
Marco buys them with an exercise price of $95, then he must absorb the first $5
per share of any loss resulting from a stock price decline. By choosing a put with
a lower exercise price, he increases the price of the deductible and lowers the
cost of the insurance.
A deductible of $5 means the strike price must be $75 – $5 = $70. A copayment
of 10% means that he will only buy puts on 450 shares, rather than the full 500.
2.Suppose you have $15,000 to invest in the biotechnology business. For each drug you invest
in, success means you will quadruple your investment, while failure means you a loss of your entire investment. You decide to invest $5,000 each in three different uncorrelated drugs.
Assume that there is a 0.5 probability of success for each drug, and a 0.5 probability of failure.
(a) What are the possible outcomes for this investment scenario?
(b) What are the possible payoffs for this investment scenario?
(c) Create a table to display the probability distribution for this investment scenario,
including the rate of return for each possible outcome.
Answer:
(a) There are a total of four outcomes:
1.all three drugs fail (FFF)
2.only one drug succeeds (FFS, FSF, SFF)
3.only two drugs succeed (FSS, SFS, SSF)
4.or al three drugs succeed (SSS)
(b) There are a total of four possible payoffs:
1.You receive nothing
2.You receive $20,000
3.You receive $40,000
4.You receive $60,000
________________________________________________________________________ Outcome Probability (P i) Payoff (X i) Rate of Return (r i)
Only one succeeds 0.375 $20,000 33.34%
Only two succeed 0.375 $40,000
166.67%
All drugs succeed 0.125 $60,000 300%
3.Consider the investment scenario from question 2.
(a) Calculate the expected payoff for investing $5,000 each in three uncorrelated drugs.
How this compare to the expected payoff of a $15,000 investment in one drug?
(b) Calculate the standard deviation for the investment in three drugs and the standard
deviation for a $15,000 investment in one drug.
Answer:
(a) Expected payoff for investing $5,000 each in three drugs:
E(X) = 0.125(0) + 0.375($20,000) + 0.375($40,000) + 0.375($60,000)
= $30,000
Expected payoff for investing $15,000 in one drug:
E(X) = 0.5(0) + 0.5($60,000)
$30,000
The expected payoff is $30,000 whether you invest in three drugs or one.
(b) Standard deviation for investing $5,000 each in three drugs:
SD =square root of [0.125(0 – $30,000)2 + 0.375($20,000 – $30,000)2 +0.375($40,000 – $30,000)2 +0.125($60,000 – $30,000)2]
= $17,320.50
Standard deviation for investing $15,000 in one drug:
SD =square root of [0.5(0 – $30,000)2 + 0.5($60,000 – $30,000)2]
= $30,000
The standard deviation is less when you invest in three stocks than when you invest in one.
In fact, the standard deviation continues to decrease as you spread your investment
among a greater number of stocks.
4.Consider the portfolio of drug stocks introduced in question 2. How much should it cost to
insure this portfolio of three stocks?
Answer:
For each separate drug stock there is a 0.5 chance that you will lose 100% of our
investment in that drug. But for the portfolio as a whole there is a probability of only
0.125 that you will lose 100% of your $15,000 investment. If two drugs fail and the third
succeeds, then the portfolio is worth $20,000. The cost of an insurance policy on the total portfolio would be the probability of a loss times the magnitude of the loss:
0.125 x $15,000 = $1,875.
5.Discuss the difference between market risk and firm-specific risk.
Answer:
An event that affects many firms, such as an unanticipated downturn in general economic conditions, then many stocks will be affected. The risk of loss stemming from such events is sometimes called market risk. On the other hand, random events that affects the
prospects of only one firm, such as a lawsuit, a strike, or a new-product failure, give rise to random losses that are uncorrelated across stocks and can, therefore, be diversified
away. The risk of loss stemming from this kind of even is called firm-specific risk.
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.