- What is the Slope of the Capital Allocation Line? 2. What is the Slope of the Security Market Line? 3. For an equally weighted portfolio, as the number of securities increases, what does the portfolio variance approach? 4. What is formula for the IR or Information Ratio? 5. Active Risk Squared = ? 6. If the Markowitz assumptions of short sales is violated and investors cannot short stocks, what are the effects on a more risk averse investor? How about less risk averse investor? 7. How are the sensitivities or betas measured in a fundamental factor model? 8. What is formula for the %change in Real exchange rate? 9. What is formula for domestic currency sensitivity if the local currency sensitivity is .9? 10. Are exporters hurt or helped by domestic currency depreciation? 11. According to the traditional model what are effects on economy in short term if the value of currency depreciates? What about long term? 12. According to money demand model, if the domestic currency appreciates, is this good or bad?
- Sharpe 2. MRP 3. approaches avg asset covariance 4. IR = (Rp - Rb)/ S(Rp - Rb) 5. (AR)^2 = AFR + ASR where AFR related to factor tilts, ASR related to weightings 6. Z-Beta port (?) 7. Funda model related to EPS, P/BV, CF … bla 8. X(DC/FC) = S*P(FC)/P(DC) 9. 1.9 10. deprecaition -> they are helped 11. J curve (ST = mess (curr DOWN), LT =things settle (Curr UP)) 12.good
- Sharp of risky portfolio 2) Market primium 3) approaches 0 4) (Rp-Rb) / (stdev(Rp-Rb)) = Alph/Active Risk 5) Active Risk squared = Tracking error (I think) 6) less risk averse investors are not as impacted as they do not short stock & risk averse investors are affected More (I think) 7) Measured based on the stock itself 8) Spot rate / buying power? 9) 1+.9? 10) Exporters Helped 11)FX dep, economy hurt as imported goods are more expensive but long term econ benifited by exports 12)appreciating FX is associated with increased equity prices and strong economy
- Rf + {[E(RT)-rf]/stan dev(RT)}*stand dev (combination) 2) Rf + {[E(RM)-rf]/stan dev(RM)}*stand dev (combination) 3) average covariance 4) [a] Ex-ante ratio: alpha/stan dev (unsystematic risk) [b] Ex-post ratio: (Rp-Rb)/stand dev(Rp-Rb) 5) active factor risk + active specific risk 6) [a] more risk averse = greater weight to less risky securities than market [b] less risk averse = greater weight to more risky securities than market 7) standardized sensitivities 8) % change in nominal rate - (domestic inflation - foreign inflation) 9) =1+.9 = 1.9 10) Helped 11) Short term = bad, higher import prices, worsening trade deficit; long term = good, export industry grows, more competitive (J curve effect) 12) Good, interest rates are higher which attracts more capital
1sharpe ratio 2market risk premium 3avg covariance 4ex ante return/sample std deviation of ex ante return 5active risk^2=active factor risk+active specific risk 6 hold diversified basket of securities.concentrated portfolio 7.standardized values of the factors? 8. % change in foreign curency -inflation differential 9 1.9 10.helped 11.long term -more competitiv.short term -worse CA deficit? 12.typically good.indicates heightened economic activity -model used for emerging markets
Nice work…answers are 1. Sharpe 2. Market Risk Prem 3. Avg Covariance 4. Active Return/Active Risk 5. Active Factor Risk + Active Specific Risk 6. More risk averse investors hold portfolio of large # of securities with low risk, low return. Less risk averse investors hold portfolio of small # of high risk return stocks 7. Take the actual return of the factor and subtract the average of the market factor divided by the standard deviation of the factor. eg…for P/E one standard deviation above the average will have a sensitivity of 1. 8. Change in nominal rate minus the differences of the inflation rates 9. 1.9 10. Helped 11. Short term = bad, Long term= good 12. Good
Quiz Time: General (Level: Easy) 1. Theta relation to Put Option? 2. N(d1) and N(d2) 3. Gamma max at? Delta Max at? 4. Hedge Ratio? 5. Strike Price relation to Call? 6. FCRP? 7.Foreign Exchange Expectation Relation 8. Interest Tax Burden ratio 9. Hansen/ Dickey/White/DW/BP test for? 10. Update research reports every? 11. Future value on T-Bond Futures
- Positively Related as time to expiration increases 2. N(d1) = delta of a call, and delta of put = N(d1) -1 (what is n(d2) 3. Gamma max when option is at the money or close to maturity. Delta max when the option is in the money. 4. Hedge Ratio…#calls needed to hedge =#Shares/Delta 5. Strike price negatively related to call 6. FCRP = chance in lc - (interest rate differential) 7. Forward price = Expected Spot 8. ??? 9. Hansen - used to correct for hetero and serial Dickey Fuller - used to test for unit root White - i know its a std error correction…i think? Durbin Watson - used to test for serial correlation (but not for AR Model!) Breusch Pagan Test - n*R^2 is one tailed test used to test for heteroskedasticity 10. Every quarter or when monumental news is announced. Must also create a closing report when discontinuing coverage 11. F = S -PVD (1+R)^T *1/CF ??
K.O. 8. forward rate is an indicator of the Expected spot rate F = E(S1) 2,10,11 are all impt and you got it right