Chapter 1

Case 1
Case 2
Bài 1
Bài 2
Bài 3
Why do most market observers view asset allocation as the most important decision an investor m
Answer:
Because: It is the practice of splitting your investments across different categorize asset such as
In order to diversify risk and potentially generate higher returns. This is particularly im
It can help you reduce the risk of losses with diversifying your investments across diffe

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ant decision an investor make? Explain your answer in the context of the 2008 financial crisis?

nt categorize asset such as stocks, bonds, and cash.

urns. This is particularly important in times of economic uncertainty or financial crises, like the 2008 global fi
ur investments across different asset classes

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, like the 2008 global financial crisis
1/ The following statements is most accurate?
C. Gascon has a high ability to take risk, and a high willingness to take risk
The reasons:
Gascon has a high ability to take risk

Gascon has a high willingness to take risk

2/Which of the following is closest to the amount of money Gascon will have to accumulate in nomi
n
Invested
T
Today's money to fund his retirement income needs
The amount of money Gacson
Answer

3/Which of the following is closet to the annual rate of return that Gacson must earn on his pension p
2,971,895=900,000𝑥 〖 (
1+𝑥) 〗 ^20

The annual rate of return that Gacson X=6,2%

a high willingness to take risk

His asset is apartment and has €1,000,000 of savings. He has a stable job.
He has a good knowledge of financial matters and he assures that positive
returns come true in the future.
He focus on the return than safety and disclaim "making money in stocks and
bonds is based on luck".
Totally, he ready to cope with risk.

unt of money Gascon will have to accumulate in nominal terms by his retirement date to meet his retirement i
20
900,000
2%
2,000,000
2,971,895
C.~3.000.000

al rate of return that Gacson must earn on his pension portfolio to meet his retirement income objective?
971,895=900,000𝑥 〖 (
+𝑥) 〗 ^20

X=6,2%
 BACK

to meet his retirement income objective?

ncome objective?
 CHAPTER 1
GIẢ ĐỊNH:
1.1. Giả sử nhà đầu tư kiếm được 10% lợi nhuận từ trái
phiếu và 15% lợi nhuận từ cổ phiếu hàng năm. Năm - Để giải quyết bài
năm nữa, nhà đầu tư ấy sẽ tiêu hết tiền của mình. Khoản giả sử nhà đầu tư
tích lũy cuối cùng của cô ấy sẽ tăng lên bao nhiêu nếu cô phiếu sẽ là 500 đơ
ấy chuyển tất cả trái phiếu vào tài khoản hưu trí và giữ
tất cả cổ phiếu bên ngoài tài khoản hưu trí? Giả sử rằng
thu nhập từ tiền lãi bị đánh thuế ở mức tương tự như
thu nhập bình thường, 28% và lãi vốn bị đánh thuế ở
mức 15%. Cũng giả định rằng thu nhập vốn chủ sở hữu
tồn tại hoàn toàn dưới dạng lãi vốn, không phải trả thuế
cho đến khi nhà đầu tư rút tiền ra khỏi quỹ trong vòng 5
năm.

Vậy giá trị tài kho

vào tài khoản hưu
 GIẢ ĐỊNH:
- Để giải quyết bài toán này, ta cần sử dụng phương pháp tính giá trị tương lai và áp dụng chiến
giả sử nhà đầu tư có số tiền ban đầu là 1000 đơn vị tiền tệ. Nếu cô ấy đầu tư tất cả số tiền này v
phiếu sẽ là 500 đơn vị tiền tệ cho mỗi khoản đầu tư.

Khoản đầu tư trái phiếu

Tổng lợi nhuận = số tiền đầu tư ban đầu * lãi suất * số năm
Giá trị tương lai = số tiền đầu tư ban đầu + Tổng lợi nhuận * (1-thuế lãi suất)

Khoản đầu tư cổ phiếu

Tổng lợi nhuận = số tiền đầu tư ban đầu * lãi suất * số năm
Giá trị tương lai = số tiền đầu tư ban đầu + Tổng lợi nhuận * (1-thuế lãi suất)

Tổng giá trị tài khoản hưu trí = Giá trị tương lai của khoản đầu tư trái phiếu + Số tiền còn lại của

Vậy giá trị tài khoản hưu trí của nhà đầu tư sẽ là 1180 đơn vị tiền tệ sau năm năm, nếu nhà đầu t
vào tài khoản hưu trí và giữ tất cả cổ phiếu bên ngoài tài khoản hưu trí theo chiến lược chuyển đ
rị tương lai và áp dụng chiến lược chuyển đổi tài sản.
ấy đầu tư tất cả số tiền này vào cổ phiếu và trái

250
680

375
819

i phiếu + Số tiền còn lại của khoản đầu tư cổ phiếu 1180

sau năm năm, nếu nhà đầu tư chuyển tất cả trái phiếu
trí theo chiến lược chuyển đổi tài sản đã nêu.
 Prob Market rate of return
Scenario 1 2
Best 30% 37%
Most Likely 40% 11%
Worst 30% -15%
100%
 Expected of return Standard deviation
Product of Pro and Return Deviation Squared deviation
(3) = (1) X (2) (4) = (2) - D8 (5) = (4)^2
11% 26% 6.76%
4% 0% 0.00%
-5% -26% 6.76%
11% Sum = Variance
11% Std . Dev = Sq root of variance
P x Squared Deviation
(6) = (1) X (5)
2.03%
0.00%
2.03%
4.06%
20.1%
4.1%
4.1%
4.1%
 Year-End Year-End
Year Year a)
Price Price
1965 16.25 1989 8,675
1966 17.50 1990 6,675
1967 20.25 1991 9,050
1968 37.00 1992 11,750
1969 42.00 1993 16,325
1970 39.00 1994 20,400
1971 70.00 1995 32,100
1972 80.00 1996 34,100
1973 71.00 1997 46,000
1974 40.00 1998 70,000
1975 38.00 1999 56,100
1976 94.00 2000 71,000
1977 138.00 2001 75,600
1978 157.00 2002 72,750
1979 320.00 2003 84,250
1980 425.00 2004 87,900
1981 560.00 2005 88,620
1982 775.00 2006 109,990
1983 1,310.00 2007 141,600
1984 1,275.00 2008 96,600
1985 2,470.00 2009 99,200
1986 2,820.00 2010 120,450
1987 2,950.00 2011 114,755
1988 4,700.00
Year Return Gross Return b)

1965 Arithmetic mean

1966 0.08 1.08 Geometric mean
1967 0.16 1.16
1968 0.83 1.83
1969 0.14 1.14
1970 -0.07 0.93
1971 0.79 1.79
1972 0.14 1.14
1973 -0.11 0.89
1974 -0.44 0.56
1975 -0.05 0.95
1976 1.47 2.47
1977 0.47 1.47
1978 0.14 1.14
1979 1.04 2.04
1980 0.33 1.33
1981 0.32 1.32
1982 0.38 1.38
1983 0.69 1.69
1984 -0.03 0.97
1985 0.94 1.94
1986 0.14 1.14
1987 0.05 1.05
1988 0.59 1.59
1989 0.85 1.85
1990 -0.23 0.77
1991 0.36 1.36
1992 0.30 1.30
1993 0.39 1.39
1994 0.25 1.25
1995 0.57 1.57
1996 0.06 1.06
1997 0.35 1.35
1998 0.52 1.52
1999 -0.20 0.80
2000 0.27 1.27
2001 0.06 1.06
2002 -0.04 0.96
2003 0.16 1.16
2004 0.04 1.04
2005 0.01 1.01
2006 0.24 1.24
2007 0.29 1.29
2008 -0.32 0.68
2009 0.03 1.03
2010 0.21 1.21
2011 -0.05 0.95
 c) Gros Return 1000

1.5268 0 0.000
1.212 1.08 1076.923
1.16 1157.143
1.83 1827.160
1.14 1135.135
0.93 928.571
1.79 1794.872
1.14 1142.857
0.89 887.500
0.56 563.380
0.95 950.000
2.47 2473.684
1.47 1468.085
1.14 1137.681
2.04 2038.217
1.33 1328.125
1.32 1317.647
1.38 1383.929
1.69 1690.323
0.97 973.282
1.94 1937.255
1.14 1141.700
1.05 1046.099
1.59 1593.220
1.85 1845.745
0.77 769.452
1.36 1355.805
1.30 1298.343
1.39 1389.362
1.25 1249.617
1.57 1573.529
1.06 1062.305
1.35 1348.974
1.52 1521.739
0.80 801.429
1.27 1265.597
1.06 1064.789
0.96 962.302
1.16 1158.076
1.04 1043.323
1.01 1008.191
1.24 1241.142
1.29 1287.390
0.68 682.203
1.03 1026.915
1.21 1214.214
0.95 952.719
10000

0.00
10769.23
11571.43
18271.60
11351.35
9285.71
17948.72
11428.57
8875.00
5633.80
9500.00
24736.84
14680.85
11376.81
20382.17
13281.25
13176.47
13839.29
16903.23
9732.82
19372.55
11417.00
10460.99
15932.20
18457.45
7694.52
13558.05
12983.43
13893.62
12496.17
15735.29
10623.05
13489.74
15217.39
8014.29
12655.97
10647.89
9623.02
11580.76
10433.23
10081.91
12411.42
12873.90
6822.03
10269.15
12142.14
9527.19
2.2 The Mom and the Pop Grocery Store is incorporated and
has shares of stock that are now worth $10 per share. A
financial analysis of the store indicates four equally likely
states or outcomes: "Compute the mean, standard deviation,
and variance of the returns of the common stock of Mom and
Pop Grocery Store Corporation."

State Prof Share Price Dividend Market rate return

Struggling 0.25 $ 5 $ - -50%
Status 0.25 $ 10 $ - 0%
Slow Growth 0.25 $ 12 $ - 20%
Good times 0.25 $ 14 $ 1.00 50%

E(R) 5.00%
Varicance 7.59%
Standard deviation 27.56%
 Standard deviation
Expect return Deviation from expected return Squared Deviation
-12.5% -37.5% 0.140625
0.0% 0.0% 0
5.0% 15.0% 0.0225
12.5% 37.5% 0.140625
5%
VARIANCE

Standard deviation
on
P* Squared Devition
0.03515625
0
0.005625
0.03515625
7.59%
7.59%
7.59%
27.6%
Investor Risk Aversion (A)
2
3.5
5
Utility Score of Portfilio L E(r) = .07 và ơ=.05
0.0675
0.0656
0.0675
Utility Score of Portfilio M E(r) = .09 và ơ=.10
0.08
0.07
0.07
Utility Score of Portfilio L E(r) = .13 và ơ=.20
0.09
0.06
0.03
 Chapter 3

T-bills
T-bills return (Rf) 5% 0%
S&P 500 standard deviation (Qm) 20% 25%
S&P 500 expected return (Rm) 15% 75%
100%
S&P 500 Star deviation (Qp) E (Rp)
100% 20% 15%
75% 15% 13%
25% 5% 8%
0% 0% 5%
CHAPTER 3
 T-bills' Return 5%
Std.Dev (S&P) 20%
S&P's Return 15%
The term 50.00%

T-bills S&P 500 Std.Dev Exp.Return(p)

0% 100% 20.00% 15.00%
-25% 125% 25.00% 17.50%
-50% 150% 30.00% 20.00%
-100% 200% 40.00% 25.00%
 CHAPTER 3

The standart deviation of the market-index portfolio is 25%

a) What is the mean excess return of the index portfilio
b) What is the covariance between stock A and stock B
c) What is the covariance between stock B and the index
d) Break down the variance of stock B into its systematic and firm-
specific components.

Mean Standard
Stock Capitalization Beta excess deviation Weight
return (Qm)

A $3,000 1 10% 40% 90.91%

B $1,940 0.2 2% 30% 58.79%
C $1,360 1.7 17% 50% 41.21%
 c) petaB x
b) petaA x
a) excess petaM x
petaB x d)
return Qm^2 = peta
Qm^2
B * Qm^2
0.1727 0.0125 0.0125 0.0875
 Year GF S&P Return GF (R=pt/pt-1 -1)
2012 40.58 1,211.92 -0.1612236461
2011 48.38 1,111.92 0.1811523438
2010 40.96 879.82 -0.0549146285
2009 43.34 1,148.08 -0.2174070061
2008 55.38 1,320.28 0.0597014925
2007 52.26 1,469.25 -0.1215330308
2006 59.49 1,229.23 0.0131130790
2005 58.72 970.43 0.2784672327
2004 45.93 740.74 0.4326263256
2003 32.06 615.93 0.4619243046
2002 21.93 459.27 0.1746116765
2001 18.67 466.45 0.0829466357
2000 17.24 435.71 0.0576687117
1999 16.30 417.09 0.7545748116
1998 9.29 330.22 0.2272126816
1997 7.57 353.40

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.5356527025827
R Square 0.28692381778415
Adjusted R S0.23207180376755
Standard Err 0.22872736282036
Observations 15

ANOVA
df SS MS
Regression 1 0.27365933541 0.273659335411285
Residual 13 0.68011068454 0.052316206502754
Total 14 0.95377001995

Coefficients Standard Error t Stat

Intercept 0.06678862750036 0.0681547265 0.979955916991515
X Variable 1 0.7773829766693 0.33989753485 2.28710978150351
Return S&P
0.0899345277
0.2638039599
-0.2336596753
-0.1304268791 1/ Using Formulas
-0.1013918666 Covariance 0.025144743
0.1952604476 variance 0.032345374
0.2666859021 Beta 0.777382977
0.3100818101
0.2026366633 2/ Using Slopee Tool
0.3411065386 Beta 0.777382977
-0.0153928610
0.0705515136 3/ Using Linest tool
0.0446426431 Beta 0.777382977
0.2630670462
-0.0655913978

F Significance F
5.23087115264902 0.03959402

P-value Lower 95% Upper 95% Lower 95,0% Upper 95,0%

0.344993727883403 -0.0804507 0.214027962411385 -0.080450707411 0.21402796
0.0395940222119152 0.043079 1.51168695737287 0.0430789959657 1.51168696
pper 95,0%
 NO CHANGE CHANGE
The Market’s Expected Return 9%
The Risk Free Rate 2.50%
Beta for Bateman Industries 0.98
Beta for Advanced Solar Arrays 1.34
Weight for Bateman 60% 50%
Weight for Solar Arrays 40% 50%
Portfolio Beta 1.85 1.16
Expected Return on the Portfolo 9.81% 10.04%
E(RBAT) 8.87%
E(RSOLAR) 11.21%
KẾT LUẬN: VẬY VỚI 50/50 INCREASE

IF MARKET'S EXPECTED RETURN=8% with 60/40 weights ?

The Market’s Expected Return 8%

The Risk Free Rate 2.50%
Beta for Bateman Industries 0.98
Beta for Advanced Solar Arrays 1.34
Weight for Bateman 60%
Weight for Solar Arrays 40%
Portfolio Beta 1.85
Expected Return on the Portfolo 8.68%
E(RBAT) 7.89%
E(RSOLAR) 9.87%

KẾT LUẬN: IF MARKET'S EXPECTED RETURN=8% with

60/40 weights Decrease
 Factors Risk premium
Change in GNP 5% 0 1 0
Change in energy prices -1% 0 1 2.4
Change in long-term interest rates 2% 0 1 0
The risk-free interest rate is 7%
a,E(Rp) 7% 7%
b,E(Rp) 13% 13%
c,E(Rp) 4.6% 5%
d,E(Rp) 16% 15%
 1
-1.3
1
Risk free rate 3%
Expected risk premium on the market 6%
Expected risk premium on the size 3.70%
Expected risk premium on the book-to- 4.80%

Expected Return = risk free rate +β*expected risk

premium on the market + β size*expected risk premium
on the size factor + β book-to-market*expected risk
premium on the book-to-market

Expected Return
Boieng 10.976%
Johnson & Johnson 5.784%
Dow Chemical 9.172%
Apple 4.8%
Portfolio beta = (weight of stock A * β of stock A) + (weight of stock B * β of stock B) + (weight of stock C*β of stock C)
Suppose: the portfolio beta = 1.0
1.0 = (weight of stock C * 1.45) +(0.18*0.85)+(0.29*1.4)+1.0%=0.6399=64%
Stock A 180000
Stock B 290000
Stock C 639900

Portfolio beta = (weight of stock A * β of stock A) + (weight of stock B * β of stock B) + (weight of stock C*β of stock C)
Suppose: the portfolio beta = 0
1 = (weight of stock C * 1.45) +(0.18*0.85)+(0.29*1.4)+0%=0.30413=30.413%
t of stock C*β of stock C)

t of stock C*β of stock C)

maturity 10 setlement 1/1/2022 market price ($1,000.00)
coupon rat 7% 1/1/2032
yield to m 7%
Par Value 1000
Duration 7.5152322
convexity 32.46648
t CFt PV Wt t x Wt t*(t+1)/2*CF/(1+y)^t
1 70 65.42056 0.065421 0.065421 65.420560747664
2 70 61.14071 0.061141 0.122281 183.42213293738
3 70 57.14085 0.057141 0.171423 342.84510829416
4 70 53.40266 0.053403 0.213611 534.02664843327
6 70 46.64396 0.046644 0.279864 979.52306901027
5 70 49.90903 0.049909 0.249545 748.63548845785
7 70 43.59248 0.043592 0.305147 1220.5894940938
8 70 40.74064 0.040741 0.325925 1466.6629435039
9 70 38.07536 0.038075 0.342678 1713.3912891401
10 1070 543.9337 0.543934 5.439337 29916.355842128
Price 1000 duration 7.515232 37170.872576747

b. maturity 10
ytm 8%
convexity 31.90183
coupon rate 7%
t CFt PV Wt t x Wt t*(t+1)/2*CF/(1+y)^t
1 70 64.81481 0.069477 0.069477 64.814814814815
2 70 60.01372 0.06433 0.128661 180.04115226338
3 70 55.56826 0.059565 0.178695 333.40954122847
4 70 51.45209 0.055153 0.220612 514.52089695752
5 70 47.64082 0.051067 0.255337 714.61235688544
6 70 44.11187 0.047285 0.283708 926.34935151816
7 70 40.84433 0.043782 0.306475 1143.6411747138
8 70 37.81882 0.040539 0.324312 1361.477588945
9 70 35.01743 0.037536 0.337825 1575.7842464641
10 1070 495.617 0.531265 5.312654 27258.936773784
 Price 932.8992 duration 7.417756 34073.587897574

c.
Predicted price and % error using Duration rule at YTM 7%
Predict price change
70.07515
Predicted price
1070.075
%error -0.070075

Predicted price and % error using Duration rule at YTM 8%

Predict price change
74.55776
Predicted price
1007.457
%error -0.07992

d.
Predicted price and % error using Duration-with-convexity at YTM 7%
predicted price change
146.7756
Predicted price
1146.776
%erro
-0.146776

Predicted price and % error using Duration-with-convexity at YTM 8%

predicted price change
6.919807
Predicted price
939.819
%error
-0.007418
 Zenon Ret Dynamics Ret
2011 9.89% -47.67%
2010 -12.34% 30.79%
2009 13.56% 24.78% a) How would your answer change
2008 34.56% 7.89% b) How would your answer change
2007 -15.23% 24.42%
2006 20.09% 34.56%
2005 7.56% 67.56%
2004 16.47% 44.67%
2003 18.34% 78.56%
2002 15.56% 51.00%

Zenon Dynamics
Expect return 10.85% 31.66%
Variance 2.22% 12.22%
Standard Devitation 0.1489 0.3496
Covariance 0.00141215
Weight 50% 50% 40% 60% 30% 70%

Expected Portfolio Return 21.25%

Portfolio Variance 3.68%
Portfolio Standard Deviation 19.18%
ould your answer change if the weights were 40 percent for Zenon and 60 percent for Dynamics?
ould your answer change if the weights were 30 percent for Zenon and 70 percent for Dynamics?
 GF ST
2012 198,080 21,634 1.355852 -0.379528
2011 84,080 34,867 0.169565 -0.219454
2010 71,890 44,670 1.232609 -0.103012
2009 32,200 49,800 2.012161 0.005045
2008 10,690 49,550 0.493017 0.057405
2007 7,160 46,860 -0.346119 -0.11768
2006 10,950 53,110 0.471774 0.089436
2005 7,440 48,750 -0.710506 -0.227662
2004 25,700 63,120 1.512219 0.704104
2003 10,230 37,040 2.118902 0.169561
2002 3,280 31,670 -0.371648 0.454086
2001 5,220 21,780 -0.345044 0.507266
2000 7,970 14,450 -0.173237 0.538871
1999 9,640 9,390 0.352034 -0.373582
1998 7,130 14,990 -0.504517 0.398321
1997 14,390 10,720
a. 48.45% 10.02%
b 88.91% 12.18%
94.29% 34.91%
c. -3.35%
d.
Weight in Weight in Variance Standard dExpect return
0% 100% 12.18% 1.227099
10% 90% 10.15% 0.275078
20% 80% 10.28% 0.944426
30% 70% 12.56% 1.419245
40% 60% 17.00% 0.308024
50% 50% 23.60% 0.16153
60% 40% 32.35% 0.270354
70% 30% 43.25% 0.341422
80% 20% 56.31% 0.571424
90% 10% 71.53% 1.378392
100% 0% 88.91% 0.583882