Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 3, Problem 16P
An Exchange-Traded Fund (ETF) is a security that represents a portfolio of individual stocks. Consider an ETF for which each share represents a portfolio of two shares of Hewlett-Packard (HPQ), one share of Sears (SHLD), and three shares of General Electric (GE). Suppose the current stock prices of each individual stock are as shown here:
| Stock | Current Market Price |
| HPQ | $28 |
| SHLD | $40 |
| GE | $14 |
- a. What is the price per share of the ETF in a normal market?
- b. If the ETF currently trades for $120, what arbitrage opportunity is available? What trades would you make?
- c. If the ETF currently trades for $150, what arbitrage opportunity is available? What trades would you make?
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An exchange traded fund (ETF) is a security that represents a portfolio of individual stocks. Consider an ETF for which each share represents a portfolio of two shares of International Business Machines (IBM), three shares of Merck (MRK), and three shares of Citigroup Inc. (C). Suppose the current market price of each individual stock are shown below:
Stock
Current Price
IBM
$121.57
MRK
$36.59
C
$3.15
Assume that the ETF is trading for $366.00, what (if any) arbitrage opportunity exists? What (if any) trades would you make?
Suppose you manage an equity fund with the following securities. Use the following data to calculate the information ratio of each stock.
Input Data
Vogt Industries
Isher Corporation
Hedrock, Incorporated
Alpha
0.012
0.006
0.016
Beta
0.277
1.015
1.630
Standard Deviation
0.156
0.168
0.181
Residual Standard Deviation
0.117
0.048
0.113
Required:
Using the information in the table above, please calculate the information ratio for each stock.
(Use cells A5 to D8 from the given information to complete this question.)
Vogt Industries
Isher Corporation
Hedrock, Incorporated
Information Ratio
Consider an index fund that contains the following four stocks:
American Campus Communities, Inc. (ACC), Global Net Lease, Inc. (GNL), Jones Lang LaSalle Incorporated (JLL), and Merck & Co., Inc. (MRK).
On March 30, 2022, the stock prices at close were:
ACC
$56.73
GNL
$15.65
JLL
$243.22
MRK
$82.40
The mutual fund held the following numbers of shares in these companies:
Shares (million)
ACC
2.087
GNL
1.558
JLL
0.748
MRK
37.950
On March 30, the mutual fund had 25 million shares outstanding. Calculate the net asset value per mutual fund share (in dollars).
During the day on March 30, the fund had a net cash inflow of $250 million.
How many shares of MRK did the index fund manager have to purchase in order to maintain a portfolio with the same portfolio weights as at the start of the day? You should assume that the fund manager invests all net inflows in securities at market close prices on March 30. She holds no cash balance.
Chapter 3 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 3.1 - Prob. 1CCCh. 3.1 - If crude oil trades in a competitive market, would...Ch. 3.2 - How do you compare costs at different points in...Ch. 3.2 - Prob. 2CCCh. 3.3 - What is the NPV decision rule?Ch. 3.3 - Why doesnt the NPV decision rule depend on the...Ch. 3.4 - Prob. 1CCCh. 3.4 - Prob. 2CCCh. 3.5 - If a firm makes an investment that has a positive...Ch. 3.5 - Prob. 2CC
Ch. 3.5 - Prob. 3CCCh. 3.A - The table here shows the no-arbitrage prices of...Ch. 3.A - Suppose security Chas a payoff of 600 when the...Ch. 3.A - Prob. A.3PCh. 3.A - Prob. A.4PCh. 3.A - Prob. A.5PCh. 3.A - Consider a portfolio of two securities: one share...Ch. 3.A2 - Why does the expected return of a risky security...Ch. 3.A2 - Prob. 2CCCh. 3.A3 - Prob. 1CCCh. 3.A3 - Prob. 2CCCh. 3 - Honda Motor Company is considering offering a 2000...Ch. 3 - You are an international shrimp trader. A food...Ch. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - You have decided to take your daughter skiing in...Ch. 3 - Suppose the risk-free interest rate is 4%. a....Ch. 3 - You have an investment opportunity in Japan. It...Ch. 3 - Your firm has a risk-free investment opportunity...Ch. 3 - You run a construction firm. You have just won a...Ch. 3 - Your firm has identified three potential...Ch. 3 - Your computer manufacturing firm must purchase...Ch. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - An American Depositary Receipt (ADR) is security...Ch. 3 - Prob. 15PCh. 3 - An Exchange-Traded Fund (ETF) is a security that...Ch. 3 - Consider two securities that pay risk-free cash...Ch. 3 - Prob. 18P
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