Chapter 9.A, Problem 2TY

You are planning to open an internet business selling stock market analysis, and are offering two options to consumers: A: You charge $150 per year. This grants access to all of your basic financial literacy information, as well as 12 months of access to your stock market analysis memos, which you provide monthly. B: You charge $50 for access to your basic financial literacy information, then charge $10 each for your monthly stock market analysis memos. Which one is the best offer?

Should a person who is risk-averse hold a portfolio with no stock and only bonds? Explain.

Robert Shiller and Eugene Fama who were jointly awarded the Nobel Prize in Economics in 2013 for their work on asset prices strongly disagree on whether I. stocks can be over or under priced. II. investors are rational. III. asset bubbles exist. Multiple Choice Only II I, II, and III Only I I and II Only III

Fortune magazine regularly publishes a list of the “most respected” companies. According to the efficient markets hypothesis, if you restrict your stock portfolio to these companies, will you earn a better-than-average return? Explain.

compare and contrast the three portfolio management theories:  a) Modern Portfolio Theory by Markowitz  b) Active Portfolio Management by Grinold & Kahn  c) Equilibrium Approach by Black-Litterman

How to replicate the payoff of a bond (riskless portfolio) using shares and call options? Based on this conclusion, how does a single-step binomial tree option pricing model work?

Agree or disagree, then explain your answer: In real life, the best strategy is to pay the highest premiums and buy as many Add Ons as you can afford so you’re protected against many financial risks?

Which of the following is a reason why an investor would place a stop buy order on a stock? To ensure a short position is closed out for profit To ensure that the broker executes immediately at the current market price To ensure the stock is sold before its price falls to a specified level To ensure the stock is purchased when its price is rising