Bkm Chapter Assignment
Autor: Lucie Juranville • September 20, 2017 • Case Study • 1,384 Words (6 Pages) • 744 Views
Chapter 1:
6/ a. If housing prices go up, it doesn’t mean that we are creating any more assets. That way, even if their financial value increased, society isn’t wealthier.
b. Homeowners’ will see their assets gain financial value, they will therefore be wealthier.
c. As a result of the change, it will be more expensive for lenders and buyers to afford housing, they are the one who are worse off.
14/ Treasury bills remain the safest asset on the market, this also explains why they offer lower rates of return. Risk averse people will therefore keep on investing on this asset.
Chapter 2:
4/ If economy were to enter a steep recession, risk of companies defaulting would be higher and investors would demand a greater premium to compensate the risk. Therefore, the spread would be wider.
11/ a. At t=0, the value of the index is (90+50+100)/3 = 80
At t=1, the value of the index is (95+45+110)/3 = 83.3333
Therefore, the rate of return for the first period is (83.3333/80)-1 = 4.167%
b. As stock C splits 2 for 1 in the last period, the divisor will become smaller to adjust and avoid distorting the value of the index.
c. At t=1, the value of the index is (95+45+110)/3 = 83.3333
At t=2, the new divisor becomes (95+45+55)/83.3333 = 2.34
So, the value of the index is (95+45+55)/2.34 = 83.3333
Therefore, the rate of return for the second period is 0%
12/ a. At t=0, the value of the index is (90*100)+(50*100)+(100*200) = 39,000
At t=1, the value of the index is (95*100)+(45*100)+(110*200) = 40,500
Therefore, the rate of return for the first period is (40,500/39,000)-1 = 3.85%
b. The return on stock A is (95-90)/90 = 5.56%
The return on stock B is (45-50)/50 = -10%
The return on stock C is (110-100)/100 = 10%
Therefore, the rate of return for the first period is (5.56% + -10% + 10%)/3 = 1.85%
Chapter 3:
3/ a. In principle, potential losses are infinite. They grow directly with BP’s share price increase.
b. If you place a stop-buy order at $128, you can lose a maximum of $8 x 100shares = $800.
7/ a. Initially, the margin was 50% of the value of the stock (0.5*1000*$40) = $20,000
The increase in the price results in the loss of 1000*$10 = $10,000
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