
Connect Problems from your textbook, Investments, by Bodie, Kane and Marcus, 9rd. edition, McGrawHill Irwin. :
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Blackboard Discussion Boards
 The Chinese Financial System
 The Behavior of Financial Asset Prices
Excel Assignments:
 Problems 9 and 12, Chapter 3
 Problem 24, Chapter 12
Problem for October 17 (From Fall 1998)
You have available to you, two mutual funds, whose returns have a correlation of 0.2. Here is some information on their return probability distributions:

Expected Return 
Standard Deviation 
Explorer II 
23% 
30% 
Morningstar 
15% 
32% 
In addition, you can also invest in a riskfree 1year Tbill yielding 12%.
 If you have a risk aversion coefficient of 4, and you have a total of $20,000 to invest, how much should you invest in each of the three investment vehicles? (10 points)
 What is the standard deviation of your optimal portfolio? (10 points)
 If you wanted an expected return of 50% with as low a portfolio variance as possible, what would you invest in each of the three investment vehicles? Assume for the sake of this question that you cannot borrow at the riskfree rate. (10 points)
Financial Markets and Institutions
As explained in the slides, financial functions can be broadly divided into six categories:
 To transfer economic resources across time, borders and among industries
 To provide ways of managing risk
 To provide ways of clearing and settling payments to facilitate trade
 To provide a mechanism for the pooling of resources and for the subdividing of ownership in various enterprises
 To provide price information to help coordinate decentralized decision making in various sectors of the economy
 To provide ways of dealing with the incentive problems created when one party to a transaction has information that the other party does not or when one party acts as an agent for another
Give the name of a specific financial intermediary (e.g. Bank of America or JP Morgan Chase or Visa or FICO (formerly Fair Isaac Corporation)) for each of the first five functions and write two or three sentences about each one, showing how it performs each of the functions.
The Mortgage Crisis
Write a paragraph explaining the reasons why the 2008 mortgage crisis occurred. Try to make it as specific as possible.
Stock Valuation Project
Go to http://finance.yahoo.com/q/hp?s=ANF+Historical+Prices and collect data on ANF stock prices. Convert these into returns. Go to http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html and download data on the FamaFrench factors. Merge the two data sets.
I have already done this step for you. The matched data can be found here.
 Use this information to compute the required rate of return on ANF, using data for the last 10 years.
 Use the CAPM model, then use the FamaFrench Carhart model.
 Redo the exercise using more recent data.
 Sample the data, using every fifth observation.
 Are there any changes in the results?
 Look at the autocorrelation of returns on ANF. Can you see patterns? Why are there or are there not patterns?
 Look at the description of the firm and news items about the firm. Is there any reason to use data from one timeperiod than another?
Do the same with data for NCR. This data can be found here.
Read this article for additional information. 
