finance3030

What is the Law of one price? The law of one price is if two items are perfect substitutes on all dimensions then they should be the same price What is the difference between the value of the firm and the sum of the values of all outstanding obligations and all outstanding stocks? They are the same thing. If you own all the obligations you own all the stocks 2.44 What is a perfect market? What were the assumptions made in this chapter that were not part of the perfect market scenario? Perfect market has  No taxes, no transaction costs, no differences in opinion, and many investors and firms. This means there is no change in price rate. 2.46 Your stock costs $100 today, pays $5 in dividends at the end of the period, and then sells for $98. What is your rate of return? ($98 + $5)-$100/100% = 3%. 2.48 Assume an interest rate of 10% per year. How much would you lose over 5 years if you had to give up interest on the interest — that is, if you rece...

asset classes  stocks, bonds and cash  other assets  stocks ( attribute classifications include growth or value stocks  domestic  large cap stocks lend more than 10 billion  mid cap stocks 2b-10b small cap stocks less than 10 billion  foreign  bonds  treasuries, corporate, municipal foreign etc.  junk bonds  cash  cd's, savings deposits, commercial papers  other assets classes  commodities: precious metals, agriculture  real estate properties,artwork, etc.  rate of return  arithmetic average returns  beta = co variance of the market and self/ variance of the market   co variance of self and market/ standard deviation of self* standard deviation of market  co movement, market beta and correlation  historical data is very helpful-but can also mislead if it is not used carefully    The only reason why we use historical data is because the alternat...