Questions from Financial Management

Q: What is the Security Market Line (SML)? What information

What is the Security Market Line (SML)? What information is developed in the Capital Market Line analysis and then carried over and used to help specify the SML? For practical applications as opposed...

Q: What is the difference between a historical beta, an adjusted

What is the difference between a historical beta, an adjusted beta, and a fundamental beta? Does it matter which beta is used, and if so, which is best?

Q: Has the validity of the CAPM been confirmed through empirical tests?

Has the validity of the CAPM been confirmed through empirical tests?

Q: What is the difference between a diversifiable risk and a nondiversifiable risk

What is the difference between a diversifiable risk and a nondiversifiable risk? Should stock portfolio managers try to eliminate both types of risk?

Q: Define the terms interest rate risk and reinvestment rate risk. How

Define the terms interest rate risk and reinvestment rate risk. How are these risks affected by maturities, call provisions, and coupon rates? Why might different types of investors view these risks d...

Q: Would a bond be more or less desirable if you learned that

Would a bond be more or less desirable if you learned that it has a sinking fund that requires the company to redeem, say, 10% of the original issue each year beginning in 2019, either through open ma...

Q: What is a bond rating, and how do ratings affect

What is a bond rating, and how do ratings affect bonds’ prices and yields? Who rates bonds, and what are some of the factors the rating agencies consider? Is it possible for a given company to have s...

Q: Financial assets such as mortgages, credit card receivables, and auto

Financial assets such as mortgages, credit card receivables, and auto loan receivables are often bundled up, placed in a bank trust department, and then used as collateral for publicly traded bonds. B...

Q: What is the implied interest rate on a Treasury bond ($100

What is the implied interest rate on a Treasury bond ($100,000) futures contract that settled at 100’16? If interest rates increased by 1%, what would be the contract’s new value?

Q: Define and discuss how to calculate a bond’s coupon rate, current

Define and discuss how to calculate a bond’s coupon rate, current yield, expected capital gains yield for the current year, yield to maturity (YTM), and yield to call (YTC). What might be some represe...