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    Exam in Financial Theory (October 26, 2011)

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    tsunkang
    This document contains instructions and questions for a financial theory exam at Uppsala University. It consists of 5 problems worth a total of 28 points. The exam covers topics like portfolio risk measurement using variance, the single-index model, CAPM derivation and assumptions, short-selling restrictions, safety-first portfolio methods, and the separation theorem. Students must write their answers in English and are allowed to use a dictionary. They have 5 hours to complete the exam and must provide their exam number on each page. A minimum of 14 points is needed to pass and 21 points is needed to pass with distinction.

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    Exam in Financial Theory (October 26, 2011)

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    tsunkang
    19 views3 pages
    This document contains instructions and questions for a financial theory exam at Uppsala University. It consists of 5 problems worth a total of 28 points. The exam covers topics like portfolio risk measurement using variance, the single-index model, CAPM derivation and assumptions, short-selling restrictions, safety-first portfolio methods, and the separation theorem. Students must write their answers in English and are allowed to use a dictionary. They have 5 hours to complete the exam and must provide their exam number on each page. A minimum of 14 points is needed to pass and 21 points is needed to pass with distinction.

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    Exam in Financial Theory (October 26, 2011) at Uppsala Univ.

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    This document contains instructions and questions for a financial theory exam at Uppsala University. It consists of 5 problems worth a total of 28 points. The exam covers topics like portfolio risk measurement using variance, the single-index model, CAPM derivation and assumptions, short-selling restrictions, safety-first portfolio methods, and the separation theorem. Students must write their answers in English and are allowed to use a dictionary. They have 5 hours to complete the exam and must provide their exam number on each page. A minimum of 14 points is needed to pass and 21 points is needed to pass with distinction.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    19 views3 pages

    Exam in Financial Theory (October 26, 2011)

    Uploaded by

    tsunkang
    This document contains instructions and questions for a financial theory exam at Uppsala University. It consists of 5 problems worth a total of 28 points. The exam covers topics like portfolio risk measurement using variance, the single-index model, CAPM derivation and assumptions, short-selling restrictions, safety-first portfolio methods, and the separation theorem. Students must write their answers in English and are allowed to use a dictionary. They have 5 hours to complete the exam and must provide their exam number on each page. A minimum of 14 points is needed to pass and 21 points is needed to pass with distinction.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 3

    1

    UPPSALA UNIVERSITY EXAM NUMBER: __________


    Department of Economics
    Mikael Bask (070-949 83 97)

    You must identify yourself at the examination with a photo ID card.
    Otherwise the exam will not be corrected.

    EXAM IN D/FINANCIAL THEORY
    MASTER/FINANCIAL THEORY
    October 26, 2011 (Wednesday)

    The exam consists of 5 problems, totaling 28 points. To get the grade G (pass), at least 14 points are
    needed, and to get the grade VG (pass with distinction), at least 21 points are needed. The answers to
    the problems should be in English and you are allowed to use a dictionary.
    Read through all the questions before you begin answering them and start answering each question on
    a new page. The writing time is 5 hours. Write your examination number in the indicated spaces!

    GOOD LUCK!!

    2
    EXAM NUMBER: __________

    1. (2+1+4+1+1=9 points)
    The variance of the return on the risky portfolio P with N securities is given by

    2
    =



    Assume that equal amounts are invested in each security in portfolio P.
    (i) Derive expressions for portfolio Ps systematic and non-systematic risks.
    (ii) Interpret your findings in (i).
    Assume hereafter that the single-index model holds for the individual securities in portfolio P.
    (iii) Derive expressions for portfolio Ps systematic and non-systematic risks.
    (iv) Why is Beta a measure of a securitys non-diversifiable risk?
    (v) Give at least two reasons why the single-index model may be useful in portfolio management.

    2. (5 points)
    Discuss carefully the following concepts: market efficiency and market rationality.

    3. (4+1+2=7 points)
    (i) The first-order conditions for the investors portfolio optimization problem are


    Derive the CAPM from these conditions. Clearly state the assumptions you make in the derivation.
    (ii) Assume that short selling of securities is not allowed.
    Does this affect the CAPM? Motivate your answer.
    (iii) Formulate in words the portfolio optimization problem that results in the first-order conditions in (i).

    3
    EXAM NUMBER: __________

    4. (2+1+2=5 points)
    (i) Present one of the safety first methods that we discussed in the course.
    (ii) What is the common characteristic for all safety first methods?
    (iii) What is Value-at-Risk?

    5. (2 points)
    What is the separation theorem in portfolio management?

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