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Questions tagged [finance]

Finance describes the management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems, as well as the study of those financial instruments.

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Interpreting quartile ranges of two asset returns

So I have 2 time series of asset returns, of which I calculated the quartiles. The first asset is slightly negatively skewed (-0.08), the second a little more negative (-0.16). The first asset has a ...
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Relationship between expected return and price of asset

In the CAPM model, suppose there is an asset for which expected return is too low for its risk. For arbitrage not to exist, investors should move away from this asset, lowering its price until the ...
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Showing that a market model has arbitrage and describing martingales

This is an exercise which I came upon while studying an introduction to financial mathematics. Exercise : Consider the finite sample space $\Omega = \{\omega_1,\omega_2,\omega_3\}$ and let $\...
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Black-Scholes Model question

Suppose a company has a zero coupon bond with face value of 200 million which matures in a year. Its assets has a market value of 300 million. The standard deviation is 30% and the risk free rate is ...
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Yield To Maturity exact meaning

From investopedia: "YTM is the total return anticipated on a bond if the bond is held until it matures" I have also seen this interpretation used in other sources however this seems wrong to me. ...
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What are domestic lending margins?

The BOJ writes in their FY2017 report on banks (http://www.boj.or.jp/en/research/brp/fsr/data/fsrb180921.pdf) that net income at major financial groups in FY2017 shrank due to "shrinking domestic ...
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Characterising risks of an corporate bond etf

I been looking at different conservative investment strategies such as 50/50 "interest fund"/"global stock fund" and "the permanent portofolio". As an alternative I was trying to look for corporate ...
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Relation between the record date and the ex-dividend date

I'm trying to understand relation between the record date and the ex-dividend date formally. I have found definitions for both dates at this web site enter link description here. It is said that '...
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The “permanent portfolio” content

I am considering the idea of "Harry Browne's permanent portfolio". I seen a few versions of this strategy where the different parts consists of funds which in turn have some costs associated with them....
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What does it disgorgement of cash mean? [on hold]

Why do people say that "Regular interest payments forces managers to disgorge cash to stakeholders?"
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Why do companies sit on cash while they have debt?

Why don't they use cash to pay down their debts?
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Why use marginal rather than average tax rates in incentive analysis?

Why do tax analysts worry about marginal tax rates, not average effective rates, in looking for incentive effects of taxes
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How do I calculate past stocks' adj. close price if there was a dividend?

Adjusted close price is the price that has been amended to any corporate actions or distributions. So I can see why it makes sense to adjust close prices in respect to dividend give outs and stock ...
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When is cost of capital useful as hurdle rate?

Suppose we have an all-equity firm and no tax is assumed. The firm has two divisions, each division generating a growing perpetuity. Assume beta of each division, market risk premium, and risk free ...
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J Curve and DD Schedule in the Short Run (International Finance)

Assume that the J-curve is true. What would the DD curve look like during the early period of the J-curve (where the value effect dominates)? What would the effect of temporary changes in monetary ...
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Is there any reason deflation would reduce profits?

Profits are the difference between input and output prices. So profits would only fall in those industries where output price fell faster than input price. Is there any reason deflation would reduce ...
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How can PE acquire target using debt borrowed by the target?

How does PE buy a target using debt the target company borrowed? And they are trying to buy the company so they don't even own the Target company yet. It’s like me saying, hey I want to buy your ...
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Why can anyone buy insurance of an, without owning the, underlying asset?

A Random Walk Down Wall Street (2015 11 ed, but an 2019 ed. is upcoming). p. 100 Top.   To make matters even more complicated, there was not just one bond issued against a package of mortgages. The ...
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What would an investment bank have to gain by warning of an impending financial crisis?

After reading a recent article and a discussion with a friend, I was left wondering what an investment bank would have to gain by claiming that a financial crisis is coming. I can see an obvious ...
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Value of companies with circular ownership [duplicate]

Given two companies, total assets of $100 million each. Company 'A' owns \$50M of company 'B'. Company 'B' owns \$50M of company 'A'. If you look at the value of both companies do you ...
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Common sense of economics as reflected in proverbs [closed]

May I ask what other proverbs reflect the common sense of economics, such as those who dig for gold are not better than those who sell shovels? What I'm talking about is that during the Gold Rush in ...
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Relation between assets, liabilities on one hand and equity on the other

Hello I am reading Security Analysis and I do not understand when calculating the par value of a stock the relation between ["common stock", "preferred", "bond"] on one hand and "[Assets, Liabilities]"...
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Are there any experiments about financial games with just one player?

I was wondering if there are any experiments of financial games (laboratory games under controlled circumstances like Plott and Sunder's Rational Expectations and the Aggregation of Diverse ...
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What are the arguments for banning insider trading?

I can't see any economic argument for banning insider trading. In general, the point of allowing financial securities to be traded is to ensure that they are properly valued. "Insiders" seem better ...
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Input-output analysis, modern day example!

I have been researching industries for a module at Univerisity. I have come across Leontiefs, input-output analysis matrix and watched a good video on youtube: https://www.youtube.com/watch?v=...
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how to measure the funding liquidity, i.e., equivalent U.S. TED spread, in the Australian market?

I'm stuck on how to estimate the credit (counterparty) risk in interbank lending in the Australian market. TED spread is usually measured as the difference between the LIBOR rate and the T-bill rate. ...
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Reading list for physics undergrad who'd like to cover the economics related to the hedge fund/ private equity field

I have had relatively little exposure to economics( nothing more than EC101) and would greatly appreciate help in answering the following questions: Which sections of economics are more or less ...
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What accounts for the high GDP of the United States?

Wikipedia defines GDP as: Measure of the market value of all final goods and services produced in a period (quarterly or yearly) of time. So, I take it that the total value of all goods (and ...
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When does gambling reduce risk?

Suppose that you face risk. It is obvious that taking gambles whose outcomes are negatively correlated with the outcomes of your other gambles can reduce your overall risk ('hedging'). My question, ...
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What is the easiest and cheapest way to store big money with option to any moment get then in cash? [closed]

Imagine I have a lot of money and my number 1 aim is to store them somewhere where I can get them fast if I need them. I don’t want to have dividends from my money but if I will it would be great. ...
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1answer
38 views

Futures delivery price [closed]

Can someone tell me how to find the 'delivery price' on a futures exchange? This is the one detail I cannot find on a real futures exchange.
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1answer
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Emerging Market dollar debt, FX swaps and exchange rate risks

"An FX swap, on the other hand, creates no exchange rate risk for its counterparties. This is because currencies are sold and repurchase at fixed spot and forward rates. In other words, when you sell ...
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2answers
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What at all justifies income taxes (as opposed to sales taxes only)?

For those who do not know, in America, the higher your income, the higher the percent of it is spent on taxes. This means that, whatever tax money is used for, those who are more hardworking (or, at ...
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Undergraduate research publishment in Economics/Finance

Currently doing research as an undergraduate student, in Economics/Finance. If the work is decent, then should I send my research paper in an Undergraduate Journal in order to increase my chances ...
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User Cost of Capital Calculation

I have an exam revision question that goes like this: Assume that current rates on safe investments equal to $5\%$, mortgage interest rates equal to $6\%$, houses last $100$ years on average and ...
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Forward rate discounts

I'm working with the following task: "You are convinced that the bond market is dominated by long-term investors. Hence, you have your own view on the liquidity premium/discount that forward rates ...
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1answer
58 views

Proof of DCF model by mathematical induction

I am confident with the concept of DCF. However, I wanted to check the following proof given that if investors hold a share in $ t $, sell it at $t+1$, receive dividend $\ D_{t+1} $ and the price at $...
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what is the difference between microeconomics and microfinance?

what is the difference between microeconomics and microfinance? I cannot understand the difference between the two terms
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How to calculate the return of a capital allocated to loans when installments are reinvested?

I'm trying to find a formula that given a loan amount L, interest rate I, number of installments P and a default rate D, how much is my monthly return rate on capital C given that I reinvest the ...
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Interchangeability between financial / economic consulting

Writing a market analysis about a company that does debt bundling to lower total cost of debts for its customers. Googled around a tad, seems that financial consulting is in some way different from ...
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Present Value Analysis

For my exmaple, we have machine A with an initial cost of 15K and O&M of 2k per year for the next 4 years. After 4 years, the O&M rise to $2.7k per year. No salvage value and life span of 20 ...
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Is profit margin the same as net profit margin?

I'm quite confused by these two terms because different websites define them differently.
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1answer
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Why would minimum rent under franchise arrangements for McDonald's decrease year by year?

I am working on a project regarding the refranchising strategy of McDonald's and came across this piece of data in their 2014 annual report. My understanding of minimum rent is that its a fixed amount ...
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What is Statutory Protection to a banker?

I come across things like statutory protection to paying banker and statutory protection to collecting banker etc. I'm trying to understand from reading on the net but I cannot get it clear. Can ...
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One-step Binomial model's Radon-Nikodym derivative

In the one-step binomial model... For $\frac{d \mathbb Q}{d \mathbb P}$, I think it's $\frac{d \mathbb Q}{d \mathbb P} = \frac{q_u}{p_u}1_u + \frac{q_d}{p_d}1_d$, so it's some asset with payoffs $\...
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51 views

How to estimate market risk using only publicly available data?

How can I calculate market risk for the US Stock Market (NYSE or NASDAQ) using only freely accessible data? I'm only interested in the market risk of the whole economy not of different industries, ...
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How do you calculate the net dollar inflows into an asset?

Suppose we have a time series of price and volume for an asset. How do you calculate the net inflow into the asset class? Assuming that price has gone up over time, is it true that the market ...
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GDP growth as dependent variable in a paper Liew & Vassalou (2000)

I need help in understanding a regression in Liew and Vassalou (2000). The idea is to regress GDP growth every quarter on past stock returns (annual) so as to identify if stock returns (factors) ...
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2answers
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Bank Capital and Profit

I am struggling a bit with understanding the meaning of capital ratios, and bank profitablity. It seems to me that capital requirements stipulate that a certain fraction of banks' risk weighted assets ...
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The link between US debt of $250 Trillion dollars and “Promise to pay” on US Dollar currency

Giving background to my question: a prominent economist was discussing the problems of the US currency and predicting it's collapse, said the following: "...a currency is a store of value, it's a ...