# 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.

281 questions
Filter by
Sorted by
Tagged with
7 views

### Arbitrage checking (one step price tree)

I have a questions on arbitrage. These questions are from my lecture notes. And I don’t understand their some points. Ex1: there is a single step market as follows here, there are two securities ...
26 views

### What does it mean for a firm to have a 0.95% dividend?

Here's an Apple's dividend: What does this 0.95% mean? Is it 0.95% of share capital? If not, what does it mean?
38 views

### Is there a relationship between stock market hedge fund leveraging and the repo market?

Lately there have been many articles attempting to link repo-market borrowing with equity market increases. 1 I can see a link if the hedge fund is buying treasuries or mbs and financing it by using ...
24 views

### What is implied by “No arbitrage” in this example?

Suppose that we are in one period model, where assets are bought (in positive and/or negative values) at $t=0$ and are redeemed for their value at time $t=1$. Furthermore, suppose that there are three ...
69 views

### He, Krishnamurthy (2013)

How do you derive equation (10) on page 740 from He, Krishnamurthy (2013 AER)? They say that "Given the log objective function in equation (8), the risky asset household chooses $\alpha_t^h$ to solve ...
21 views

### Value relevance, informative information, Financial statements, IFRS 9

What are the theories that say that the disclosures in the annexes of the report and accounts are less relevant than the figures in the financial statements, is there anything? I've been looking for ...
14 views

### How to calculate bond price and the relationship between bond price and repo rate?

Suppose that there is a gilt Tr 7.5pc '06 in 2006 with interest yield 7,32% and redemption yield 4.31%. How can I compute the price of this gilt per 100 face value. The problem is that the numbers I ...
41 views

### What is the economic meaning of multiple internal rates of return?

Recall that the internal rate of return (IRR) is the discount rate such that the net present value (NPV) of a project is 0. One interesting complexity of the internal rate of return (IRR) is that it ...
160 views

### Utility theory and portfolio optimization: utility of what exactly?

In finance, a common problem is selection of an optimal portfolio given some constraints (e.g. budget constraint and perhaps nonnegative allocation constraint). One can define the optimization problem ...
29 views

### Inforamtion asymmetry modeling

Is there any cook book, in finance, for models in information asymmetry, so as to make some practice?
26 views

### How do you calculate the intrinsic value or fair value of real estate?

How do you calculate the intrinsic value or fair value of real estate? I mean how do you determine that the house/commercial estate is undervalued or overvalued?
30 views

### Country specific economic recession/financial crisis data?

Many financial crises are at the global level, yet some of them can be country-specific, especially the ones connected with political instability. For example, the 1990 recession of Russia, the 1958 ...
26 views

### Economic Profit and the Return on Invested Capital

In my finance classes, I always learned that the a firm earning an "economic profit" is one for which its return on invested capital (ROIC) is greater than it's opportunity cost of capital (usually ...
28 views

### Correlation between nominal bond returns and growth

I read the following passage and the bolded section has me confused: In theory, assets earn a low (or negative) risk premium if they tend to perform well when the economy is weak. When growth ...
26 views

### Does a private company that is 100% financed by a bank loan have a WACC equal to the interest rate?

When estimating a company's Cost of Debt for a Weighted Average Cost of Capital (WACC) calculation we normally look into its bond yield. But for a private company with 100% debt capital structure, ...
16 views

### How to integrate technology lifetime in NPV

I want to calculate and compare the NPV for different ways of producing a good X. The NPV should be calculated for 30 years. The following technologies can be used for production: Technology A, which ...
34 views

### Examples of textbook definitions of transaction costs, for a non-econ student

I'm not an econ major, neither am I taking it as a minor, however seemingly out of nowhere economics has jumped into my CS class when talking about the role of IT in reducing transaction costs of ...
27 views

### Negative correlation conditional variance and return

I've estimated a GARCH for S&P 500, Nikkei and DAX index. The model for the return of S&P 500, the results indicate the return of DAX has an negative effect on the S&P 500 conditional ...
38 views

### What is 'repo' in banking

I keep hearing about repo rate etc. But this question is not what is the repo rate. It is: What is a definition of 'repo' ?
18 views

### Papers on the rate of returns for government-run pension plans

I'm looking for papers studying the implied rate of return for various government pension programs around the world. Both historical and expected returns. Or any study that looks at the taxes for the ...
446 views

### Example of Law of One Price holds but No Arbitrage Fails

I have been told that no arbitrage is a stronger assumption than than the law of one price. In particular, Law of One Price is equivalent to the existence of a stochastic discount factor, whereas no ...
22 views

### Financial Economics and Corporate Finance

In pg 4 of Principles of Corporate finance (Allen et al, 2017), in the context of explaining financing decisions are less important that investment decisions, there is a line that says: "Financial ...
28 views

### How do treasury bill auction work?

So i am having a couple of issues understanding the auctions of treasury bills. I know that the treausury accepts the bids offering the highest price. The treausury accepts the competitive bids in ...
21 views

I'm trying to solve Hull's 7.2 problem for swaps. The problem says that: Well, my question is why Company X would need to make a swap contract if it has a good 9.6% interest rate in dollars (and it ...
25 views

### What is the Relationship between expected return and risk of corporate bonds?

So from my past studies i know that if the interest rate is expected to decrease, then the expected return will increase and the demand for long term bonds shifts to the right. If investors believe ...
15 views

### Is it just as profitable for a brokerage to service investments in 401k plans as opposed IRAs?

Why would a brokerage charge fees to the employer, if they could just charge fees to the individual, like they would do otherwise? If an employer wouldn't want to spend any extra money on 401k plans, ...
14 views

### GARCH data modeling

I am analyzing three time series returns for stocks, bonds and real estate, and have done prelimanary tests including Engle's ARCH test which came back as not rejecting the null hypothesis. IF there ...
37 views

10 views

### Risks Quantification (soft question)

Can anyone please recommend literature (books, papers, whatever) on the topic of risk quantification? By risk quantification I mean financial assessment of e.g. credit or market risk. Free sources ...
19 views

### Assessing the ability of dividend yields to predict stock returns using out-of-sample forecast errors

In Introduction to Econometrics, 3rd Edition, by Stock and Watson, there is a short example about evaluating the ability of using dividend yields (current dividends over price) to predict future stock ...
37 views

### Cross-sectional t test & standard deviation

I've got a question regarding the cross-sectional t-test when determining the significance of CAAR in an event study with a sample of 538 transactions. When calculating the standard deviation of CAAR ...
33 views

### Is it the most efficient to allow free transactions in financial markets?

Most beginner level economics books include explanations why it is most effecient most of the time to allow free trade in the market of goods and services. (e.g. the theory of comparative advantage) ...
10 views

### How to interpret the (expected) exposure and CVA of an option or a single share

I have a quick (hopefully simple) question regarding the interpretation of the expected exposure of a call option and a single share. I've done some computations on the formula for the expected ...
37 views

### How would one take advantage of this arbitrage opportunity?

I have a quick question about how arbitrage works. Let's say that there are two investments: Invest in a two-year zero Invest in a one-year zero and then reinvest into a forward contract from year ...
35 views

### How to calculate cost of equity?

So i have this question on leverage and cost of capital: Leverage and the cost of capital Gamma Airlines has an asset beta of 1.5. The risk-free interest rate is 6%, and the market risk premium is 8%....