financial modelling questions and answers

financial modelling question and answers 100% defined. Financial modeling - correct answers.Is concerned with the application of finance theory to real world data using spreadsheet packages such as Excel Three Components of Financial modeling - correct answers.1) Data-Prices, returns, earnings 2) Financial theory- CAPM or option pricing model 3) Model- excel spreadsheet or a VBA subroutine Most important element of applied finance - correct answers.Data - Market, accounting, or economic Market data - correct des the prices and returns of equities, bonds, currencies, commodities, and derivatives Accounting data - correct des balance sheets, income statements and cash flow statement information for individual companies, sectors or economies Economic data - correct des information about the economy, such as output, employment and prices for individual countries or groups of countries Simple return - correct answers.= (newest price-old price)/old price Log returns - correct for continuously compounded returns = ln(new return/old return) Beta - correct of the best fitting line in a scatter plot of a stock return against the market return = covariance.s(market simple returns, all company simple returns)/var.s(all market simple returns). Estimating Beta daily may create problems since not all stocks are traded daily Estimating beta using regression tool - correct analysis-regression- =market simple returns- =company simple returns-ok X Variable 1 = the estimated slope coefficient measurement error in estimate of beta - correct ing above or below 1 are likely to be too high/low so we want to adjust it to 1 then multiply it by our slope coefficient risk free rate of interest - correct rate of return on a risk free asset. Treasury bills are said to be a risk free asset long position - correct olio weight for an asset greater than zero short position - correct olio weight for an asset less than zero. This is also known as short sold portfolio expected return= - correct olio weights*expected returns transpose function - correct es a vertical matrix to a horizontal once and vise versus mmult function - correct take a 3*4 matrix and multiply it by a 4*2 matix mini verse function - correct the identity matrix where when multiplied by itself will equal the original matrix Covariance Matrix - correct square symmetric matrix that gives the variance of each asset on the diagonal, and the covariance between each pair of assets on the off diagonal terms =mmult(transpose(all portfolio simple returns-transpose(mean of portfolio simple returns)),all portfolio simple returns))/(sample size)-1) Minimum variance frontier - correct of all portfolios that have the lowest standard deviation given the expected return efficient portfolios - correct of all portfolios that have the highest standard deviation given the expected return efficient frontier - correct of all portfolios that are efficient Black (1972) - correct that when short sales are allowed, any combination of two minimum variance portfolios is itself a minimum variance portfolio To find efficient frontier - correct answers.Set Target Cell: variance of portfolio Minimize the variance By changing: weights of portfolio Constraints: the total of weights =100% If you want the expected return to be a certain rate have a dumby cell equal to what you want and have another constraint set to your target expected return