ECOM137 China and Global Financial Markets
Problem Set 4
1.Are the following statements True or False? If False, give reasons. 金融经济学作业代做
(1) In an efficient market, if an investor is smart enough, he can consistently achieve a return higher than the market average return.
(2) The split share structure refers to the coexistence of A shares and B shares in the Chinese stock market.
(3) Shenzhen Stock Exchange has a larger market capitalisation than Shanghai Stock Exchange.
(4) The difference between A shares and B shares lies in the currency the shares are denominated in.
(5) The main regulator of the stock markets in China isthe China Securities Regulatory Commission.
(6) The stock listing process in China is registration based.
(7) There is no IPO underpricing in the Chinese stock market.
(8) In the Chinese stock market, a stock’s price can increase without limit during a trading day, but can decrease only by 10% during a trading day.
(9) The T+1 Rule specifies that stocks bought on day t is settled with one day delay on day t+1 on Shanghai and Shenzhen Stock Exchange.
(10) The Special Treatment in the Chinese stock market refers to the special way dividends are distributed to the investors.
2.Calculating annualised real portfolio return. 金融经济学作业代做
According to Hu, Pan and Wang (2018), for RMB 1.00 invited in a small stock portfolio at the end of 1992, it will become RMB 105.07 by the end of 2016. For RMB 1.00 invested in the large stock portfolio, it will only yield RMB 3.90 over the same period. Suppose the inflation grew by 163% over the same 24-year period.
(i) What is the annualised real return on the small stock portfolio over the 24-year period?
(ii) What is the annualised real return on the large stock portfolio over the 24-year period?
(iii)What can potentially explain the difference in the returns?
3.Leverage creates risk.
You are starting a company and need £1,000 to buy capital. You can take the fundsfrom your savings, in which case the firm is 100% equity financed. Alternatively, you can use £200 of your own money and borrow the remainder. If you borrow, the interest rate on the loan will be 5%. In good years, the company will earn £100 and in bad years it will earn £50. Good and bad years occur with equal frequency. After you make the interest payment on the loan (if any), you receive the remainder in profits as the firm’s owner. Compute the expected return on equity and the standard deviation of the return on equity. Which financing option will you select?
4.Short answers. 金融经济学作业代做
What are the listing choices available to firms incorporated in main China? Compare the pros and cons of listing on the alternative stock exchanges.
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