1. Risk-free assets. Government bonds are considered to be ‘risk-free’ assets. Why, then, do they give a return? Are they truly completely free of risk?
2. On January 27, 2010, Steve Jobs took the stage to announce, as expected, a new addition to the Apple’s (AAPL) product line. The iPad, a tablet computer, recevied good reviews but the stock price fell from a close of $205.94 on January 26th to $192.06 by the weekend. In the same period, the Nasdaq index went from 2203.73 to 2147.35.
- Why would the price of AAPL fall just when the company announces an exciting new product?
- Comment on what part of the move in AAPL’s price was systematic and what part was intrinsic. Assume that AAPL has a beta of 1.28 versus the Nasdaq index.