Questions and Answers of Fundamentals Investments Valuation

What is Ms. Harlan’s tolerance for risk?a. Distressed securityb. Arbitragec. Market neutral
In an attempt to talk Ms. Harlan out of investing in a fund of funds, Mr. Phillips addressed the advantages of investing in individual funds. Which of the following would be his most compelling
In Problem 14, suppose JC Penney stock sells for $8 per share immediately before your options?? expiration. What is the rate of return on your investment? What is your rate of return if the stock
If you wanted to purchase the right to sell 2,000 shares of JC Penney stock in November 2015 at a strike price of $9 per share, how much would this cost you? Calls Strike Open nteraet mpled
Suppose you sell 25 of the May corn futures at the high price of the day. You close your position later when the price is 465.375. Ignoring commission, what is your dollar profit on this
If you currently own 15 of the bonds, how much will you receive on the next coupon date?Use the following bond quote Moody's/ S&P/Fitch Company Symbol Coupon Maturity High Last Change Yield% Rating
What is the open interest on a futures contract? What do you think will usually happen to open interest as maturity approaches?
Changes in what price lead to gains and/or losses in futures contracts?
In Problem 3, if the company has a P/E ratio of 21.5, what is the earnings per share (EPS) for the company?Data From Problem 3You find a stock selling for $74.20 that has a dividend yield of 3.4
The current yield on a bond is the coupon rate divided by the price. Thus, it is very similar to what number reported for common and preferred stocks?
You believe the stock in Freeze Frame Co. is going to fall, so you short 600 shares at a price of $72. The initial margin is 50 percent. Construct the equity balance sheet for the original trade.
Repeat Problem 23 assuming you short the 800 shares on 60 percent margin.Data From Problem 23You believe that Rose, Inc., stock is going to fall and you’ve decided to sell 800 shares short. If the
Looking back at Problem 12, suppose the call money rate is 5 percent and your broker charges you a spread of 1.25 percent over this rate. You hold the stock for six months and sell at a price of $65
Suppose you buy stock at a price of $57 per share. Five months later, you sell it for $61. You also received a dividend of $0.60 per share. What is your annualized return on this investment?
In Problem 19, suppose your holding period was five months instead of seven. What is your annualized return? What do you conclude in general about the length of your holding period and your
Suppose you hold a particular investment for seven months. You calculate that your holding period return is 14 percent. What is your annualized return?
Suppose you take out a margin loan for $75,000. You pay a 6.4 percent effective rate. If you repay the loan in two months, how much interest will you pay?
Suppose you take out a margin loan for $50,000. The rate you pay is an 8.4 percent effective rate. If you repay the loan in six months, how much interest will you pay?
In Problem 13, suppose the call money rate is 5 percent and you are charged a 1.5 percent premium over this rate. Calculate your return on investment for each of the following share prices one year
Using the information in Problem 1, construct your equity account balance sheet at the time of your purchase. What does your balance sheet look like if the share price rises to $24? What if it
You short sold 1,000 shares of stock at a price of $36 and an initial margin of 55 percent. If the maintenance margin is 35 percent, at what share price will you receive a margin call? What is your
To an investor, what is the difference between using an advisor and using a broker?
You have $22,000 and decide to invest on margin. If the initial margin requirement is 55 percent, what is the maximum dollar purchase you can make?
Repeat Problems 2 and 3 assuming the initial margin requirement is 70 percent. Does this suggest a relationship between the initial margin and returns? Data From Problem 2 and 3In Problem 2,
Based on the information in the case, which one of the following portfolios should the Analees choose?a. Portfolio Ab. Portfolio Bc. Portfolio C Allocation Expected Return Portfolio A Portfolio B
In Problem 2, suppose you sell the stock at a price of $62. What is your return? What would your return have been had you purchased the stock without margin? What if the stock price is $46 when you
What are Barbara’s willingness and ability to assume risk? Willingness
You purchase 275 shares of 2nd Chance Co. stock on margin at a price of $53. Your broker requires you to deposit $8,000. What is your margin loan amount? What is the initial margin requirement?
What is their tolerance for risk?a. Averageb. Below averagec. Above average
Carson Corporation stock sells for $17 per share, and you’ve decided to purchase as many shares as you possibly can. You have $31,000 available to invest. What is the maximum number of shares you
What is the Analees’ return objective?a. 6.67 percentb. 6.17 percentc. 3.83 percent
Suppose that an investor opens an account by investing $1,000. At the beginning of each of the next four years, he deposits an additional $1,000 each year, and he then liquidates the account at the
You are given the returns for the following three stocks:Calculate the arithmetic return, geometric return, and standard deviation for each stock. Do you notice anything about the relationship
A stock has had the following year-end prices and dividends:What are the arithmetic and geometric returns for the stock? Year Price Dividend $13.25 $0.15 15.61 16.72 0.18 15.18 0.20 4 17.12 0.24
A stock has returns of −9 percent, 17 percent, 9 percent, 14 percent, and −4 percent. What are the arithmetic and geometric returns?
Look back to Figure 1.1 and find the value of $1 invested in each asset class over this 90-year period. Calculate the geometric return for small-company stocks, large-company stocks, long-term
Your grandfather invested $1,000 in a stock 50 years ago. Currently the value of his account is $324,000. What is his geometric return over this period?
Refer to Table 1.1 for large-company stock and T-bill returns for the period 1973€“1977:a. Calculate the observed risk premium in each year for the common stocks.b. Calculate the average
Based on the historical record, if you invest in long-term U.S. Treasury bonds, what is the approximate probability that your return will be below −6.3 percent in a given year? What range of
An investment has an expected return of 11 percent per year with a standard deviation of 24 percent. Assuming that the returns on this investment are at least roughly normally distributed, how
A stock has had returns of 21 percent, 12 percent, 7 percent, −13 percent, −4 percent, and 26 percent over the last six years. What are the arithmetic and geometric returns for the stock?
Using the information from Problem 5, what is the geometric return for Cherry Jalopies, Inc.?Data From Problem 5The rates of return on Cherry Jalopies, Inc., stock over the last five years were 17
Using the information from Problem 5, calculate the variances and the standard deviations for Cherry and Straw.Data From Problem 5The rates of return on Cherry Jalopies, Inc., stock over the last
The rates of return on Cherry Jalopies, Inc., stock over the last five years were 17 percent, 11 percent, −2 percent, 3 percent, and 14 percent. Over the same period, the returns on Straw
The return calculation method most appropriate for evaluating the performance of a portfolio manager isa. Holding periodb. Geometricc. Money-weighted (or dollar-weighted)
Ms. Yamisaka has determined that the average monthly return of another Mega client was 1.63 percent during the past year. What is the annualized rate of return?a. 5.13 percentb. 19.56 percentc. 21.41
What is the probability that the return on small stocks will be less than −100 percent in a single year (think about it)? What are the implications for the distribution of returns?
What are Vega’s money- (or dollar-) weighted average returns over the five-year period for Scenarios 2 and 3? Scenario 2
A particular stock had a return last year of 4 percent. However, you look at the stock price and notice that it actually didn’t change at all last year. How is this possible?

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