Questions and Answers of Fundamentals Of Investing

The following data represents the NH-NL indicator for a stock exchange marketWhat is your recommendation about investing in this market if you are adopting amomentum-based strategy?
Francesco has just started a new job in an investment firm in Milan. He is asked by his boss to calculate the MCR for each of the following months (euros in millions):What is the MCR for each month?
Francesco has just started a new job in an investment firm in Milan. He is asked by his boss to calculate the MCR for each of the following months (euros in millions):What is the MCR for each month?
You find the closing prices for a stock you own. You want to use a 10-day moving average to monitor the stock. Calculate the 10-day moving average for days 11 through 20. Based on the data in the
Stacy Picone is an aggressive bond trader who likes to speculate on interest rate swings. Market interest rates are currently at 9%, but she expects them to fall to 7% within a year. As a result,
Data on a stock’s closing price and its price change for the last 14 trading days appears in the table.a. Over this 14-day period, what is the average gain on up days?b. Over this 14-day period,
Technical analysis looks at the demand and supply for securities based on trading volumes and price studies. Charting is a common method used to identify and project price trends in a security. A
A 7%, five-year bond is callable in two years at a call price of $2,000. The bond is currently priced in the market at $1,770. Assuming that the call value and the maturity value are the same, what
A certain bond has a current yield of 8.10% and a market price of $925.50. What is the bond’s coupon rate?
How would you describe the behavior of market interest rates and bond returns over the past 50 years? Do swings in market interest rates have any bearing on bond returns? Explain.
Identify and briefly describe each of the following types of bonds:a. Treasury inflation-protected securities (TIPS)b. Corporate bondsc. Zero-coupon bondsd. Asset-backed securitiese. Eurodollar
Connor buys a 12% corporate bond with a current yield of 8%. How much did he pay for the bond?
Select the security in the left-hand column that best fits the investor’s desire described inthe right-hand column. a. Five-year Treasury note b. A bond with a low coupon and a long maturity c.
What do rating agencies do? Why is it important for an investor to take a bond rating into account before determining the value of a fixed-income asset?
An investor is in the 24% tax bracket and lives in a state with no income tax. He is trying to decide which of two bonds to purchase. One is a 7% corporate bond that is selling at par. The other is a
An investor lives in a state with a 5% tax rate. Her federal income tax bracket is 28%. She wants to invest in one of two bonds that are similar in terms of risk (and both bonds currently sell at par
Peter Wolfgang is looking for ways to lower his taxes. He notices that specific regional bonds issued from the different states in Germany are exempt from both federal and state taxes. A bond issued
Denise Tay is looking for a fixed-income investment. She is considering two bond issues:a. A Treasury with a yield of 3%b. An in-state municipal bond with a yield of 2% Denise is in the 35% federal
Tsuyoshi is considering three Japanese government bonds with different maturities. Which of the following bonds would offer the highest current yield at a par amount of ¥1,000?a. A 1%, 20-year bond
Caroline buys an 8% corporate bond with a current yield of 5%. When she sells the bond one year later, the current yield on the bond is 6%. How much did Caroline make on this investment?
A year ago, Elena bought a Spanish government bond for €1,020 (euros) with a 5% coupon. Over the course of the next 12 months, interest rates drop sharply. As a result, she sells the bond at the
In early January 2014, you purchased $100,000 worth of some high-grade corporate bonds. The bonds carried a coupon of 6% and mature in 2027. You paid a price of 102.625 when you bought the bonds.
Lachlan purchased a 5%, zero-coupon bond with a 10-year maturity and A$10,000 par value 10 years ago. The bond matures tomorrow. How much will Lachlan receive in total from the investment, assuming
Suppose that Lachlan from Problem 10.12 plans to hold his investment until maturity. He received A$1,000 as principal payment in the first year and another A$1,000 in the fifth year. What type of
Red Electrica España SA (E.REE) is refinancing its bank loans by issuing Eurobonds to investors. You are considering buying $8,000 worth of these bonds, which will yield 7%. You are also looking at
Suppose Volkswagen AG has issued a convertible bond, which has a conversion ratioof 15 and a conversion premium of 10%. The current market price of Volkswagen AG stock is €163. What is the bond’s
Bjørn is considering investing DKK800 in Danske Bank A/S shares. He can buy common stock at DKK160 per share, and the stock pays no dividends. He can also buy a convertible bond (DKK1,000 par value)
You plan to invest €11,000 and are considering a convertible bond issued by France Telecom SA with a par value of €1,000 and convertible into Orange SA shares with a conversion ratio of 20. This
Rajesh has paid 1,200 (Indian rupee) for a convertible bond that carries a 7% coupon and has 20 years to maturity. The bond can be converted to 24 shares of stock, which are now trading at 50,000 a
Calculate the conversion premium of a convertible preferred stock that sells in the market for £755 (Pound sterling) and carries a conversion ratio of 2, given the market price of the under lying
Using the Wall Street Journal, Barron’s, or an online source, find the bond yields for Treasury securities with the following maturities: 3 months, 6 months, 1 year, 3 years, 5 years, 10 years, 15
Daniele wants to calculate the price of an Italian government bond. It has a €1,000 par value with a 1% coupon rate (with interest paid semiannually) that matures in five years. If the bond is
Tsuyoshi is considering two Japanese government bonds, both with a 10-year maturity. One with a 0.5% coupon and a 2% yield, and the other with a 0.2% coupon and a 1.5% yield. Which of these has the
Lachlan is considering purchasing one of the following bonds.a. A 5% bond issued by Woolworths Limited with a maturity of 10 years and a yield of 3% with semiannual compounding.b. A 5% bond issued by
Calculate the value of each of the bonds shown in the following table, all of which pay interest semiannually. Bond A AB C D E Par Value $1,000 $1,000 $ 500 $1,000 $ 100 Coupon Interest
A $1,000 par value bond that has a current price of $950 and a maturity value of $1,000 matures in three years. If interest is paid annually and the bond is priced to yield 9%, what is the bond’s
Using the resources at your campus or public library (or on the Internet), select any four bonds, consisting of two Treasury bonds and two corporate bonds. Determine the latest current yield and the
A 10-year bond has a coupon of 8% and is priced to yield 7%. Calculate the price per $1,000 par value using semiannual compounding. If an investor purchases this bond three months before a scheduled
Ziad purchases a Treasury bond at E£900 (Egyptian pound). The Treasury bond has a par value of E£1,000, coupon interest rate of 12%, pays semiannual interest, and has 10 years to maturity. Ziad
A bond is priced in the market at $920 and has a coupon of 7%. Calculate the bond’s current yield.
An Italian government bond has a par value of €1,000, a 3% coupon rate (semiannual interest), a five-year maturity, and current selling price of €975. What is the bond’s yield to maturity and
Bjørn is considering buying a Swedish government bond with DKK1,000 (Danish krone) par value (semiannual interest), seven years to maturity, current selling price of DKK970, and a bond equivalent
Haruto is considering buying a 1%, 10-year Japanese government bond that is being priced to yield 0%. Haruto thinks that because of the central bank’s monetary policy, the bond will have an
Rajesh reads Mint newspaper and finds an article about a bond issued by Tata Steel, which is currently selling in the market for a price of 1,075 with a coupon payment f 5% and a 15-year
Each of the bonds shown in the following table pays interest annually.a. Calculate the yield to maturity (YTM) for each bond.b. What relationship exists between the coupon interest rate and yield to
A bond is currently selling in the market for $928.62. It has a coupon of 10% and 10-year maturity. Using annual compounding, calculate the yield to maturity on this bond.
CSM Corporation has a bond issue outstanding that has 15 years remaining to maturity and carries a coupon interest rate of 6%. Interest on the bond is paid on a semiannual basis. The par value of the
Compute the current yield of an 8%, 10-year bond that is currently priced in the market at $1,100. Use annual compounding to find the promised yield on this bond. Repeat the promised yield
Aziz works for a broker. One of his clients is offered a bond at $1,050. It is a 10%, 15-year bond with a par value of $1,000 and a call price of $1,100. (The bond’s first call date is in five
Assume that an investor is looking at two bonds: Bond A is a 25-year, 9.5% (semiannual pay) bond that is priced to yield 10%. Bond B is a 25-year, 9% (annual pay) bond that is priced to yield 8%.
A zero-coupon bond that matures in 20 years is currently selling for $509 per $1,000 par value. What is the promised yield on this bond?
A zero-coupon ($1,000 par value) bond that matures in eight years has a promised yield of 7%. What is the bond’s price?
A 20-year, zero-coupon bond was recently quoted at 10.25% of par. Find the current yield and the promised yield of this issue, given that the bond has a par value of $1,000. Using semiannual
Assume that an investor pays $850 for a long-term bond that carries a 10% coupon. In three years, he hopes to sell the issue for $975. If his expectations come true, what yield will this investor
Using annual compounding, find the yield to maturity for each of the following bonds.a. A 9.75%, 18-year bond priced at $962.41b. A 14%, 20-year bond priced at $1,612.98c. A 6.25%, 15-year bond
A bond has a Macaulay duration equal to 8.3 and a yield to maturity of 6.2%. What is the modified duration of this bond?
The All-State Mutual Fund has the following five-year record of performance:Find this no-load fund’s five-year (2015–2019) average annual compound rate of return. Also find its three-year
A bond has a Macaulay duration of 8.42 and is priced to yield 7%. If interest rates go up so that the yield goes to 7.5%, what will be the percentage change in the price of the bond? Now, if the
Which one of the following bonds would you select if you thought market interest rates were going to fall by 50 basis points over the next six months?a. A bond with a Macaulay duration of 8.36 years
William Jones has uncovered the following per-share information about the T. Rowe Price Australian Equity:Find the fund’s holding period return for 2017, 2018, and 2019. (In all three cases assume
Listed below is the 10-year, per-share performance record of the Blue Chip Growth Fund as obtained from the fund’s May 30, 2019, prospectus.Use this information to find the holding period return in
A bond issued by H&W Corporation has an annual-pay coupon of 5.625% plus a par value of $1,000 at maturity. This bond has a remaining maturity of 23 years. The required rate of return on
A year ago, an investor bought 100 shares of a mutual fund at $7.50 per share. This year, the fund paid dividends of $0.75 per share capital gains of $0.50 per share.a. Find the investor’s holding
Six months ago, Andy bought shares from the Exemplar Canadian Focus fund. At the time, the fund was being quoted at an NAV of $5.24 (Canadian dollar) and an offer price of $6.50. Today, it is being
Giacomo Poretti lives in Milano with his wife, Chiara, in a house that they jointly own. He has worked as a professor at a well-known university for more than 28 years, and Chiara works as a
The New Germany Fund (NGF), a closed-end fund, turned in the following performance for the year 2019.a. Based on this information, what was the NAV-based HPR for the NGF in 2019?b. Find the
Aishwarya just won the national lottery of 10 million (Indian rupee). Now she’s faced with the “problem” of how to spend it. Finally, she decides to invest the money in an open-end fund, a
Briefly describe each of the following types of mutual funds:a. Aggressive-growth funds b. Equity-income fundsc. Growth-and-income funds d. Bond fundse. Sector funds f. Socially
One year ago, the T. Rowe Price Australian Equity Closed-End Fund had an NAV of A$10.40 and was selling at an 18% discount. Today, its NAV is A$11.69, and it is priced at a 4% premium. During the
Five years ago, you invested in the Future Investco Mutual Fund by purchasing 1,500 shares of the fund at a net asset value of $18.75 per share. Because you did not need the income, you elected to
A year ago, Gary invested in the Aberdeen Global II Sterling Bond Fund by purchasing 200 shares at an NAV of £663.81 (Pound sterling). He decides to reinvest all interest and capital gains
You invested in the no-load Best Mutual Fund one year ago by purchasing 1,000 shares of the fund at the net asset value of $20.00 per share. The fund distributed dividends of $1.00 and capital gains
Refer to Problem 12.11. If Best was a load fund with a 2.5% front-end load, what would be the HPR?Data From Problem 12.11You invested in the no-load Best Mutual Fund one year ago by purchasing 1,000
Peter Wolfgang is considering the purchase of shares in a closed-end mutual fund. The NAV is equal to €22.50, and the latest close is €20.00. Is this fund trading at a premium or discount? How
You are a British investor who bought 500 shares of Acumen Conservative Portfolio fund a year ago for £94.50 (Pound sterling). During the year, you received £3.00 in dividends per share, one-third
Create a spreadsheet model similar to the spreadsheet for Table 12.2, which you can view at www.pearson.com/mylab/finance, to analyze the following three years of data relating to the MoMoney Mutual
Deepak and Aishwarya are a young couple, both working in the financial industry and with above-average salaries. They are reviewing their investment objectives and their current asset allocation.
List your personal characteristics, and then state your investment objectives in light of them. Use these objectives as a basis for developing your portfolio objectives and policies.Assume that you
Akasuki works for an investment firm in Japan and is managing two portfolios for two different clients: the Nakamura family and the Saito family. Both portfolios had the same holding period return
Choose an established local (or nearby) company whose stock is listed and actively traded on a major exchange. Find the stock’s closing price at the end of each of the preceding six years and the
Paolo purchased 100 shares of Juventus F.C. in November 2019 at a total cost of €1,762. He held the shares for 15 months and then sold them, netting €2,500. During the period that he held the
Theodhora lives in Albania and works as a data architect at a major bank. Since she is paid more than L140,000 (Albanian lek) each month, and there are three tax brackets in the country, she falls in
Martin Schmidt bought 100 shares of a German stock through his broker. He bought the stock in March for €35 per share and sold it three months later for €45 per share. The broker charged a €5
Choose six actively traded stocks for inclusion in your investment portfolio. Assume the portfolio was created three years ago by purchasing 200 shares of each of the six stocks. Find the acquisition
William Jones invested A$250,000 in the bonds of Woolworths Limited. He held them for 15 months, at the end of which he sold them for A$270,500. During the ownership period, he received A$20,000
Pierre bought 2,000 shares of Carmignac Patrimoine Fund one year ago for a NAV of €12.2 per share. During the year, the fund distributed investment income dividends of €0.32 per share. At the end
Find five actively traded stocks and record their prices at the start and the end of the most recent calendar year. Also, find the amount of dividends paid on each stock during that year and each
Ollie Lloyd, a UK resident, bought five option contracts to speculate on price movements of BT stock. Each contract is worth 1,000 shares of the stock and costs £0.35 (Pound sterling), so he paid
Choose a high-growth mutual fund and a money market mutual fund. Find and record their closing net asset values at the end of each week for the immediate past year. Assume that you wish to invest
On January 1, 2020, Simon Love’s portfolio of 15 common stocks had a market value of $264,000. At the end of May 2020, Simon sold one of the stocks, which had a beginning-of-year value of $26,300,
Last year, Paolo held a diversified portfolio of Italian stocks that had a 3% return for the period and a beta of -1.2. The FTSE MIB (a good proxy for the market return) recorded a loss of 1.5% over
Antonio Cassini is using a constant-ratio plan to rebalance his portfolio. He has 300 shares of an aggressive growth stock priced at €50 and the rest of his portfolio invested in Italian government
While most people believe that it is not possible to consistently time the market, there are several plans that allow investors to time purchases and sales of securities. These are referred to as
Deutsche Bank stock is selling for €7.5 per share. Call options with a €5 exercise price are priced at €4.0. What is the intrinsic value of the option, and what is the time value?
Enel SpA is trading at €5.53 per share. Call options with a strike price of €6.00 are priced at €0.50. What is the intrinsic value of the option, and what is the time value?
HSBC stock is currently trading at £475.8 (Pound sterling). George decides to write a covered call on the stock by writing one call with a strike of £490 and buying 100 shares of stock at the
Iberdrola SA is trading at €8.0 per share. Put options with a strike price of €10.0 are priced at €3.1. What is the intrinsic value of the option, and what is the time value?
Kostas owns some stocks of Greek financial companies. He wants to hedge the position since the Greek economy is going through a deep recession.a. Would buying a put option on a broad market index on
Barclays plc is trading at £160 (Pound sterling). Put options with a strike price of £155 are priced at £5.5. What is the intrinsic value of the put option, and what is the time value?
Using the resources at your campus or public library (or on the Internet), complete each of the following tasks.a. Find an in-the-money call that has two or three months to expiration. (Select an

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