Questions and Answers of Fundamentals Of Investments Valuation

a. In words, how do we calculate a variance? A standard deviation?b. What is the second lesson from financial market history?
An investment strategy has an expected return of 12 percent and a standard deviation of 10 percent. If the investment returns are normally distributed, the probability of earning a return less than 2
Identify which world stock market has had the best year-to-date return.
What are the mean and standard deviation of a standard normal distribution? a. Mean Standard Deviation b. O 0 C. 1 d. 1 0 1 0 1
a. Over a 5-year period, an investment in a broad market index yielded annual returns of 10, 16, −5, −8, and 7 percent. What were the arithmetic and geometric average annual returns for this
Given a data series that is normally distributed with a mean of 100 and a standard deviation of 10, about 95 percent of the numbers in the series will fall within which of the following ranges?a. 60
Stocks, bonds, options, and futures are the four major types of:a. Debt.b. Real assets.c. Equity.d. Financial assets.
Suppose the value of an investment doubles in a one-year period. In this case, the rate of return on this investment over that one-year period is what amount?a. 100 percent even if the gain is not
Which of the following asset categories has an annual returns history most closely linked to historical annual rates of inflation?a. U.S. Treasury billsb. Corporate bondsc. Large-company
Based on the annual returns history since 1926, which asset category, on average, has yielded the highest risk premium?a. U.S. government bondsb. Corporate bondsc. Large-company
Over a four-year period, an investment in Outa’synch common stock yields returns of −10, 40, 0, and 20. What is the arithmetic return over this period?a. 5 percentb. 7.5 percentc. 10
You calculate an average historical return of 20 percent and a standard deviation of return of 10 percent for an investment in Stonehenge Construction Co. You believe these values well represent the
Which of the following statements about a normal distribution is incorrect?a. A normal distribution is symmetrically centered on its mean.b. The probability of being within one standard deviation
Based on a normal distribution with a mean of 500 and a standard deviation of 150, the z-value for an observation of 200 is closest to:a. −2.00b. −1.75c. 1.75d. 2.00
A normal distribution would least likely be described as:a. Asymptotic.b. A discrete probability distribution.c. A symmetrical or bell-shaped distribution.d. A curve that theoretically extends
a. What does the term “risk-averse” mean?b. What are some of the constraints investors face in making investment decisions?c. What is asset allocation?
Investment Objectives (LO1, CFA9) An individual investor’s investment objectives should be expressed in terms of:a. Risk and return.b. Capital market expectations.c. Liquidity needs and time
Identify the top five brokers by volume.
a. What are the differences between full-service and deep-discount brokers?b. What is the SIPC? How does SIPC coverage differ from FDIC coverage?
Suppose that in the previous problem you shorted 10,000 shares instead of buying. The initial margin is 60 percent. What does the account balance sheet look like following the short?
Determine the amount of short interest currently outstanding in Tesla (TSLA) stock.
Suppose you have $3,000 in cash in a trading account with a 50 percent initial margin requirement. What is the largest order you can place (ignoring commissions)? If the initial margin were 60
a. What is the difference between a cash and a margin account?b. What is the effect of a margin purchase on gains and losses?c. What is a margin call?
You deposit $100,000 cash in a brokerage account and purchase $200,000 of stocks on margin by borrowing $100,000 from your broker. Later, the value of your stock holdings falls to $150,000, whereupon
Create a graph of short positions through time in Tesla.
a. What is a short sale?b. Why might an investor choose to short a stock?c. What is the maximum possible loss on a short sale? Explain.
You deposit $100,000 cash in a brokerage account and short sell $200,000 of stocks. Later, the value of the stocks held short rises to $250,000, whereupon you get nervous and close your account. What
Generate a list of the largest short positions in the U.S. by the percentage of shares outstanding.
a. Besides risk tolerance, what are some other constraints, strategies, and policies that investors use in forming an investment portfolio?b. Why could two investors of the same age wind up with
You deposit $100,000 cash in a brokerage account and purchase $200,000 of stocks on margin by borrowing $100,000 from your broker. Later, the value of your stock holdings falls to $175,000. What is
You deposit $100,000 cash in a brokerage account and purchase $200,000 of stocks on margin by borrowing $100,000 from your broker. Later, the value of your stock holdings falls to $150,000. What is
You deposit $100,000 cash in a brokerage account and short sell $200,000 of stocks on margin. Later, the value of the stocks held short rises to $225,000. What is your account margin in
You decide to buy 1,600 shares of stock at a price of $64 and an initial margin of 65 percent. What is the maximum percentage decline in the stock before you will receive a margin call if the
You deposit $100,000 cash in a brokerage account and short sell $200,000 of stocks on margin. Later, the value of the stocks held short rises to $250,000. What is your account margin in
You deposit $100,000 cash in a brokerage account and purchase $200,000 of stocks on margin by borrowing $100,000 from your broker, who requires a maintenance margin of 30 percent. Which of the
You deposit $100,000 cash in a brokerage account and short sell $200,000 of stocks. Your broker requires a maintenance margin of 30 percent. Which of the following is the lowest value for the stocks
You purchased a stock at the end of last year at a price of $84. At the end of this year, the stock pays a dividend of $2.10 and you sell the stock for $101. What is your return for the year? Now
Which of the following investment factors, strategies, or tactics is the least relevant to a passive investment policy?a. Market timingb. Asset allocationc. Political environmentd. Tax status.
Which of the following investment factors, strategies, or tactics is most associated with an active investment policy?a. Market timingb. Asset allocationc. Security selectiond. Tax status.
Which of the following investment strategies or tactics will likely consume the greatest amount of resources, time, effort, and so on, when implementing an active investment policy?a. Market
Which of the following investment strategies or tactics is likely the most relevant in the decision to short sell a particular stock?a. Market timingb. Asset allocationc. Security selectiond. Tax
Which of the following investment constraints is expected to have the most fundamental impact on the investment decision process for a typical investor?a. Investor’s tax statusb. Investor’s
Suppose you take out a margin loan for $65,000. The rate you pay is an 8.7 percent effective rate. If you repay the loan in six months (or 180 days), how much interest will you pay?
Generate a listing of outstanding bonds for McDonald’s (MCD).
Suppose you buy $100,000 in face amount of a just-issued five-year U.S. Treasury note. If the coupon rate is 5 percent, what will you receive over the next five years if you hold on to your
a. What are the three basic types of financial assets?b. Why are some financial assets hard to classify?
Suppose you are planning to purchase a Comcast Corporation bond that matures in 2038 and has a 3.15 percent coupon rate. The last price, as a percentage of face value, is 99.148, or 99.148 percent.
Which of the following is not a common characteristic of money market securities?a. They are sold on a discount basis.b. They mature in less than one year.c. The most important risk is default
Access the description for Nike (NKE) stock and determine the industry in which it is categorized.
In Figure 3.1, which bond has the longest maturity? Assuming a face value of $1,000 each, how much would you have to pay for 100 of these bonds?Figure 3.1 Corporate Bond Trading FINRA TRACE Market
Which of the following money market securities is the most liquid?a. U.S. Treasury billsb. Bank certificates of depositc. Corporate money market debtd. Municipality money market debt.
Find a list of available options on Disney (DIS) stock.
A corporation with common stock issued to the public pays dividends:a. At the discretion of management, who are elected by the shareholders.b. At the discretion of shareholders since they own the
a. How do mutual funds usually get started?b. How are mutual funds taxed?c. How does mutual fund trading differ from stock trading?
a. What are the two basic types of interest-bearing assets?b. What are the two basic features of a fixed-income security?
Find a list of the most active securities for the current trading day.
a. What are the two types of equity securities?b. Why is preferred stock sometimes classified as a fixed-income security?
A European option can be exercised:a. Only after American options.b. Anytime up to and including the expiration date.c. Only on the day before the expiration date.d. Only on a European exchange.
Screen for stocks that have the highest current dividend yield.
a. What is a futures contract?b. What are the general types of futures contracts?c. Explain how you make or lose money on a futures contract.
Your friend told you she just received her semiannual coupon payment on a U.S. Treasury note with a $100,000 face value that pays a 6 percent annual coupon. How much money did she receive from this
You purchase 4,000 bonds with a par value of $1,000 for $978 each. The bonds have a coupon rate of 7.7 percent paid semiannually and mature in 10 years. How much will you receive on the next coupon
a. What is a call option? A put option?b. If you buy a call option, what do you hope will happen to the underlying stock? What if you buy a put option?c. What are the two key differences between a
You buy (go long) five copper futures contracts at 100 cents per pound, where the contract size is 25,000 pounds. At contract maturity, copper is selling for 102 cents per pound. What is your profit
You sell (go short) 10 gold futures contracts at $400 per ounce, where the contract size is 100 ounces. At contract maturity, gold is selling for $410 per ounce. What is your profit (+) or loss (−)
You buy 100 CJC call option contracts with a strike price of $95 at a quoted price of $1. At option expiration, CJC sells for $97. What is your net profit on the
You buy 100 CJC put option contracts with a strike price of $92 at a quoted price of $8. At option expiration, CJC sells for $83.80. What is your net profit on the
Which of the following statements about short selling is true?a. A short position may be hedged by writing call options.b. A short position may be hedged by purchasing put options.c. Short-sellers
Analyze the price and NAV of the ETF with the ticker symbol SPY. Why is the difference so small?
As of mid-2022, the Fidelity Contrafund had over $110 billion in invested assets, making it one of the larger funds in the world. If the fund had 7.45 billion shares outstanding, what is its net
a. What are some advantages of investing in mutual funds?b. What are some drawbacks of investing in mutual funds?
Which of the following statements typically does not characterize the structure of an investment company?a. An investment company adopts a corporate form of organization.b. An investment company
On a particular day, the Common Sense Growth Fund had a net asset value of $13.91. The offering price was $15.20. Is this a load fund? What is the front-end load?
a. What is an investment company?b. What is the difference between an open-end fund and a closed-end fund?
The Starks Income Fund’s average daily total assets were $100 million for the year just completed. Its stock purchases for the year were $20 million, while its sales were $12.5 million. What was
Which of the following is not part of the expense statement?a. Shareholder transaction expensesb. Shareholder demographic profilec. Annual operating expensesd. A hypothetical example of expenses
Conduct a fund screening to identify the “best” U.S. large-cap value funds.
Suppose a fund had average daily assets of $50 million during a particular year. It bought $80 million worth of stock and sold $70 million during the year. What is its turnover?
Which of the following is the least likely advantage of mutual fund investing?a. Diversificationb. Professional managementc. Convenienced. Mutual fund returns are normally higher than market
Examine the largest positions held by the ETF with the ticker symbol XLY. Is this a diversified set?
An open-end mutual fund is owned by which of the following?a. An investment companyb. An investment advisory firmc. A “family of funds” mutual fund companyd. Its shareholders.
a. What is a money market mutual fund? What are the two types?b. How do money market mutual funds maintain a constant net asset value?
A closed-end fund is owned by which of the following?a. An investment companyb. An investment advisory firmc. A “family of funds” mutual fund companyd. Its shareholders.
Which of the following statements regarding ETFs is false?a. ETFs are funds that can be traded on a stock market.b. ETF investors own shares of the underlying fund sponsor.c. ETF shares can be
Closed-end funds and ETFs have which of the following characteristics in common?a. Shares of both closed-end funds and ETFs trade in the secondary market.b. Both closed-end funds and ETFs stand
Growth, value, large-cap, and small-cap investing are all examples of:a. Style investment strategies.b. Sector investment strategies.c. Index investment strategies.d. Lifestyle investment
When you look at long-run performance for mutual funds, you typically don’t see many poor performers. Why do you suppose they all tend to look so good?
One of the main advantages to investing in a fund of funds (FOF) is that FOFs provide:a. Improved diversification of assets.b. Higher expected returns.c. Lower management fees.d. Higher
Which mutual fund type will most likely incur the smallest tax liability for its investors?a. Index fundb. Municipal bond fundc. Income fundd. Growth fund.
Which mutual fund type will most likely incur the greatest overall risk levels for its investors?a. Large-cap index fundb. Insured municipal bond fundc. Money market mutual fundd. Small-cap
Which of the following mutual fund fees is assessed on an annual basis?a. 12b-1 feesb. Front-end loadc. Back-end loadd. Contingent deferred sales charge (CDSC).
Which of the following mutual fund fees will most likely be the biggest expense for a long-term fund investor?a. 12b-1 feesb. Front-end loadc. Back-end loadd. Contingent deferred sales charge
Which of the following mutual fund fees and expenses is the most difficult for investors to assess?a. Sales charges or “loads”b. 12b-1 feesc. Management feesd. Trading costs.
Which of the following is false?a. DMMs can trade for their own accounts.b. DMMs earn income from providing liquidity.c. On the NYSE, all buy and sell orders are negotiated through a floor
Identify companies set to go public in the near future.
Private equity funds that concentrate in early-stage financing would likely be what type of fund?a. Venture capitalb. Middle marketc. Leveraged buyoutsd. Distressed assets.
You’ve calculated values for an index over a four-year period as follows:Suppose you wanted the index to start at 1,000. What would the reindexed values be? Year 1: Year 2: Year 3: Year 4: 1,687
Examine the performance of world equity indexes for the last trading day.
The compensation constraint that requires private equity fund managers to “give back” performance fees when subsequent losses occur is a(n) _____ provision.a. High-water
Find the current divisor used to calculate the Dow Jones Industrials Average Index (INDU) value.

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