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fundamentals of investing
Questions and Answers of
Fundamentals Of Investing
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
A four-month call option contract on 100 shares of Bayer AG common stock with a strike price of €60 can be purchased for €600. Assuming that the market price of Bayer AG stock rises to €75 per
A call option on a bank with a strike price of €16 (Euro) expires in one year and has a current price of €2.5. The market price of the underlying stock is €16.5, and the risk-free rate is 0.1%.
Max Houck holds 600 shares of Boulder Gas and Light. He bought the stock several years ago at $52.75, and the shares are now trading at $78. Max is concerned that the market is beginning to soften.
Nick Fitzgerald holds a well-diversified portfolio of high-quality large-cap stocks.The current value of Fitzgerald’s portfolio is $825,000, but he is concerned that the market is heading for a big
Fabrizio just bought 1,000 shares of Intesa Sanpaolo Bank at €2.51 (Euro). He wants to write a covered call on the stocks to increase his profits. He sells 10 calls on the stock at a market price
Wolfgang owns stock in a pharmaceutical company he believes is highly undervalued. He expects that the stock will significantly increase in value over the long term. He is concerned, however, that
Suppose that EURO STOXX 50 stands at 3,500. Alfonso wants to set up a long straddle by purchasing 100 calls and an equal number of puts on the index, both of which expire in three months and have a
HSBC stock trades at £475.8 (Pound sterling) per share. A call option on the stock has a strike price of £490 and an expiration date of six months. The volatility of the stock’s return has been
John has been following the stock market very closely over the past 18 months and has a strong belief that future stock prices will be significantly higher. He has two alternatives that he can
Can the broad market have an effect on the price of individual stocks? Explain.
At the end of the last trading day on the Nikkei 225, 171 stocks advanced, 49 stocks declined, and five stocks were unchanged. What is the value of the advance-decline line for that day?
You look at a large number of firms that announced higher-than-expected sales growth and notice that the stocks of these firms were rising quickly prior to these public announcements. Does that
Compute the level of on-balance volume (OBV) for the following five-day period for a stock. The beginning level of OBV is 50,000, and the beginning price is $35.Is this stock following a bullish
Following are figures representing the number of stocks in the EURO STOXX 50 Index making new highs and new lows for each month over a six-month period in 2019:
Maurizio hears Michelle Cialtrone, a notorious Italian market analyst, say on television that the advance/decline ratio for the last market session was 1.5. What does that mean?
DRACO common stock is selling at a P/E of 13 times trailing earnings. The stock price is $17. What are the firm’s earnings per share?
Three companies that compete in the footwear market are Foot Locker, Finish Line, and DSW. The following table shows inventory levels and cost of goods sold for each company for the 2017, 2016, and
Tsuyoshi from Problem 8.30 decides to use another approach to value Hino. He plans to use the price-to-sales ratio to value the stock, and he has collected P/S multiples for the same car
Suppose you look back over the past 10 years and identify firms that have increased dividends every year. You notice that these stocks outperformed the broader market over the decade too. Does this
Hino is a young car manufacturer and has yet to make a profit. Tsuyoshi is trying to place a value on Hino’s stock, but it pays no dividends and he obviously cannot calculate a P/E ratio. As
If small stocks outperform large stocks, does that violate market efficiency? If yes, why? If not, what else would have to be true to conclude that the pattern did violate market efficiency?
Which of the following facts, if true, would violate the weak form of the efficient markets hypothesis?a. Stocks earn higher returns than bonds over time.b. You can earn better-than-average returns
The Carmignac Patrimoine mutual fund earned a 6% return last year and had a beta of 1.25. The New Germany fund earned a return of 8.5% and had a beta of 1.5. The riskfree rate was 1%, and the market
Lynx Auto generated an EPS of $3.50 over the last 12 months. The company’s earnings are expected to grow by 20% next year, and, because there will be no significant change in the number of shares
You’re thinking about buying some stock in Affiliated Computer Corporation and want to use the P/E approach to value the shares. You’ve estimated that next year’s earnings should come in at
You are interested in purchasing the common stock of Azure Corporation. The firm recently paid a dividend of $3.00 per share. It expects its earnings—and, hence, its dividends—to grow at a rate
From Yahoo! Finance or another online source, select a company that’s been listed for at least 10 years and find out dividends per share for 10 years. Use an Excel spreadsheet like the template
Brembo is an acclaimed world leader and innovator in the field of automotive disc brake technology. It doesn’t pay any dividends currently but is expected to start doing so in four years. This
GenCap Advisory has just given Banca Mediolanum a strong buy recommendation. As a result, you decide to analyze and value the company’s stock. Here’s what you find: This year Banca Mediolanum
Nextbig Corp. currently has sales of $870 million; sales are expected to grow by 26% next year (year 1). For the year after next (year 2), the growth rate in sales is expected to equal 13%. Over each
In 2018, Audi AG paid its stockholders an annual dividend of €4.80 per share. A major brokerage firm recently put out a report on Audi predicting that the company’s annual dividends would grow at
The price of a share of the Qatar Construction Co. is now QR20 (Qatari riyal). The company pays no dividends. Serag El Din Gassem expects the price to be QR30 per share three years from now. Should
Jack is considering a stock purchase. The stock pays a constant annual dividend of $3.00 per share and is currently trading at $21. Jack’s required rate of return for this stock is 13%. Should he
Analysts have forecasted that Volkswagen AG will pay a dividend of €4.86 per share in the coming year. Investors require a 5% rate of return on the company’s shares, and they expect dividends to
You have been asked to analyze the financial statements of the Dayton Corporation for the two years ending 2018 and 2019.a. Create a comparative balance sheet for the years 2019 and 2018, similar to
Pierre Francois is thinking about buying some shares of Renault SA at €60.85 per share. He expects the price of the stock to rise to €70.0 over the next two years. During that time he also
Marc Dodier is a recent university graduate and a security analyst with the Kansas City brokerage firm of Lippman, Brickbats, and Shaft. Marc has been following one of the hottest issues on Wall
Last year, Black Hole Company paid $90 million of interest expense, and its average rate of interest for the year was 15%. The company’s ROE is 20%, and it pays no dividends. Estimate next year’s
The following table lists the 2018 and 2019 financial statements for Otago Bay Marine Motors, a major manufacturer of top-of-the-line outboard motors.Otago Bay Marine Motors Balance Sheets ($ in
In 2018, Peugeot had a ROE of 14.4%. Its earnings per share were 3.16, and its dividends per share were €0.97. Estimate Peugeot’s growth rate.
Hydra Corporation has total equity of $300 million and 120 million shares outstanding. Its ROE is 20%. The EPS is 25%. Calculate the company’s dividends per share (round to the nearest penny).
Sirius Lawnmower Co. has total equity of $450 million and 150 million shares outstanding. Its ROE is 18%. Calculate the company’s EPS.
The following table shows 2017 total revenues, cost of goods sold, earnings available for common stockholders, total assets, and stockholders’ equity for three companies competing in the bottled
The following table shows key financial data for three companies in the automobile manufacturing industry: Toyota, Nissan, and Honda. All values are in millions of yen.a. Calculate each of the
Taurus Corp. had sales of $35 million in 2016 and is expected to have sales of $51,230,000 for 2017. The company’s net profit margin was 4% in 2016 and is expected to increase to 6% by 2017.
An investor in Amman, Jordan, estimates that next year’s sales for Amman Intercontinental Hotels, Inc. would amount to about 150 million Jordanian dinar. The company has 10 million shares
Using the Internet, compare the following pairs of stocks. For each pair, determine which stock is fundamentally stronger and holds more promise for the future? Compute (or obtain) as many ratios as
Using the Internet, find the following information about Peugeot S.A. stock for 2018: net income after tax, total equity, total assets, and total liabilities. Compute the liquidity and leverage
El Dorado Corporation has a net profit margin of 7%, a total asset turnover of 2.5 times, total assets of $1.2 billion, and total equity of $650 million. What are the company’s sales and net profit?
Pisces Pools Inc. has a net profit margin of 4%, a total asset turnover of 2.2, total assets of $350 million, and total equity of $195 million. What is the company’s return on equity?
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