Financial Trading And Investing 1st Edition John Teall - Solutions

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4. How long would you expect an extended fi fth wave to be?(A) 1.618 times the net distance traveled of waves 1 through 3(B) Equal to the length of wave 1 plus wave 2(C) .618 times the length of wave 3(D) Two times the length of wave 1
3. Which of the following often leads to being whipsawed?(A) Extended third wave(B) Zigzag(C) Expanded fl at and Triangle(D) Truncated fi fth wave
2. Th e best time to use the bear call ladder is when:(A) You are totally confused about the wave count.(B) You expect the market to go sideways in wave 4 or decline.(C) Your bias is to the upside, but the market could go sideways or down.(D) You expect the market to make a swift move in wave 5 or
1. Which of the following is true about extended waves?(A) Wave 1 is usually extended.(B) Wave 4 is usually extended in commodities.(C) A double extension normally refers to an extremely long impulse wave.(D) Wave 5 is often extended in commodities.
3. Th e reason options strategies work well with Elliott wave is because:(A) Wave counts can be wrong.(B) Options can position you for more than one valid wave count.(C) It is too diffi cult to set protective stops using Elliott wave.(D) Elliott wave is an options pricing forecasting model.
2. True or False: Not all corrections achieve a net retracement.
1. Th e bear put spread is best utilized for which of the following:(A) Extended third waves(B) Fifth waves(C) Ending diagonals(D) Short-term countertrend moves
6. What is the main diff erence between a Japanese candlestick chart and an O-H-L-C price chart?(A) How volume data is incorporated(B) How the data are illustrated to show the balance of power between bulls and bears(C) How divergences show up(D) How MACD works better with candlesticks
5. True or False: Th e psychology of a trader is more important than either risk management or technique.
4. Your goal on each trade is to:(A) Be as close to perfect as possible.(B) Have the most optimal stop.(C) Sell at top tick or buy at bottom tick.(D) Make money.
3. To manage risk on a trade, focus on this trio:(A) Do your analysis, check technical indicators, and set an initial protective stop.(B) Set an initial protective stop, get out of the trade before you are stopped out, and collect your profi ts.(C) Lessen risk, eliminate risk, and protect open
2. True or False: When prices have been trending up but RSI (relative strength index) has been trending down, this divergence is often a precursor to an upturn in prices.
1. What should you do if your Elliott wave analysis and technical indicators are at odds?(A) Don’t trade; look for a better setup elsewhere.(B) Depend on your wave analysis alone.(C) Focus on your favorite technical indicator.(D) Change your wave analysis.
5. True or False: In a contracting ending diagonal, wave 3 is shorter than wave 1.
4. What do ending diagonals, truncated fi fth waves, and fi fth-wave extensions have in common?(A) Th ey always move to the downside, which is a faster move.(B) Th ey are extended waves, which off er more profi t opportunities.(C) Th ey are all followed by a swift and sharp reversal.(D) Th ey are
3. After the termination of an ending diagonal, what can you expect?(A) Th e trend should be sideways.(B) Th e market should reverse sharply to where the diagonal began.(C) A triangle should unfold.(D) Th ere should be another diagonal in the opposite direction.
2. True or False: An ending diagonal is a sign that the main trend will continue for a while.
1. Where can ending diagonals occur?(A) Wave 5 of an ending diagonal(B) Wave A of a zigzag or fl at(C) Wave 5 of an impulse wave and wave C of fl ats and zigzags(D) At the end of a corrective pattern
5. True or False: In a zigzag, wave C is usually equal to wave A.
4. Why is it advantageous to trade C waves of zigzags and fl ats?(A) Th ey always move to the downside, which is a faster move.(B) Th ey are extended waves, which off er more profi t opportunities.(C) Th ey are fi ve-wave structures that move in the direction of the main trend.(D) Th ey are always
3. What is the most common relationship for the length of wave Y of a double zigzag?(A) Wave Y equals wave W.(B) Wave Y equals .618 times wave W.(C) Wave Y equals wave X.(D) Wave Y equals 2.618 times wave W.
2. True or False: You should not increase the size of your position when the market goes against you in wave C of a zigzag.
1. How important are alternate wave counts?(A) Important at fi rst, but less important as you become profi cient at reading price charts.(B) Very important, because the alternate wave count is usually the correct one.(C) Th ey are not really that important or necessary.(D) Important, because they
3. In the Dell trading example, the break of the B-D trendline of triangle wave E supported which of the following conclusions:(A) Th e larger triangle had ended.(B) Th e impulse wave had ended.(C) Th e smaller triangle was still in progress.(D) Wave E was not a triangle.
2. True or False: A triangle indicates that one more move remains in the direction of the main trend at the next higher degree.
1. Which of the following is true about contracting and barrier triangles?(A) Wave E is always a triangle.(B) Wave E can never go beyond Wave C.(C) Wave E is sometimes a motive wave.(D) Wave E always ends at the A-C trendline.
7. True or False: Th e fi fth wave of an impulse wave always ends beyond the trend channel.
6. In the Robusta coff ee trading example, why did we rule out the possibility of a double zigzag for wave (2)?(A) In a double zigzag, wave X cannot go beyond the start of wave W.(B) In second waves, wave Y is always a triangle.(C) A double zigzag would have ended beyond the start of wave (1).(D)
5. True or False: Th e most common length relationship for wave C of a zigzag is that wave C equals a Fibonacci .618 times the length of wave A.
4. In the silver trading example, which of the following was strong evidence that the zigzag had ended?(A) Zigzag retraced at least 38 percent of the previous impulse wave.(B) Zigzag had a sharp look.(C) Warren Buff ett basically said so.(D) Silver broke the upper trendline of the zigzag’s trend
3. Which of the following contains the orthodox end of Primary wave [2]?(A) Wave (W)(B) Wave A of triangle (Y)(C) Wave C of triangle (Y)(D) None of the above
2. Which of the following is accurate about triangles within combinations?(A) We see them in wave Y or wave Z of a triple three.(B) We see them in wave W or wave X of a double three.(C) We see them in wave Y of a double three.(D) We see them only in wave X.
1. Which of the following best represents a single A-B-C structure?(A) W-X-Y structure(B) W-X-Y-X-Z structure(C) An X wave(D) A zigzag
10. A risk to reward ratio of 1:1 is ideal.
9. Th e entry guideline for trading a zigzag is to wait for the extreme of wave B to give way.
8. If you look for confi rming price action, then you are letting the market commit to you before you commit to the market.
7. An aggressive approach to trading an ending diagonal is to wait for the extreme of wave 4 to give way.
6. From origin to termination, waves 2 and 4 off er high-confi dence trading opportunities.
5. A complete Elliott wave cycle consists of nine waves.
4. Wave 2 can sometimes retrace more than 100 percent of wave 1.
3. Th e Wave Principle off ers traders points of invalidation where they can re-evaluate where their analysis may have gone wrong.
2. Wave analysis identifi es the direction of the trend, based on the direction of the impulse wave.
1. Analysis and trading employ the same skill set.
3. In a release dated November 5, 2001, the SEC announced in a litigation release an action against Israel Shenker. In this announcement, the SEC provided the following example of a series of transactions executed by Shenker:14:44:44—Shenker placed an order to buy 500 shares of the target
2. Does insider trading violate the Securities Act of 1933? If so, what section? If not, why not?
1. Most markets, including those for labor, commodities, and real estate, allow insider trading activity. Transactions in these markets are routinely based on unequally distributed information. Why should insider trading be common and legal in these markets?
9. The Hollywood Stock Exchange (www.hsx.com) describes itself as “the world’s leading entertainment stock market.” The site is owned by Cantor Fitzgerald, one of the world’s leading trading firms. “Investors” at the HSX.trade virtual shares of celebrities and movies with virtual money
8. The following table reflects abnormal returns for each of 10 stocks over a seven-day period about day zero, which is the standardized date of the sudden death of the CEO for each of the 10 firms. An analyst wants to determine whether the death announcement date represents a significant event and
7. Suppose that we wished to conduct an event study on whether acquiring firms experience share price reactions to takeover announcements. For our event study, we will use for our sample the following three acquiring firms:Company X: Merger announcement date January 15, 2012 Company Y: Merger
6. Which is worth more?a. A market forecasting service that correctly predicts the direction of the market portfolio with 100% consistency every month for extended periods of time and can be expected to continue to do so in the future.b. A market forecasting service that incorrectly predicts the
5. An analyst has tested the effect of spin-off announcements on share prices using event study methodology. The analyst’s procedure proceeded as follows:a. Ten spin-offs were obtained from the most recent year.b. Announcement dates were standardized with 30 days of prices collected from both
4. Toy stores have very clear seasonal patterns in their revenue flows. Should toy store company share prices exhibit similar seasonality?
3. Compute five-day moving averages for each date of the following series, assuming that 5 is the price for day 1 and 18 is the price for day 12:5 6 5 6 8 10 9 12 15 12 16 18
2. Consider the following stock price sequence:t Pt 1 50 2 51 3 52 4 58 5 56 Compute three-day moving averages for days 3, 4, and 5. If one assumes that the three-day moving average price represents the true value of the stock because of the elimination of noise, should the investor buy or sell
1. If price changes reflect new information, why should returns fluctuate randomly?
9. Suppose that an investor has the opportunity (and funding ability) to pay $100,000 for a 50% chance to win $300,000 and a 50% chance of winning nothing.a. What is the expected value of the gamble?b. What is the standard deviation of payoffs for this gamble?c. Suppose that you have the
8. Suppose that the United States is preparing for the outbreak of an Asian viral disease, which, if a vaccine is not developed, is expected to kill 600 people. Two alternative vaccination programs have been proposed. The benefits of the two vaccination programs are described as follows:Program A:
7. In our discussion of prospect theory, we considered the following choice of gambles:Gamble A: 0.33 probability of receiving 2500, 0.66 of receiving 2400 and 0.01 of receiving 0 Gamble B: 100% probability of receiving 2400 and Gamble A*: 0.33 probability of receiving 2500, 0.67 of receiving 0
6. Churches, schools, and other nonprofit institutions have held jelly bean counting contests where contestants compete for a prize by estimating the number of jelly beans in a large jar. There is evidence suggesting that averages of contestant estimates tend to be superior to specific individual
5. For each of the following three scenarios, would you rather:a. Receive $100 in one month or $100 in two months (most people prefer the former)?b. Be given an excellent meal at a nice restaurant in one month or in two months(most people prefer the former)?c. Be given a mediocre meal at a mediocre
4. Suppose that you were to perform an experiment on subjects to determine whether they prefer to have coffee mugs or money. You plan to use a large representative sampling of individuals and endow half of the participants in your experiment with coffee mugs and then ask those to whom mugs were
3. A car with a replacement value of $20,000 can be insured against a total loss with an insurance policy sold for a premium of $1200. The insurance company selling the policy and the consumer purchasing the policy agree that there is a 5% probability that the car will be destroyed.a. What is the
2. Three traders are at lunch and must decide on a dessert that they will share. Consider the following table, which compares trader preferences for three types of desserts, all ranked according to preferences one through three for each trader. Individual trader preferences are rational. There are
1. Suppose that an investor with $2 in capital has a logarithmic utility of wealth function:U5ln(w). The investor has the opportunity to buy into the gamble described in the St. Petersburg paradox. Assume that the investor can borrow without interest and that the gamble payoff is 2i where i is the
5. Suppose that the market for Stock X on a given date consisted of the transactions listed in the following table. The left two columns represented transactions for Stock X,excluding the broker’s orders. The right two columns consisted of the broker’s orders only, all of which were orders to
4. Historical returns for the Ripco Fund and the market portfolio along with Treasury bill(T-Bill) rates (rf) are summarized in the following table:Year Ripco Market T-Bill Year Ripco Market T-Bill 1 0.35 0.28 0.05 11 20.07 20.15 0.05 2 0.04 0.05 0.05 12 20.11 20.21 0.05 3 0.10 0.09 0.05 13 0.42
3. The following table provides historical percentage returns for the Patterson and Liston Funds along with percentage returns on the market portfolio (index or fund):Year Patterson Liston Market 2007 4 19 15 2008 7 4 10 2009 11 24 3 2010 4 21 12 2011 5 13 9 Suppose that the riskless rate of return
2. Suppose that we wished to compute monthly returns for Fund A over a period of five months. We collect relevant end-of-month NAVs along with any dividends.The following table lists NAV’s and dividends collected for Fund A from June 30 to November 30. Following the NAV data are sample return
1. On February 1, a hedge fund initiated activities with a trading account of $1,000,000 and 20,000 outstanding shares of stock. On January 2, the fund realized $30,000 in trading profits. On February 3, the fund again realized $30,000 in trading profits, but paid a dividend of $30,000. On February
11. Consider an extension of the Exercise 21 from Chapter 7 concerned with the management of transactions exposure. The Smedley Company sold products to a Japanese client for f15,000,000. Payment is due six months later. Relevant data are as follows:Spot exchange rate: f105/$Japanese borrowing
10. A currency option series on Australian dollars (AUD) denominated in U.S. dollars.Suppose that a two-year call option is available on AUD with an exercise price equal USD0.65. The U.S. interest rate is 0.04 and the Australian rate is 0.06. The current exchange rate is USD0.7/AUD and the standard
9. Tanker Company stock, which currently sells for 30 per share and has an anticipated volatility (annual return standard deviation) equal to 0.6, also has a three-month (0.25 year) call option with an exercise price equal to 30. The current riskless return rate equals 0.05.a. Calculate this second
8. Tanker Company stock currently sells for 30 per share and has an anticipated volatility (annual return standard deviation) equal to 0.6. Three month (0.25 year) call options are available on this stock with an exercise price equal to 25. The current riskless return rate equals 0.05.a. Calculate
7. What is the gamma of a long position in a single futures contract? Why?
6. Evaluate each of the European options in the series on ABC Company stock. Prices for each of the options are listed in the table. Determine whether each of the options in the series should be purchased or sold at the given market prices. The current market price of ABC stock is 120, the August
5. Kestrel Company stock is currently selling for $40 per share. Its historical standard deviation of returns is 0.5. The one-year Treasury bill rate is currently 5%. Assume that all of the standard Black-Scholes option pricing model assumptions hold.a. What is the value of a put on this stock if
4. Ibis Company stock is currently selling for $50 per share and has a multiplicative upward movement equal to 1.2776 and a multiplicative downward movement equal to 0.7828. What is the value of a nine-month (0.75 year) European call and a European put with striking prices equal to $60 if the
3. A stock currently selling for $50 has an annual returns variance equal to 0.36. The riskless return rate equals 0.08 per year. Under the binomial framework, what would be the value of nine-month (0.75 year) European calls and European puts with striking prices equal to $80 if the number of tree
2. Rollins Company stock currently sells for $12 per share and is expected to be worth either $10 or $16 in one year. The current riskless return rate is 0.125. What would be the value of a one-year call with an exercise price of $8?
1. Consider a one-time-period, two potential outcome framework where there exists Company Q stock currently selling for $50 per share and a riskless $100 face value TBill currently selling for $90. Suppose Company Q faces uncertainty, such that it will pay its owner either $30 or $70 in one year.
21. Consider the following exercise concerned with management of transactions exposure.The Smedley Company has sold products to a Japanese client for f15,000,000. Payment is due six months later. Relevant data is as follows:Spot exchange rate: f105/$Six-month forward exchange rate: f104/$Japanese
20. Assume that $1 will purchase d0.60 and f108; that is, 1 U.S. dollar will purchase 0.6 UK pounds and 108 Japanese yen. Assume that goods in the three countries are identically priced after adjusting for currency exchange rates.a. What is the value of d1 in f?b. What is the value of f1 in d?c. If
19. Consider a case involving three currencies concerning cross rates of exchange. Assume that 1.5 Swiss francs are required to purchase 1 U.S. dollar and that 0.64 U.S. dollars are required to purchase 1 Canadian dollar.a. How many Canadian dollars are required to purchase 10 Swiss francs?b.
18. Suppose we expected that PPP should hold between the United States and Canada.Assume that the exchange rate between U.S. dollars and Canadian dollars is CAD1/USD0.64. That is, one Canadian dollar will purchase USD0.64. If USD2.30 purchases one Big Mac in the United States, how much should a Big
17. Assume that there are two three-year bonds with face values equaling $1000.The coupon rate of Bond A is 0.05 and 0.08 for Bond B. A third Bond C also exists, with a maturity of two years. Bond C also has a face value of $1000; it has a coupon rate of 11%. The prices of the three bonds are
16. Bond A, a three-year 7% issue, currently sells for 964.3227. Bond B is a two-year 8%issue currently selling for 1010.031. Bond C is a three-year 6% issue currently selling for 938.4063. Based on this information, answer the following:a. What are the one-, two-, and three-year spot rates of
15. Consider the following four bonds:F n c P0 1000 1 0.01 1005 1000 2 0.05 1040 1000 3 0.04 1020 1000 4 0.04 990 Based on the cash flows and prices associated with these bonds, determine the following:a. Spot rates y0,n for each of four years 1 through 4. These are interest rates on loans
14. Suppose that the one-year spot rate y0,1 of interest is 5%. Investors are expecting that the one-year spot rate one year from now will increase to 7%; thus, the one-year forward rate y1,2 on a loan originated in one year is 7%. Furthermore, assume that the three-year spot rate equals 7% as
13. Suppose that the one-year spot rate y0,1 of interest is 5%. Investors are expecting that the one-year spot rate one year from now will increase to 6%; thus, the one-year forward rate y1,2 on a loan originated in one year is 6%. Furthermore, assume that investors are expecting that the one-year
12. Consider an example where we can borrow money today for one year at 5%;y0,150.05. Suppose that we are able to obtain a commitment to obtain a one-year loan one year from now at an interest rate of 8%. Thus, the one-year forward rate on a loan originated in year equals 8%. According to the pure
11.a. Use the duration (first-order) approximation models to estimate bond value increases induced by changes in interest rates (yields) to 10% for each of the bonds in Problem 10 above.b. Use the convexity (second-order) approximation models to estimate bond value increases induced by changes in
10. Find durations and convexities for each of the following bonds:a. 10% five-year bond selling for $1079.8542 yielding 8%b. 12% five-year bond selling for $1000 yielding 12%
9. What is the duration of a portfolio consisting of one of each of the bonds listed in problem 7?
8. Based on duration computations, what would happen to the prices of each of the bonds in Question 8 if market interest rates (11r) were to decrease by 10%?
7. Find the duration of each of the following $1000 face value coupon bonds assuming coupon payments are made annually:a. Three-year 10% bond currently selling for $900b. Three-year 12% bond currently selling for $900c. Four-year 10% bond currently selling for $900d. Three-year 10% bond currently
6. What is the relationship between the maturity of a pure discount bond and its duration?
5. Find the duration of the following pure discount bonds:a. $1000 face value bond maturing in one year currently selling for $900b. $1000 face value bond maturing in two years currently selling for $800c. $2000 face value bond maturing in three years currently selling for $1400d. Portfolio
4. A life insurance company expects to make payments of $30,000,000 in one year,$15,000,000 in two years, $25,000,000 in three years, and $35,000,000 in four years to satisfy claims of policyholders. These anticipated cash flows are to be matched with a portfolio of the following $1000 face value
3. Work through each of the calculations in Problem 2 assuming that interest payments are made semiannually.
2. A $1000 face value bond is currently selling at a premium for $1200. The coupon rate of this bond is 12% and it matures in three years. Calculate the following for this bond assuming that its interest payments are made annually:a. Annual interest paymentsb. Current yieldc. Yield to maturity

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Financial Trading And Investing 1st Edition John Teall - Solutions

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