Questions and Answers of Financial Trading And Investing

1. 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
2. The options are valued with the Black-Scholes model in a step-by-step format in the following table:Option 1 Option 2 Option 3 Option 4 d(1) 0.957739 20.163836 0.061699 0.131638 d(2) 0.657739
2. Evaluate calls for each of the following European stock option series:Option 1 Option 2 Option 3 Option 4 T51 T51 T51 T52 S530 S530 S530 S530σ50.3 σ50.3 σ50.5 σ50.3 rf50.06 rf50.06 rf50.06
1. Call and put options with an exercise price of $30 are traded on one share of Company X stock.a. What are the value of the call and the put if the stock is worth $33 when the options expire?b.
9. Santo Company stock currently trades for $50 per share. The current riskless return rate is 0.06. Under the Black-Scholes framework, what would be the standard deviations implied by six-month (0.5
8. Suppose that there is a six-month call currently trading for $8.20 while its underlying stock is currently trading for $75. Other details for this example are as follows:T50:5 rf 50:10 c0 58:20
7. Torre Company stock realized a 52-week high of $50 per share and a 52-week low of$25. What is the Parkinson extreme value estimate for variance for this stock? What would be the corresponding
6. The following daily prices were collected for each of three stocks over a 12-day period.Company X Company Y Company Z Date Price Date Price Date Price 1/09 50.125 1/09 20.000 1/09 60.375 1/10
5. The following table presents sample daily historical price data for a stock whose returns are given in the third column.Time Pricet Returnt 0 30.000 N.A.1 30.125 0.00417 2 30.250 0.00415 3 30.125
4. What would each of the probabilities in problem 3 be if Nettles Company management were certain enough of its forecast to associate a 5% standard deviation with its returns projection?
3. The Nettles Company management projects an expected return level of 15% for the upcoming year. Assuming that returns are normally distributed with a standard deviation equal to .1, what is the
2. The following table represents outcome numbers, probabilities, and associated returns for Stock A:Outcome (i) Return (Ri) Probability (Pi)1 05 10 2 15 10 3 05 05 4 15 10 5 15 10 6 10 10 7 15 10 8
1. Historical percentage stock returns for the Robinson and Boyer Companies are listed in the following chart along with percentage returns on the market portfolio:Year Robinson Boyer Market 2008 4
10. Based on models described in this chapter, why does the dealer spread widen as the uncertainty associated with the relevant security increases?
9. This exercise is related to a trading practice called quote matching (see Chapter 12), which occurs when a small trader places an order one uptick (downtick) from that of a large trader so as to
8. Suppose that dealer inventory costs were the sole source of the dealer spread. Further suppose that a transaction was executed at the bid. Would subsequent bid and offer quotes tend to be higher
7. Describe how transaction costs will tend to increase inverse correlations between trade-to-trade transaction prices.
6. Based on his estimates of the risk of a security, a trader believes that the price of a stock traded in a dealer market will fall within a $3 range, with potential prices being uniformly
5. In the Glosten and Milgrom (1985) model, dealer spreads will tend to be smaller when arrivals of buy and sell orders are balanced. Why do such balanced order arrivals tend to produce smaller
4. We saw in Chapter 3 that in a statistical study of stock market data, Barclay and Werner (1993) found that very small trades and the very large trades did not have a significant impact on stock
3. An informed trader has private information that the value of a stock is $100 per share.Without this information, the variance of payoffs on the stock would be $60; this is the level of payoff
2. The model of demand in the Kyle (1985) assumes that perfectly informed trader demand x increases linearly in his expected value of the traded stock. This assumption is important to Kyle’s
1. Members of tribal fishing societies generally undertake efforts to share information on where the fish are biting. Modern fishermen often purchase information identifying locations of schools of
5. The United States has maintained a “rules-based” approach to securities regulation while the UK has been progressing to a “principles-based” system of securities regulation.a. Consider the
4. Some people commented that the Securities Act of 1933 was based on the “sunlight theory of regulation,” which is analogous to saying that “those who are forced to undress in public will
3. This chapter discussed several of the advantages of maintaining private regulatory bodies for securities markets. What might be some of the disadvantages to this type of securities market
2. The following was taken from the Securities Exchange Act of 1934, Section 10, amended as of January 3, 2012:It shall be unlawful for any person, directly or indirectly, by the use of any means or
1. Some lawyers and economists have argued that legalizing insider trading would benefit markets by allowing insiders to disseminate information through their own trading activity. Prepare an
6. Describe why many flash order critics regard much flash trading to be a form of front-running.
5. What is the difference between an “immediate” or “cancel” order (described in Chapter 2) and a flash order?
4. Critics of high-frequency trading often complain that the practice is unfair because most investors do not have the technical ability to compete with the larger, better-financed institutions. For
3. Sniffing algorithms attempt to discern competitors’ algorithms. In some instances, mere observations of competitor trading activity can reveal information as to competitor strategies, latent
2. Suppose that a client of the ABC brokerage firm seeks to have her order of X5500,000 shares executed within three hours with the best possible execution; that is, she wants to realize the lowest
1. Suppose that you are a trader at a large trading firm. You have just received a sell order from a mutual fund for 1,000,000 shares of stock that has an average daily volume of 250,000 shares. What
5. Assume that $1 will purchase d0.60 and f108; that is, one U.S. dollar will purchase 0.6 UK pounds and 108 Japanese yen. Assume that goods in the three countries are identically priced after
4. Suppose that the Swiss franc is currently trading at 2 per U.S. dollar. The franc is expected to be revalued to CHF2.5 per dollar.a. Has the franc been devalued relative to the dollar?b. Has the
3. Exactly what does an investor expect from her broker when she places a stop limit order with a stop price to buy at 50 and a limit price of 50.10? Why might an investor place such an order?
2. How does a stop order differ from a limit order?
1. For a 20-year period beginning in 1986, the NYSE was regularly criticized for making less use of electronic and computer technology than most of its competitors around the world, even less than
7. Suppose that the last sale of Company X stock was at a price of $100.00. Further suppose that an investor wishes to place a market order to purchase 25,000 shares of Company X stock.Market A
6.a. In an all-pay auction, all bidders pay the amounts that they bid for the object to be auctioned, but only the winner, that is, whoever places the highest bid, takes possession of the object.
5. There are two ways to purchase T-Bills. The first is to enter a competitive bid at the auction where the bidding institution competes for a given dollar amount of the new issue based on how much
4. An auction house has decided to sell a sculpture in an open outcry second-price auction. The auction house manager does not know the value any bidder will place on the work, but does know that
3. Suppose there was an open outcry English second-price auction. All bids are public.You are willing to bid a maximum of $100 for the auctioned item. You know that no one else will be willing to pay
2. How does trading differ from speculating?
1. How might long-term investors benefit from vigorous competition among short-term traders?
1. Use the Taylor-Russell tables (see Appendix A ) to solve these problems by filling in the following table: Validity SR BR Success Ratio 0.25 0.20 0.30 0.55 0.70 0.80 0.20 0.70 0.80 0.10 0.50 0.50
2. Use the Naylor-Shine tables (see Appendix B ) to solve these problems by filling in the following table: Ixy Zxi 0.35 0.7019 0.22 0.47 -0.47 -0.30 z-baryi 0.65 0.65
1. Divide into four- to six-person teams and do either A or B, depending on feasibility.A. Choose a production job at a fast-food restaurant and, after making appropriate modifications of the
2. Jim Hill is the manager of subscriber accounts for the Prosper Company. The results of a job analysis indicate that Jim’s job includes four principal activities.A summary of Jim’s superior’s
3. Assume that an average SWAT team member is paid $55,000 per year. Complete the following questionnaire. Then use the results to estimate SD y by means of the superior equivalents technique.For
1. Build a high-level talent strategy. If working in a group, identify and analyze one member’s organization and identify a key strategic differentiator.Next, identify a critical role, skill, or
2. Identify an individual or role and build a succession plan for your own organization, or, if working in a group, choose one member’s organization to analyze. First, identify a specific role or
3. Working with data for one organization, estimate and plan for the organization’s risk due to retirements. First, identify the roles, capabilities, or business units you will analyze for risk. Be
1. Consolidated Industries, a 2,800-employee firm, is faced with a serious, and growing, absenteeism problem. Last year, total employee-hours lost to absenteeism came to 165,808. Of the total
2. Inter-Capital Limited is a 500-employee firm faced with a 3.7 percent annual absenteeism rate over the 1,960 hours that each employee is scheduled to work. About 15 percent of absentees are blue
3. As a management consultant, you have been retained to develop two alternative programs for reducing employee absenteeism at Consolidated Industries (question 1). Write a proposal that addresses
1. Ups and Downs Inc., a 4,000-employee organization, has a serious turnover problem, and management has decided to estimate its annual cost to the company. Following the formulas presented in
1. Ups and Downs Inc., a 4,000-employee organization, has a serious turnover problem, and management has decided to estimate its annual cost to the company. Following the formulas presented in
2. The following data shows turnover costs for the 4,000 employees of Hulakon Inc., for one year. In any given year, 12 percent of the employees can be expected to quit.Employee Group Number of
3. You are a leader in HR for a regional manufacturing organization with several different plants across five states. Despite producing the same goods using the same equipment, some of them are
4. You are CEO of a public-relations company. You have been thinking about how to drive productivity in your organization. Based on what you have learned, what strategies might you adopt?
1. Your boss is skeptical about claims that workplace flexibility is important to managers as well as employees. What evidence can you provide to offset this line of thinking?
2. What is a workplace flexibility program? What are some examples?
4. Why is workplace flexibility particularly important to professional employees?
5. Describe some of the key barriers to wider implementation of workplace flexibility programs.
6. Develop a strategy for informing the debate over whether to invest in workplace flexibility programs. What cautions would you build into your game plan?
9. How do workplace flexibility programs relate to organizational performance?
1. Use the software to solve these problems by filling in the following table: Validity SR BR Success Ratio 0.25 0.20 0.30 0.55 0.70 0.80 0.20 0.70 0.80 0.10 0.50 0.50 0.55 0.50 0.50
2. Using the Brogden-Cronbach-Gleser continuous variable utility model, what is the net gain over random selection (ΔU overall, and per selectee) given the following information?Quota for selection:
3. Given the following information on two selection procedures, and using the Brogden-Cronbach-Gleser model, what is the relative difference in payoff (overall and per selectee) between the two
4. The Tiny Company manufactures components for aerial drones. Most of the work is done at the 2,000-employee Tiny plant in the Midwest.Using the instructions provided for the global-estimation
5. Jim Hill is the manager of subscriber accounts for the Prosper Company. The results of a job analysis indicate that Jim’s job includes four principal activities. A summary of Jim’s
1. You are given the following information regarding the CAP test for clerical employees (clerk-2s) at the Berol Corporation:Average tenure as a clerk-2: 7.26 years Number selected per year: 120
2. Referring to Exercise 1, suppose that after consulting with the chief financial officer at Berol, you are given the following additional information: variable costs are 0.08, taxes are 40 percent,
3. The Top Dollar Co. is trying to decide whether to use an assessment center to select middle managers for its consumer products operations.The following information has been determined: variable
1. Jane Burns, an HR analyst for Standard City, USA, knows that SDy for firefighters in her city is $31,000. The fire department has asked the city to provide training in team building for 500 of its
2. Suppose, in Exercise 1, that you have just read a meta-analysis of teambuilding studies and know that the cumulated estimate of dt is 0.45.Compute an expected utility for the program and compare
3. With regard to Exercise 2, suppose that the discount rate is 10 percent, and variable costs are –0.10. The city is not taxed. How do these factors affect the estimate of expected utility that
4. Pilgrim Industries, a 2,000-employee firm with 400 managers, holds 40 days of off-site meetings per year. Outside consultants develop and conduct the meetings, and, on average, 20 managers attend
5. Pilgrim’s CEO has heard about the remarkable quality of “telepresence”web-based conferencing systems, and she has asked you to prepare a per-person, per-day cost comparison of an off-site
When Everyone Is Reducing Employee Health Investments, Is It Smart to Invest More ?
5. Pilgrim’s CEO has heard about the remarkable quality of telepresence web-based conferencing systems, and she has asked you to prepare a per-person, per-day cost comparison of an off-site meeting
4. Pilgrim Industries, a 2,000-employee firm with 400 managers, holds 40 days of off-site meetings per year. Outside consultants develop and conduct the meetings, and, on average, 20 managers attend
3. With regard to Exercise 2, suppose that the discount rate is 10 percent and variable costs are –0.10. The city is not taxed. How do these factors affect the estimate of expected utility that you
2 . Suppose, in Exercise 1, that you have just read a meta-analysis of team-building studies and know that the cumulated estimate of dt is 0.45. Compute an expected utility for the program and
1. Jane Burns, an HR analyst for Standard City, USA, knows that SD y for firefighters in her city is $28,000. The fire department has asked the city to provide training in team building for 500 of
3. The Top Dollar Co. is trying to decide whether to use an assessment center to select middle managers for its consumer products operations. The following information has been determined: variable
2 . Referring to Exercise 1, suppose that after consulting with the chief financial officer at Berol, you are given the following additional information: variable costs are –0.08, taxes are 40
1. You are given the following information regarding the CAP test for clerical employees (clerk-2s) at the Berol Corporation:Average tenure as a clerk-2: 7.26 years Number selected per year: 120
5 . You are a management consultant whose task is to do a utility analysis using the following information regarding secretaries at Inko, Inc. The validity of the Secretarial Aptitude Test (SAT) is
4. Given the following information on two selection procedures, and using the Brogden-Cronbach-Gleser model, what is the relative difference in payoff (overall and per selectee) between the two
3. Using the Brogden-Cronbach-Gleser continuous-variable utility model, what is the net gain over random selection (ΔU overall and per selectee), given the following information?Quota for selection:
Software that calculates answers to one or more of the following exercises can be found at http://hrcosting.com/hr/ .1. Consolidated Industries, an 1,800-employee firm, is faced with a serious—and
Software that calculates answers to one or more of the following exercises can be found at http://hrcosting.com/hr/ .1. Ups and Downs, Inc., a 4,000-employee organization, has a serious turnover
1 . Sobriety, Inc., a marketer of substance abuse programs, is concerned about the cost of alcohol abuse among its own employees. Based on the following data, what is the productivity cost associated
2. The following data shows turnover costs for the 4,000 employees of Hulakon, Inc., for one year. In any given year, 12 percent of the employees can be expected to quit.A total of 120 employees
1. Your boss has asked you for evidence that shows the link between employee attitudes such as job satisfaction, commitment, and engagement, and both individual and organizational outcomes. In other
2. Develop a logic diagram that shows the common and unique outcomes that employee satisfaction, commitment, and engagement might be related to.
3 . What is SYSCO’s value-profit chain? Explain each link in the model and why it is important in understanding how management practices affect employee satisfaction-engagement, customer

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