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fundamentals of investing

Questions and Answers of Fundamentals Of Investing

The required rate of return used in equity valuation is influenced most by which of the following?a. Expected inflationb. Actual inflationc. The ability to sell short
Confirmation bias is the tendency for investors toa. focus on information that confirms prior opinions and actions.b. be overconfident in forecasting future growth.c. feel responsible for poor
Which of the following would provide the most compelling evidence contradicting the semi-strong form of the efficient markets hypothesis?a. Transactions costs are high.b. Low P/E stocks have positive
The strong-form efficient market hypothesisa. assumes that no one has an informational advantage.b. assumes that certain groups have access to privileged information.c. directly challenges the
The cash flow component of bond investments is made up of the annual interest payments and the future redemption value or its par value. Just like other time-value-of-money considerations, the bond
All bonds are priced according to the present value of their future cash flow streams. The key components of bond valuation are par value, coupon interest rate, term to maturity, and market yield. It
Sinking funds are most likely toa. reduce credit risk (default risk).b. never allow issuers to retire more than the sinking fund requirement.c. always reduce the outstanding balance of the bond issue
A bond portfolio manager gathered the following information about a bond issue:If yields are expected to decline by 75 basis points, which of the following would provide the most appropriate estimate
An analyst stated that a callable bond has less reinvestment risk and more price appreciation potential than an otherwise identical noncallable bond. The analyst’s statement most likely isa.
Treasury STRIPS are securities created by stripping the coupon and principal payments made by an ordinary bond and selling them as individual securities. A U.S.Treasury note with exactly 4 years to
The present value of a $1,000 par value, zero-coupon bond with a three-year maturity assuming an annual discount rate of 6% compounded semiannually is closest toa. $837.48.b. $839.62.c. $943.40.
A bond with 14 years to maturity and a coupon rate of 6.375% has a yield to maturity of 4.5%. Assuming the bond’s YTM remains constant, the bond’s value as it approaches maturity will most
A coupon-bearing bond purchased when issued at par value was held until maturity during which time interest rates rose. The ex-post realized return of the bond investment most likely wasa. above the
An analyst accurately calculates that the price of an ordinary, noncallable bond with a 9% coupon would experience a 12% change if market yields increase 100 basis points. If market yields decrease
A bond with a par value of $1,000 has a duration of 6.2. If the yield on the bond is expected to change from 8.80% to 8.95%, the estimated new price for the bond following the expected change in
Go to Yahoo! Finance and look up data on the Vanguard 500 Index Investor fund (ticker symbol VFINX) and the Fidelity Magellan Fund (ticker symbol FMAGX). These are among the largest mutual funds in
In the Wall Street Journal, open-end mutual funds are listed separately from other securities. They have their own quotation system where the primary data variables are the net asset value (NAV) and
Based on the information on the Blackrock website (https://www.blackrock.com/ca/individual/en/library), describe the iShares Conservative Short Term Strategic Fixed Income ETF. Select any ETF from
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
An analyst compared the performance of a hedge fund index with the performance of a major stock index over the past eight years. She noted that the hedge fund index (created from a database) had a
Emmanuel Adewale, 25 years old, works in Abuja as a customer relationship manager at a major bank. His current personal portfolio is made mostly of bonds (60%), value stocks (20%), and ETFs (20%)
In-kind redemption is a process available to investors participating ina. traditional mutual funds but not exchange-traded funds.b. exchange-traded funds but not traditional mutual funds.c. both
Does trading take place only once a day at closing market prices in the case of exchange-traded funds? C. a. No b. No Yes traditional mutual funds? No Yes No
Do funds that are likely to trade at substantial discounts from their net asset values include exchange-traded funds? a. No b. No C. Yes closed-end funds? No Yes No
Forms of real estate investment that typically involve issuing shares that are traded on the stock market includea. real estate investment trusts but not commingled funds.b. commingled funds but not
Western Investments holds a fixed-income portfolio that comprise four bonds whose market values and durations are given in the following tableThe portfolio’s duration is closest toa. 6.06b. 6.25c.
You have just learned about the mechanics of margin trading and want to take advantage of the potential benefits of financial leverage. You have decided to open a margin account with your broker and
Describe some of the ways in which you think online trading has transformed investment strategies, particularly by non-institutional investors. What, according to you, are the benefits and risks
Allen Morgan has bought a round lot of Apple, Inc., common stocks, which are traded on the NYSE at the price of $100 per share. Allen is afraid that the price of Apple stocks may fall during the day,
If you place a stop-loss order to sell at \($35\) on a stock currently selling for \($38\) per share, what is likely to be the minimum loss you will incur on 80 shares if the stock price declines to
Peter Tanaka is interested in starting a stock portfolio. He has heard many financial reporters talk about the Dow Jones Industrial Average as being a proxy for the overall stock market. From
Two investments offer a series of cash payments over the next four years, as shown in the following table.a. What is the total amount of money paid by each investment over the four years?b. From a
Refer to the table in Problem 4.5. What is the expected total return in dollars and as a percentage of your original investment if you purchase 100 shares of the investment at the beginning of 2014
Suppose that on January 1, 2016, you place \($1,000\) into an account that earns 5% interest and interest compounds each year. You plan to withdraw \($300\) at the beginning of 2017, but you will
Once again, suppose that on January 1, 2016, you invest \($1,000\\) in an account that pays 5% interest. As before, you have plans to withdraw \($300\) after one year and to deposit and additional
Using a financial calculator or spreadsheet, calculate the following:a. The future value of a $223 deposit left in an account paying 7% annual interest for eight years.b. The future value at the end
Using a financial calculator or spreadsheet, calculate the future value in four years of $15,000 invested today in an account that pays a stated annual interest rate of 10%, compounded monthly.
If you deposit $1,000 into an account at the end of each of the next three years and the account pays an annual interest rate of 4%, how much will be in the account after three years?
A Florida state savings bond can be converted to $1,000 at maturity five years from purchase. If the state bonds are to be competitive with U.S. savings bonds, which pay 1% interest compounded
Referring to Problem 4A.9, at what price would the bond sell if U.S. savings bonds were paying 1.5% interest compounded annually? Compare your answer to that of the preceding problem.Data from
Congratulations! You have won the lottery! Would you rather have \($2\) million at the end of each of the next 10 years or \($10\) million today? (Assume a 10% discount rate.)
Nabil Stafanous purchased a truck for his construction company. The cost of the truck was $25,000. He borrowed 80% of the cost, to be repaid in equal quarterly installments over three years at an
Referring to Problem 4A.19, assume that Nabil has made 10 payments. What is the balance of his loan?Data from Problem 4A.19Nabil Stafanous purchased a truck for his construction company. The cost of
Ahmed Zahran is building a new portfolio that consists of two stocks, A and B. Stock A will represent 40% of his portfolio while stock B will represent the remaining 60%. The expected returns for 10
Refer to Problem 5.3. Calculate the average expected return and standard deviation over the six-year period if asset L represents 50% of the portfolio and asset M represents the other 50%. Which form
You are evaluating two possible stock investments, Leverage Co. and Value Corp. Leverage Co. has an expected return of 10% and a beta of 1.4. Value Corp. has an expected return of 10% and a beta of
Referring to Problem 5.16, if you expect a significant market slump, would your decision be altered? Explain.Data from Problem 5.16You are evaluating two possible stock investments, Leverage Co. and
Jay is reviewing his portfolio, which includes certain stocks and bonds. He has a large amount tied up in U.S. Treasury bills paying 2%. He is considering moving some of his funds from the T-bills
If portfolio A has a beta of 1.2, and portfolio Z has a beta of –0.2, what do the two values indicate? If the return on the market rises by 10%, what impact, if any, would this have on the returns
Katie plans to form a portfolio consisting of two securities, Intel (INTC) and Procter & Gamble (PG), and she wonders how the portfolio’s return will depend on the amount that she invests in
Liquidity is best described asa. wanting a portfolio to grow over time in real terms to meet future needs.b. converting an asset into cash without much of a price concession.c. wanting to minimize
A portfolio consists of 75% invested in Security A with an expected return of 35% and 25% invested in Security B with an expected return of 7%. Compute the expected return on the portfolio.
Stocks A and B have standard deviations of 8% and 15%, respectively. The correlation between the two stocks’ returns has historically been 0.35. What is the standard deviation of a portfolio
Which of the following portfolios would be off the efficient frontier? Portfolio Expected Return Risk A 13% 17% BC 12% 18% C 18% 30%
As the correlation coefficient between two securities changes in a portfolio,a. both expected return and risk change.b. neither expected return nor risk changes.c. only risk changes.
Portfolio risk isa. equal to the sum of the standard deviations of each of the securities in the portfolio.b. not dependent on the relative weights of the securities in the portfolio.c. not equal to
Faced with an efficient set of portfolios, an investor woulda. choose the one with the highest expected return.b. always select portfolios on the left end of the efficient frontier.c. choose the
Both Portfolio Y and Portfolio Z are well diversified. The risk-free rate is 6%, the expected return on the market is 15%, and the portfolios have these characteristics:Which of the following best
For a stock with a margin requirement of 40%, how much cash is required, expressed as a percentage of the purchase cost?a. 0%b. 40%c. 50%
Which of the following is not a weighting scheme commonly used in creating equity market indexes?a. Price-weightedb. Industry-weightedc. Value-weighted
iCorporation has a relative systematic risk level that is 40% greater than the overall market. The expected return on the market is 16%, and the risk-free rate is 7%. Using the CAPM, the required
An investor has E£50,000 (Egyptian pound). He deposits E£37,000 into a brokerage account. He buys 1,000 shares of the Commercial International Bank (CIB) for E£35 per share. One week later, the
You have been asked to analyze the financial statements of the Dayton Corporation for the two years ending 2015 and 2016.Questionsa. Create a comparative balance sheet for the years 2016 and 2015,
Select a company from Yahoo! Finance or another online source that would be of interest to you. (Pick a company that’s been publicly traded for at least seven years and avoid public utilities,
Greg and Alice Wang, both in their 50s, have \($100,000\) to invest and plan to retire in 10 years. They are considering two investments. The first is a utility company common stock that costs
The current exchange rate between the euro and the U.S. dollar is 0.925884. This means that one dollar can buy 0.925884 euros. How many dollars would you get for 1,000 euros?
Jean Paul holds €500,000 worth of French Treasury notes. These bonds are currently being quoted at 105% of par. He is concerned that rates are headed up over the next six months and would like to
Francesco has been investing in the Italian Stock Exchange, based in Milan, for a long time. He is an aggressive investor and likes to short sell whenever he sees an opportunity. Recently, he became
Jean Paul holds €500,000 worth of French Treasury notes. These bonds are currently being quoted at 105% of par. He is concerned that rates are headed up over the next six months and would like to
Akasuki works for an investment firm in Japan. Her client asks her to buy a Nikkei 225 VI Futures December (each point is equal to 250,000 yen) at 25 points and latter asks her to sell it for 30
Since he was young, Mark has been working at his family’s business house, which has to do with growing and selling Eastern Australia Canola. As he was just named president of the business, he
Francesca Cipriani considers herself a shrewd investor. She is considering a short position in March Italian Electricity futures, which are currently trading for €50.5. Her analysis suggests that
Jacques wants to profit from the continuous increase in price of European stocks. Since they have been very volatile in the last year, he decides to buy a call option on an ETF (iSHARES EURO STOXX
Pierre’s uncle recently passed away and left him €500,000, which he will receive in three months. He wants to invest the money in safe, interest-bearing instruments, and he believes French
Jean Paul’s father, a famous French businessman, left him €4 million. Jean Paul invested that money in the French stock market, investing in 20 of the largest capitalization stocks in France.
Mark buys two contracts at A$557.50. On the delivery date of the contracts, the price increased to A$560.50. How much money did Mark make? What was his return on invested capital, given that the
A quote for a future contract for British pounds is €1.18/£. The contract size for British pounds is £62,500. What is the euro equivalent of this contract?
Using settlement or closing prices from Figures 15.2 and 15.3, find the value of the following commodities and financial futures contracts.a. December 2018 cornb. March 2019 cornc. September 2018
Gary thinks that the Australian economy will undergo a recession and interest rates will decline, and he decides to speculate in the futures market. He buys one 10-year government bond future (the
What measure is used to calculate the return on a commodities contract?
Based on current and forecasted weather conditions, Paolo believes that Durum Wheat futures will rise, so he buys two contracts (50 tons per contract) for December delivery at €235. The Italian
Based on the following information, calculate the profit and loss you would make in each of the futures transactions listed on the Australian futures market.a. You buy five contracts of Eastern
One of the unique features of futures contracts is that they have only one source of return–the capital gains that can accrue when price movements have an upward bias. Remember that there are no
Alessandro reads in an Italian newspaper that the European economy is heading into a deflationary period, and the ECB is using different stimulus strategies to support growth in the euro area. At the
Wolfgang has purchased a futures contract for euros. The contract is for €125,000, and the quote was CHf1.2/€. On the delivery date, the exchange quote is CHf1.1/€. Assuming Wolfgang took
You want to calculate the 14-day period Relative Strength Index (RSI) for stock A at the end of the 14th day, as represented by the following table:a. Calculate the 14-day period RSI for stock A,
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?
Describe each of the following, and note how it is computed and used by technicians:a. Advance-decline linesb. Arms indexc. On-balance volumed. Relative strength indexe. Moving averages
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?

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