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fundamentals of investing

Questions and Answers of Fundamentals Of Investing

On March 15, 2018, Bandhan Bank Ltd., a commercial bank focused on micro banking and general banking services in West Bengal, India, conducted its initial public offering (IPO) of common stock. In
Ravi Dumar is a stockbroker who firmly believes that the only way to make money in the market is to follow an aggressive investment posture—for example, to use margin trading. In fact, Ravi has
Darren Simmons, a financial analyst, considers himself a savvy investor. He has increased his investment portfolio considerably over the past five years. Although he has been fairly conservative with
Last year, Rocket Inc. earned a 20% return. Farmer’s Corp. earned 10%. The overall market return last year was 16%, and the risk-free rate was 2%. If Rocket stock has a beta of 2.0 and Farmer’s
A security has a beta of 1.2. Is this security more or less risky than the market? Explain. Assess the impact on the required return of this security in each of the following cases.a. The market
Joseph 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
Wally Wilson is a commercial artist who makes a good living by doing freelance work— mostly layouts and illustrations—for local ad agencies and major institutional clients (such as large
Describe the role that dividends and capital gains play in delivering returns to common stock investors.
The historical returns for two investments—A and B—are summarized in the following table for the period 2016 to 2020. Use the data to answer the questions that follow.a. On the basis of a review
What is diversification? How does the risk of a diversified portfolio compare with the risks of the individual assets it contains?
You have been given the following return data on three assets—A, B, and C—over the period 2021–2024.Using these assets, you have decided to analyze three investment alternatives:a. Calculate
Assume you wish to evaluate the risk and return behaviors associated with various combinations of two stocks, Alpha Software and Beta Electronics, under three possible degrees of correlation: perfect
The following table contains annual returns for the stocks of Home Depot (HD) and Lowe’s (LOW). The returns are calculated using end-of-year prices (adjusted for dividends and stock splits)
Use the table of annual returns in Problem 5.9 for Home Depot (HD) and Lowe’s (LOW) to create an Excel spreadsheet that calculates the average returns for portfolios that comprise HD and LOW using
Is the CAPM a predictive model? How can investors use the CAPM?
The following table contains annual returns from 2008 to 2017 for two stocks, Consolidated Edison (ED) and Central Valley Community Bancorp (CVCY). Use Excel to create a spreadsheet that calculates
Refer back to the annual returns for Consolidated Edison and Central Valley Bancorp in Problem 5.12. Following are the annual returns on a broad market index from 2008 to 2017.a. On a set of market
The beta of Pacific Ventures is 1.2, and the beta of Delta Growers is 0.8. Which of the following statements is most accurate? Explain.a. Pacific Ventures has higher total risk than Delta Growers.b.
Indicate whether each statement is true or false and provide an explanation for your answer.a. The stock of Deutsche Bank is completely uncorrelated to the overall market. This stock will have an
Jamie Wong is thinking of building an investment portfolio containing two stocks, L and M. Stock L will represent 40% of the dollar value of the portfolio, and stock M will account for the other 60%.
In each of the following cases, calculate the price of one share of foreign stock measured in euros (€).a. A British stock priced at 55 pounds (£) when the exchange rate is 1.16 €/£ (i.e., each
Find and visit the sites of two basic discount brokerages listed in Table 3.4 or any others you know. After exploring the sites, compare them for ease of use, quality of information, availability of
Choose a publicly traded company that has been listed on the Egyptian Exchange (EGX) for at least five years. Use any data source of your choice to find the annual cash dividend paid, if any, by the
Some analysts argue that real interest rates, which have been close to zero in the past year in the U.S., may soon turn negative. Explain how the real interest rate can be negative. Evaluate this
For each of the investments shown in the following table, calculate the rate of return earned over the period. Investment A BUDE C Cash Flow During Period -$ 800 $15,000 $ 7,000 $ 80 $
Choose three NYSE-listed stocks and maintain a record of their dividend payments, if any, and closing prices each week over the next six weeks.a. At the end of the six-week period, calculate the
A local entrepreneur asks you to invest $10,000 in a business venture. Based on your estimates, you would receive nothing for three years, at the end of year four you would receive $4,900, and at the
You are evaluating five different investments, all of which involve an upfront outlay of cash. Each investment will provide a single cash payment back to you in the future. Details of each investment
From the Wall Street Journal, a website such as Yahoo! Finance, or some other source, obtain a current estimate of the risk-free rate (use a 10-year Treasury bond). Use the Value Line Investment
From the Wall Street Journal, a website such as Yahoo! Finance, or some other source, obtain a current estimate of the risk-free rate (use a 10-year Treasury bond). Use the Value Line Investment
Obtain a prospectus and an annual report for a major mutual fund that includes some international securities. Carefully read the prospectus and annual report and study the portfolio’s composition
Use Yahoo! Finance or some other source to select four stocks with betas ranging from about 0.50 to 1.50. Record the current market prices of each of these stocks. Assume you wish to create a
Suppose that the risk-free rate is 3% and the expected return on the market portfolio is 10%. A certain stock has a beta of 1.0. You believe that over the next year, this stock will produce a return
Create an Excel spreadsheet that graphs the portfolio return and standard deviation combinations found in Problem 5.10 for Home Depot and Lowe’s.Data From Problem 5.10Use the table of annual
Assume the risk-free rate is 3% and the expected return on the market portfolio is 10%. Use the capital asset pricing model to find the required return for each of the following securities.
Coastal Rail is currently trading at $35 per share. The company pays a quarterly dividend of $0.92 per share. What is the dividend yield?
Create a spreadsheet that applies the variable-growth model to predict the intrinsic value of the Rhyhorn Company common stock. Assume that dividends will grow at a variable rate for the next three
Nabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the public offering, managers at Nabor have
Each year the financial media publishes lists of the top-performing mutual fund managers. And every year there are some fund managers who earn much higher returns than the market average, and in some
Using the resources at your campus or public library or on the Internet, find the information requested below.a. Select any two convertible debentures (notes or bonds) and determine the conversion
How do you calculate the return and standard deviation of a portfolio? Compare the calculation of a portfolio’s standard deviation with that for a single asset.
Using the following guidelines, choose the stocks—A, B, and C—of three firms that have been public for at least 10 years. Stock A should be one you are interested in buying. Stock B should be a
Assume you are considering a portfolio containing assets 1 and 2. Asset 1 will represent 55% of the dollar value of the portfolio, and asset 2 will account for the other 45%. The projected returns
State your portfolio objectives. Then construct a 10-stock portfolio that you feel is consistent with your objectives. (Use companies that have been public for at least five years.) Obtain annual
Describe the differing investment philosophies typically applied during each of the following stages of an investor’s life cycle.a. Youth (ages 20 to 45)b. Middle age (ages 46 to 60)c. Retirement
Alex Del Piero is a professor at La Sapienza University. The taxable income for salaries of up to €15,000 is 23%, while interest, dividends (for non-substantial participation), and capital gains
Susan Bowen, who just turned 55, is employed as an administrative assistant for the Xcon Corporation, where she has worked for the past 20 years. She is in good health, lives alone, and has two grown
During 2018, the Smiths and the Joneses both filed joint tax returns. For the tax year ended December 31, 2018, the Smiths’ taxable income was $130,000, and the Joneses had total taxable income of
Suppose your company’s stock is currently selling at $50 per share. For each of the following situations (ignoring brokerage commissions), calculate the gain or loss that will be realized if the
Wolfgang buys 250 shares of Volkswagen stock at €37.5 per share, putting up a 45% margin.a. What is the value of the position?b. How much equity capital must the investor provide to make the margin
Amy Jenkins bought 100 shares of stock at $70 per share using an initial margin of 50%. Given a maintenance margin of 30%, how far does the stock have to drop before Amy faces a margin call? (Assume
You plan to start your own company after graduation. Throughout university, you have been working on a new technology and have done plenty of research for your thesis. In preparation for graduation,
Peter Müller, a 40-year-old mechanic, plans to retire at age 65 and wants to accumulate €500,000 over the next 25 years to supplement the retirement programs provided by the German government and
An investor buys 300 shares of stock selling at $65 per share using a margin of 70%. The stock pays annual dividends of $2 per share. A margin loan can be obtained at an annual interest cost of 4%.
Assume you are an investor who has bought 100 shares of a company at $35 per share with a stock on margin of 60%. The stock is now trading at $50 per share, and the initial margin requirements has
An investor short sells 100 shares of a stock for $50 per share. The initial margin is 60%. How much equity will be required in the account to complete this transaction?
Sara Sanders purchased 50 shares of Apple stock at $190 per share using the minimum initial margin requirement of 50%. She held the stock for exactly six months and sold it without brokerage costs at
An investor short sells 250 shares of a stock for $43 per share. The initial margin is 60%. Ignoring transaction costs, how much will be in the investor’s account after this transaction if this is
Emily Richards recently graduated from college and will start her new career in two months. She recently learned that her grandfather left her an inheritance of $300,000 worth of stocks and bonds.
Thomas Weisel, chief executive of a securities firm that bears his name, believes that individual investors already have too much information. “Many lose money by trading excessively on stray
Imagine that the Mini-Dow Average (MDA) is calculated by adding up the closing prices of five stocks and dividing that sum by a divisor. The divisor used in the calculation of the MDA is currently
Donald Belson and Laurie Hall, friends who work for a large software company, decided to leave the relative security of their employer and join the staff of Hamelin Pipers, Inc., a two year- old
From its roots as an online bookseller, Amazon has expanded into other retail categories as well as other industries. Gather appropriate information from relevant sources to assess the following with
Discuss the different types of financial information that are relevant for investors. List the most common sources of information within each type. What are some of the important questions investors
Imagine that you want to create your own stock index to measure the performance of the stock market over time. You decide to use a methodology similar to that used to calculate the DJIA (see Equation
Gather and evaluate relevant market averages and indexes over the past six months to assess recent stock and bond market conditions. Describe the conditions in each of these markets. Using recent
When a company conducts a stock split, it exchanges new shares for old ones based on a predetermined ratio. For example, in February 2019, Ajinomoto Co. conducted a two-for-one stock split so that
Allen Moriarty 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
Michael Strauss is a day trader and closes his accounts at the end of each business day. He puts a limit order to buy 100 shares of Starbucks at a price of $55, although the stock is currently
Differentiate between the financial advice you would receive from a traditional investment advisor and one of the new robo-advisors. Which would you prefer to use, and why? How could membership in an
You have been researching a stock that is currently trading at $65, and you would like to invest in it. You believe that the price of that stock will increase during the coming months because of some
How much would an investor earn on a stock purchased one year ago for $70 if it paid an annual cash dividend of $4.35, and has just been sold for $78.50? Would the investor have experienced a capital
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
On April 5, 2019, shares of the sportswear manufacturer Adidas AG closed at €227.55 on the Frankfurt Stock Exchange. That night the company announced better-thanexpected earnings results, and the

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