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fundamentals of investing

Questions and Answers of Fundamentals Of Investing

13.16 Why is comparing a portfolio’s return to the return on a broad market index generally inadequate? Explain.
13.15 Describe the steps involved in measuring portfolio return. Explain the role of the portfolio’s HPR in this process and explain why one must differentiate between realised and unrealised gains.
13.14 What is active portfolio management? Will it result in superior returns? Explain.
13.13 What is a problem investment? What two questions should one consider when analysing each investment in a portfolio?
13.12 Under what three conditions would an investment holding be a candidate for sale? What must be true about the expected return on a risky investment, when compared with the return on a low-risk
13.11 Distinguish between the types of dividend distributions that managed funds make. Are these dividends the only source of return for a managed fund investor? Explain.
13.10 Briefly discuss holding period return (HPR) and yield as measures of investment return.Are they equivalent? Explain.
13.9 What are indicators of bond market behaviour and how are they different from share market indicators?
13.8 Which indices can you use to compare your investment performance to general market returns?
13.7 What role does current market information play in analysing investment returns? How do changes in economic and market activity affect investment returns? Explain.
13.6 Why is it important to continuously manage and control your portfolio?
13.5 What role could an asset allocation plan play? What makes an asset allocation scheme effective?
13.4 Briefly describe the three basic approaches to asset allocation: (a) fixed weightings,(b) flexible weightings, and (c) tactical asset allocation.
13.3 What is asset allocation? How does it differ from diversification? What role does asset allocation play in constructing an investment portfolio?
13.2 What role do an investor’s portfolio objectives play in constructing a portfolio?
13.1 What role, if any, do an investor’s personal characteristics play in determining portfolio policy? Explain.
Explain the role of limit and stoploss orders in investment timing, warehousing liquidity and timing investment sales.
Describe the role and logic of dollar-cost averaging, constantdollar plans, constant-ratio plans and variable-ratio plans.
Use the Sharpe, Treynor and Jensen measures to compare a portfolio’s return with a riskadjusted, market-adjusted rate of return, and discuss portfolio revision.
Understand the techniques used to measure income, capital gains and total portfolio return.
Discuss the data and indices needed to measure and compare investment performance.
Explain how to use an asset allocation scheme to construct a portfolio consistent with investor objectives.
4. Calculate the holding period returns for each of the years 2010, 2009 and 2008.
3. Calculate the net asset value for MoMoney Fund as of the end of the years 2010, 2009 and 2008.
2. What are the total distributions from the investment operations?
1. What is the total income from the investment operations?
4. Assume that Tom invests in a managed fund that earns about 12% annually from dividend income and capital gains. Given that Tom wants to receive $1000 to $1500 a month from his fund, what would be
3. What types of services do you think he should look for in a managed fund?
2. What factors in Tom’s situation should be taken into consideration in the fund selection process? How might these affect Tom’s course of action?
1. Given Tom’s financial resources and investment objectives, what kinds of managed funds do you think he should consider?
3. What type of managed fund investment program would you set up for the Reverend? Include in your answer some discussion of the types of funds you would consider, the investment objectives you would
2. Do you think he should use his $15 000 savings to start a managed fund investment program?
1. In light of Reverend Rob’s long-term investment goals, do you think managed funds are an appropriate investment vehicle for him?
P12.7 One year ago, Super Star Listed Fund had an NTA of $10.40 and was selling at an 18%discount; today its NTA is $11.69 and it is priced at a 4% premium. During the year, Super Star made income
P12.6 Using the resources available at your campus or public library, select five managed funds—a growth fund, an equity-income fund, an international (share) fund, a sector fund and a property
P12.5 Listed below is the 10-year, per-unit performance record of Andre & Steffi’s Growth Fund.Years Ended 30 June($) 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Income distributions 0.83
P12.4 You have uncovered the following per-unit information about a certain listed fund.2008 2009 2010 Ending unit prices:Offer $46.20 $64.68 $61.78 NTA 43.20 60.47 57.75 Income distributions 2.10
P12.3 The All State Managed Fund has the following five-year record of performance.Per Unit 2010 2009 2008 2007 2006 Income distributions 0.95 0.85 0.85 0.75 0.60 Capital gains distributions 1.05
P12.2 A year ago, the Really Big Growth Fund was being quoted at an NTA of $21.50 and an offer price of $23.35; today it is being quoted at $23.04 (NTA) and $25.04 (offer). What is the holding period
P12.1 A year ago, an investor bought 200 units of a managed fund at $8.50 per unit; over the past year, the fund has made an income distribution of 90 cents per unit and had a capital gains
Q12.3 Imagine that you have just inherited $50 000 from a rich relative. Now you are faced with the ‘problem’ of how to spend it. You could use it as a deposit on a home unit, or you could buy
Q12.2 For each pair of funds listed below, select the one that is likely to be the less risky. Briefly explain your answer.a. Growth versus growth-and-income fundsb. Equity-income versus high-grade
Q12.1 Contrast managed fund ownership with direct investment in shares and bonds. Assume your class is going to debate the merits of investing through managed funds versus investing directly in
12.15 Discuss the various types of risk to which managed fund shareholders are exposed.What is the main risk exposure of managed funds? Are all funds subject to the same level of risk? Explain.
12.14 Identify three potential sources of return to managed fund investors and briefly discuss how each could affect total return to shareholders.
12.13 What information should be considered when examining a managed fund’s investment performance?
12.12 How important is the general behaviour of the market in affecting the price performance of managed funds? Explain. Why is a fund’s past performance important to the managed fund selection
12.11 Briefly describe some of the investor services provided by managed funds. What are automatic reinvestment plans, and how do they differ from automatic investment plans?What is phone switching,
12.10 What are fund families? What advantages do fund families offer investors? Are there any disadvantages?
12.9 If growth, income and capital preservation are the primary objectives of managed funds, why do we bother to categorise them by type? Do you think such classifications are helpful in the fund
12.8 What is an asset allocation fund, and how does it differ from other types of managed funds?
12.7 Briefly describe each of the following types of managed funds:a. Aggressive growth fundsb. Equity-income fundsc. Growth-and-income fundsd. Fixed-interest fundse. Sector fundsf. Socially
12.6 What fees can be levied by fund managers? What are their typical fee rates? Do you believe that fund managers are ‘only interested in making money for themselves’? Why, or why not?
12.5 What is the difference between a listed and an unlisted fund?
12.4 What regulations control the operation of managed funds?
12.3 Briefly describe how a managed fund is organised. Who are the key players in a typical managed fund organisation?
12.2 What are the attractions and drawbacks of managed fund investment?
12.1 What is a managed fund? Discuss the managed fund concept, including the importance of diversification and professional management.
Identify the sources of return and calculate the rate of return earned on an investment in a managed fund.
Gain an appreciation of the investor uses of managed funds, along with the variables that one should consider when assessing and selecting funds for investment purposes.
Identify and discuss the investor services offered by managed funds and how these services can fit into an investment program.
Discuss the types of funds available and the variety of investment objectives these funds seek to fulfil.
Describe the basic features of managed funds and note what they have to offer as investment vehicles.Distinguish between unlisted and listed managed funds and discuss the various types of fund fees
5. The Jay & Austin Company has a bond issue with the following characteristics: par of$1000, a semi-annual-pay coupon of 6.5%, remaining maturity of 22 years, and a current price of $878.74. What is
3. In the case of the H&W bond issue from question 1, if the coupon interest payment is compounded on a semi-annual basis, what would be the value of this security today?
2. What is the current yield for the H&W bond?
6. Using one or more of the four bonds, put together a $200 000 immunised portfolio for Grace. Because this portfolio will now be immunised, will Grace be able to treat it as a buy-and-hold
5. Using one or more of the four bonds described above, is it possible to come up with a$200 000 bond portfolio that will exhibit the duration characteristics Grace is looking for? Explain.
4. How could you lengthen or shorten the duration of this portfolio? What’s the shortest portfolio duration you can achieve? What’s the longest?
3. Find the duration of the current four-bond portfolio. Given the seven-year target that Grace has, would you consider this to be an immunised portfolio? Explain.
2. Calculate the Macaulay and modified durations of each bond in the portfolio and indicate how the price of each bond would change if interest rates were to rise by 75 basis points. How would the
1. Given the information provided, find the current yield and the promised yield for each bond in the portfolio.(Use annual compounding.)
2. Regarding the bond swap opportunity:a. Compute the current yield and the promised yield (use semi-annual compounding) for the bond the Carters currently hold and for each of the three swap
1. Regarding the short-term trading opportunity:a. What basic trading principle is involved in this situation?b. If Mary’s expectations are correct, what will the price of this bond be in two
P11.24 Elliot is a 35-year-old bank executive who has just inherited a large sum of money.Having spent several years in the bank’s investments department, he’s well aware of the concept of
P11.23 Stacy 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,
P11.22 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 8.46
P11.21 Find the Macaulay duration and the modified duration of a 20-year, 10% corporate bond priced to yield 8%. According to the modified duration of this bond, how much of a price change would this
P11.20 An investor wants to find the duration of a 25-year, 6% semi-annual-pay, non-callable bond that’s currently priced in the market at $882.72, to yield 7%. Using a 50-basis-point change in
P11.19 A bond has a Macaulay duration of 8.62 and is priced to yield 8%. If interest rates go up so that the yield goes to 8.5%, what will be the percentage change in the price of the bond?Now, if
P11.18 A bond has a Macaulay duration equal to 9.5 and a yield to maturity of 7.5%. What is the modified duration of this bond?
P11.17 Using annual compounding, find the yield-to-maturity for each of the following bonds.a. A 9.5%, 20-year bond priced at $957.43b. A 16%, 15-year bond priced at $1684.76c. A 5.5%, 18-year bond
P11.16 Assume that an investor pays $800 for a long-term bond that carries an 8% coupon. In three years, he hopes to sell the issue for $950. If his expectations come true, what realised yield will
P11.15 A 25-year, zero-coupon bond was recently being quoted at 11.625% of par. Find the current yield and the promised yield of this issue, given that the bond has a par value of $1000.Using
P11.14 A zero-coupon ($1000 par value) bond that matures in 10 years has a promised yield of 9%. What is the bond’s price?
P11.13 A zero-coupon bond that matures in 15 years is currently selling for $209 per $1000 par value. What is the promised yield on this bond?
P11.12 Assume that an investor is looking at two bonds. Bond A is a 20-year, 9% (semi-annual pay) bond that is priced to yield 10.5%. Bond B is a 20-year, 8% (annual pay) bond that is priced to yield
P11.11 A 10%, 25-year bond has a par value of $1000 and a call price of $1075. (The bond’s first call date is in five years.) Coupon payments are made semi-annually (so use semi-annual compounding
P11.10 Compute the current yield of a 10%, 25-year bond that is currently priced in the market at $1200. Use annual compounding to find the promised yield on this bond. Repeat the promised yield
P11.9 A bond is currently selling in the market for $1098.62. It has a coupon of 9% and a 20-year maturity. Using annual compounding, calculate the promised yield on this bond.
P11.8 A bond is currently selling in the market for $1170.68. It has a coupon of 12% and a 20-year maturity. Using annual compounding, calculate the promised yield on this bond.
P11.7 An investor is considering the purchase of an 8%, 18-year corporate bond that’s being priced to yield 10%. She thinks that in a year, this same bond will be priced in the market to yield 9%.
P11.6 A bond is priced in the market at $1150 and has a coupon of 8%. Calculate the bond’s current yield.
P11.5 An investor buys a 10% bond for $900 and sells it in one year for $950. What is the 4 investor’s holding period return?
P11.4 A 20-year bond has a coupon of 10% and is priced to yield 8%. Calculate the price per$1000 par value using semi-annual compounding.
P11.3 A 15-year bond has an annual-pay coupon of 7.5% and is priced to yield 9%. Calculate the price per $1000 par value.
P11.2 Using semi-annual compounding, find the prices of the following bonds:a. A 10.5%, 15-year bond priced to yield 8%b. A 7%, 10-year bond priced to yield 8%c. A 12%, 20-year bond priced at
P11.1 Two bonds have par values of $1000. One is a 5%, 15-year bond priced to yield 8%. The other is a 7.5%, 20-year bond priced to yield 6%. Which of these two has the lower price?(Assume annual
Q11.5 Using the resources available at your campus or public library (or on the Internet), select any six bonds you like, consisting of two Treasury bonds, two state bonds and two corporate bonds.
Q11.4 Assume that an investor comes to you looking for advice. She has $200 000 to invest and wants to put it all into bonds.a. If she considers herself a fairly aggressive investor who is willing to

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