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fundamentals of investing

Questions and Answers of Fundamentals Of Investing

Discuss the roles of investment advisers and investment clubs.
Describe the basic types of orders(market, limit and stop-loss), online transactions, transaction costs, and the legal aspects of investor protection.
Review the roles of traditional and online stockbrokers, including the services they provide, selection of a stockbroker, opening an account and transaction basics.
Explain the characteristics, interpretation and uses of the commonly cited share and bond market averages and indices.
Identify the main types and sources of traditional and online investment information.
Discuss the growth in online investing, including educational sites and investment tools, and the effective use of the Internet.
6. What is the new margin percentage based on question 5, and what is the implication for you, the investor?
5. If you use margin and the price of the share falls by $15 to $10 per share, calculate the capital loss and the respective return on investor’s equity.
4. What is the current margin percentage based on question 2?
3. If you use margin and the price of the share rises by $15 to $40 per share, calculate the capital gain earned and the return on investor’s equity.
2. Calculate the debit balance and the cash equity in the investment at the time of opening a margin account, adhering to the initial margin requirement.
1. Calculate the value of the investment in the share as if you did not make use of margin trading. In other words, what is the value of the investment if it is funded by 100% cash equity?
4. What do you think of Ravi’s idea to pyramid? What are the risks and rewards of this strategy?
3. Assume that Ravi buys 10 000 shares of RS at $2 per share with a minimum cash investment of $2500 and that the share does take off and its price rises to $4 per share in a year.a. What is the
2. Ravi buys the 10 000 shares of RS through his margin account. (Bear in mind that this is a $20 000 transaction.)a. What will the loan ratio of the margin account be after the RS transaction if
1. Discuss the concept of pyramiding as it applies to this investment situation.
3. If the stock price drops to $45, what will happen under alternatives 2 and 3? Evaluate the pros and cons of these outcomes.
2. If Casinos International’s stock price rises to $60, what will happen under alternatives 2 and 3? Evaluate the pros and cons of these outcomes.
1. Evaluate each of these alternatives. On the basis of the limited information presented, recommend the one you feel is best.
P2.8 Not long ago, Dave Edwards bought 2000 shares of Almost Anything Ltd at $4.50 per share; he bought the shares using a margin loan to finance 40% of the purchase. The shares are now trading at $6
P2.7 Marlene Bellamy purchased 3000 shares of Writeline Communications Limited at $5.50 per share using a margin loan to finance 50% of the purchase. She held the shares for exactly four months and
P2.6 An investor buys 2000 shares at $8 per share, using a margin loan to finance 40% of the purchase. The share pays annual dividends of $0.10 per share, and a margin loan can be obtained at an
P2.5 Jerri Kingston bought 1000 shares at $8 per share using a margin loan to finance 40% of the purchase. Given the lender’s maximum loan to value ratio is 75%, how far does the share price have
P2.4 Assume an investor buys 1000 shares at $5 per share, using a margin loan to finance 30%of the purchase. If the share price rises to $8, what is the investor’s new position?
P2.3 Elmo Limited’s shares are currently selling at $6 per share. For each of the following situations (ignoring brokerage commissions), calculate the gain or loss that Maureen Katz realises if she
P2.2 Lola Paretti purchased 50 shares of BMW, a German share traded on the Frankfurt Exchange, for 35 euros per share exactly one year ago, when the exchange rate was A 0.6354/A$1.Today the share is
P2.8 Not long ago, Dave Edwards bought 2000 shares of Almost Anything Ltd at $4.50 per share; he bought the shares using a margin loan to finance 40% of the purchase. The shares are now trading at $6
P2.7 Marlene Bellamy purchased 3000 shares of Writeline Communications Limited at $5.50 per share using a margin loan to finance 50% of the purchase. She held the shares for exactly four months and
P2.6 An investor buys 2000 shares at $8 per share, using a margin loan to finance 40% of the purchase. The share pays annual dividends of $0.10 per share, and a margin loan can be obtained at an
P2.5 Jerri Kingston bought 1000 shares at $8 per share using a margin loan to finance 40% of the purchase. Given the lender’s maximum loan to value ratio is 75%, how far does the share price have
P2.4 Assume an investor buys 1000 shares at $5 per share, using a margin loan to finance 30%of the purchase. If the share price rises to $8, what is the investor’s new position?
P2.3 Elmo Limited’s shares are currently selling at $6 per share. For each of the following situations (ignoring brokerage commissions), calculate the gain or loss that Maureen Katz realises if she
P2.2 Lola Paretti purchased 50 shares of BMW, a German share traded on the Frankfurt Exchange, for 35 euros per share exactly one year ago, when the exchange rate was A 0.6354/A$1.Today the share is
Q2.3 Describe how a conservative and an aggressive investor might use, if at all, each of the following types of transactions as part of their investment programs. Contrast these two types of
Q2.2 On the basis of the current structure of the world’s financial markets and your knowledge of the ASX and the NYSE, describe the key features, functions and problems faced by a single global
Q2.1 Discuss the pros and cons of listing on the ASX.
Q2.3 Describe how a conservative and an aggressive investor might use, if at all, each of the following types of transactions as part of their investment programs. Contrast these two types of
Q2.2 On the basis of the current structure of the world’s financial markets and your knowledge of the ASX and the NYSE, describe the key features, functions and problems faced by a single global
Q2.1 Discuss the pros and cons of listing on the ASX.
2.14 Describe the key advantages and disadvantages of short selling. How are short sales used to earn speculative profits?
2.13 What is the primary motive for short selling? Describe the basic short sale procedure.Why must the short seller make an initial margin deposit?
2.12 Describe the procedures and regulations associated with margin trading. Be sure to explain the margin call. Describe the common uses of margin trading.
2.11 How does margin trading magnify profits and losses? What are the key advantages and disadvantages of margin trading?
2.10 What is a long purchase? What expectation underlies such a purchase? What is margin trading, and what is the key reason why it is sometimes used as part of a long purchase?
2.14 Describe the key advantages and disadvantages of short selling. How are short sales used to earn speculative profits?
2.13 What is the primary motive for short selling? Describe the basic short sale procedure.Why must the short seller make an initial margin deposit?
2.12 Describe the procedures and regulations associated with margin trading. Be sure to explain the margin call. Describe the common uses of margin trading.
2.11 How does margin trading magnify profits and losses? What are the key advantages and disadvantages of margin trading?
2.10 What is a long purchase? What expectation underlies such a purchase? What is margin trading, and what is the key reason why it is sometimes used as part of a long purchase?
2.9 Is there a place for ‘ethics’ in the investment community?
2.8 Briefly describe the problem of insider trading. How is it regulated?
2.7 Describe how foreign security investments can be made, both indirectly and directly.Describe the risks of investing internationally, particularly currency exchange risk.
2.6 Why is globalisation of securities markets an important issue today? How have international investments performed in recent years?
2.5 Differentiate between a bull market and a bear market.
2.4 Explain how the over-the-counter market works. Be sure to mention dealers, and bid and ask prices. What role does this market play in initial public offerings (IPOs) and secondary distributions?
2.3 Explain the process for buying or selling shares on the ASX. Apart from providing a market for trading in shares, what are some of the other markets served by the ASX?
2.2 Briefly describe the role of a financial adviser in underwriting a public offering.Differentiate among the terms public offering, rights offering and private placement.
2.1 Differentiate between each of the following pairs of words:a. Money market and capital marketb. Primary market and secondary marketc. Organised securities exchanges and over-the-counter (OTC)
Explain long purchases and the motives, procedures and calculations involved in making margin transactions and short sales.
Discuss the regulation of securities markets.
Review the importance of global securities markets, their performance, and the investment procedures and risks associated with foreign investments.
Understand the over-the-counter markets and the general conditions of securities markets.
Explain the characteristics of organised securities exchanges.
Identify the basic types of securities markets and describe the IPO process.
5. Evaluate Carolyn’s investment plan in terms of her use of a savings account and an annuity rather than some other investment vehicles. Comment on the risk and return characteristics of her plan.
4. From your findings, do you think Carolyn will be able to achieve her long-run financial goal by retiring at(a) age 62 or (b) age 65? Explain.
3. With the results found in questions 1 and 2, determine the total annual retirement income Carolyn will have if she retires at (a) age 62 and (b) age 65.
2. Using the results from question 1, determine the level of annual income that will be provided to Carolyn through the purchase of an annuity at (a) age 62 and (b) age 65.
1. Assume that Carolyn places currently available funds in the savings account. Determine the amount of money Carolyn will have available at retirement once she sells her house if she retires at (a)
3. Assuming that Justin already gets plenty of exercise, what arguments would you give to convince him to take investments rather than golf?
2. List and discuss the other types of investment vehicles with which Justin is apparently unfamiliar.
1. Explain to Justin the structure of the investment process and the economic importance of investing.
P1.1 Sonia Gomez, a 45-year-old woman, wishes to accumulate $250 000 over the next 15 years to supplement her superannuation savings. She expects to earn an average annual return of about 8% by
Q1.1 Assume that you are 35 years old, are married with two young children, are renting a unit and have an annual income of $90 000. Use the following questions to guide your preparation of a rough
1.18 Why do insurance companies need employees with advanced training in investments?
1.17 Why is an understanding of investment principles important to a senior manager working in corporate finance?
1.16 Explain the characteristics of short-term investments with respect to purchasing power and default risk.
1.15 What makes an asset liquid? Why hold liquid assets? Would 100 CBA shares be considered a liquid investment? Explain.
1.14 Discuss the relation between share prices and the business cycle.
1.13 Describe the differing investment philosophies typically applied during each of the following stages of an investor’s life cycle.a. Youth (ages 20–45)b. Middle age (ages 45–60)c.
1.10 Briefly define and differentiate among the following investments. Which offer fixed returns? Which are derivative securities? Which offer professional investment management?a. Bondsb.
1.9 What are ordinary shares, and what are their two sources of potential return?
1.7 Differentiate between individual investors and institutional investors
1.6 Classify the role of (a) government, (b) business, and (c) individuals as net suppliers or net demanders of funds.
1.5 Describe the structure of the overall investment process. Explain the role played by financial institutions and financial markets.
1.2 Differentiate among the following types of investments, and cite an example of each:a. securities and property investmentsb. direct and indirect investmentsc. debt, equity and derivative
Describe some of the main careers open to people with financial expertise and the role that investments play in each.
Describe the most common types of short-term investments.
Describe the steps in investing, review fundamental tax considerations, and discuss investing over the life cycle.
Discuss the principal types of investments.
Describe the investment process and types of investors.
Understand the meaning of the term investment and the factors used to differentiate types of investments.
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 four years
A bond portfolio manager gathered the following information about a bond issue:Par value $10,000,000 Current market value $ 9,850,000 Duration 4.8 years If yields are expected to decline by 75 basis
Explain why interest rates are important to bond investors. What causes interest rates to move, and how can you monitor such movements?
Is there a single market rate of interest applicable to all segments of the bond market, or is there a series of market yields? Explain and note the investment implications of such a market
Identify and briefly describe the three sources of return to U.S. investors in foreign stocks. How important are currency exchange rates? With regard to currency exchange rates, when is the best time
LG6 Discuss the trading techniques that can be used with financial futures and note how these securities can be used in conjunction with other investment vehicles.
LG5 Explain the difference between a physical commodity and a financial future, and discuss the growing role of financial futures in the market today.
LG4 Discuss the trading strategies investors can use with commodities, and explain how investment returns are measured.

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