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fundamentals of investments valuation

Questions and Answers of Fundamentals Of Investments Valuation

a. What is the central issue in the market efficiency debate?b. How would you state the efficient markets hypothesis?
Smolira Investment Trust (SIT) runs a retirement account for college professors, with a current market value of $2 billion. Alchemy, Inc., offers to conduct market research in an attempt to sift
Examine Walgreens’ (WBA) recent earnings and the impact of any surprises on its stock price.
a. What is an abnormal return?b. What does it mean to “beat the market”?
You are helping your very rich aunt Molly decide where to invest her portfolio. She is planning to take a 10-year world tour after she invests the bulk of her portfolio. She thinks that picking a
Which of the following assumptions does not imply an informationally efficient market?a. Security prices adjust rapidly to reflect new information.b. The timing of one news announcement is
Identify any transactions recently made by insiders in PayPal (PYPL).
a. What three economic conditions cause market efficiency?b. How would well-capitalized, intelligent, and rational investors profit from market inefficiency?
After lengthy trial and error, you discover a trading system that would have doubled the value of your investment every six months if applied over the last three years. Which of the following
a. What role does information play in determining whether markets are efficient?b. What are the forms of market efficiency?
Assume that on March 15, Trenten Medical received approval for a new drug. Using the data below from February 15 through February 28 as the measurement period, calculate the cumulative abnormal
In discussions of financial market efficiency, which of the following is not one of the stylized forms of market efficiency?a. Strong formb. Semistrong formc. Weak formd. Economic form.
a. What is the driving force behind market efficiency?b. Why does this driving force work?
Which of the following is not considered a problem when evaluating the ability of a trading system to “beat the market”?a. Risk adjustment problemb. Relevant information problemc. Data
a. How is a random walk affiliated with the efficient markets hypothesis?b. What are the possible market price reactions to a news announcement?c. How do researchers use event studies to examine the
Which month of the year, on average, has had the highest stock market returns as measured by a small-stock portfolio?a. Januaryb. Marchc. Juned. December.
The SEC has regulations that prohibit trading on inside information. If the market is _____ form efficient, such regulation is not needed.a. Weakb. Semistrongc. Technicald. Strong.
a. What makes a stock trader an informed trader?b. What traders are considered to be insiders?c. What is the difference between legal insider trading and illegal insider trading?
a. How well do professional money managers perform, on average, against a broad market index?b. What are the implications of this performance for investors?
a. What are the four basic reasons market efficiency is difficult to test?b. What are the implications to investors if markets are efficient?
Which of the following intraday changes in the Dow Jones Industrial Average (DJIA) will trigger a Level 1 circuit breaker?a. 7 percent drop before 3:25 P.M.b. 7 percent drop after 3:25 P.M.c. 7
In addition to price-weighted and value-weighted indexes, an equally weighted index is one in which the index value is computed from the average rate of return of the stocks comprising the index.
A credit card company states an annual percentage rate (APR) of 12 percent, which is actually a rate of 1 percent per month. What is the EAR?a. 12 percentb. 12.68 percentc. 13.08 percentd. 13.76
A typical credit card may quote an APR of 18 percent. On closer inspection, you will find that the rate is actually 1.5 percent per month. What annual interest rate are you really paying on such a
U.S. Treasury STRIPS maturing in 10 years has a current price of $502.57 for $1,000 of face value. What is the yield to maturity of this STRIPS?a. 7.0 percentb. 7.12 percentc. 8.0 percentd. 8.12
A money market instrument with 60 days to maturity has a quoted ask price of 99, meaning $99 per $100 face value. What are the banker’s discount yield, the bond equivalent yield, and the effective
U.S. Treasury STRIPS with a $1,000 face value maturing in five years has a yield to maturity of 7 percent. What is the current price of this STRIPS?a. $930b. $712.99c. $708.92d. $650.
Suppose the yield on a two-year STRIPS is 7 percent and the yield on a one-year STRIPS is 6 percent. Based on the expectations theory, what will the yield on a one-year STRIPS be one year from now?
Which of the following is a possible explanation of the January effect?i. Institutional window dressing ii. Bonus demand iii. Tax-loss sellinga. I onlyb. I and II onlyc. I and III onlyd. I,
a. What is the day-of-the-week effect?b. What is the amazing January effect?c. What is the turn-of-the-year effect?
Circuit breakers implemented by the NYSE were designed to:a. Reduce the January effect.b. Reduce the effect of technical trading.c. Eliminate program trading.d. Slow a market decline.
a. What is a stock market bubble? A stock market crash?b. What are NYSE circuit breakers? What are they intended to do?c. What is a major difference between the Crash of October 1929 and the Crash of
Assume the market is semistrong form efficient. The best investment strategy is to:a. Examine the past prices of a stock to determine the trend.b. Invest in an actively managed mutual fund whose
Assume the market is weak form efficient. If this is true, technical analysts _____ earn abnormal returns and fundamental analysts _____ earn abnormal returns.a. Could; couldb. Could; could
Which of the following is not true concerning the efficient markets hypothesis?a. Markets that are less organized are not as likely to be efficient.b. Markets with wide fluctuations in prices
You purchase a stock that you expect to increase in value over the next year. One year later, after the discovery that the CEO embezzled funds and the company is close to bankruptcy, the stock has
Consider the following series of monthly stock prices for two hypothetical companies:On a relative basis, how has Susan, Inc., done compared to Carolyn Co.? Month 1 STAW N 2 3 6 Susan,
Which of the following statements concerning market efficiency is true?a. If the market is weak form efficient, it is also semistrong form efficient.b. If the market is semistrong form efficient,
Consider the following series of weekly stock prices for two companies:On a relative basis, how has Cats Co. done compared to Dog Power? Week 1 GAW N 6 Cats Co. $10 12 16 15 14 12 Dog
a. What is behavioral finance?b. What three conditions must be absent for a market to be inefficient?
Which of the following is a basic assumption of technical analysis in contrast to fundamental analysis?a. Financial statements provide information crucial in valuing a stock.b. A stock’s market
Construct a basic price chart for Caterpillar (CAT).
Using the prices from Problem 1, calculate the three-week simple moving average prices for both companies.Problem 1Consider the following series of weekly stock prices for two companies:On a relative
a. What is the basic prediction of prospect theory?b. What is frame dependence?c. How does loss aversion affect investment decisions?
Which of the following is least likely to be of interest to a technical analyst?a. A 15-day moving average of trading volumeb. A relative strength analysis of stock price momentumc. Company
Review the list of technical factors that can be added to a chart.
a. How does overconfidence appear in investment behavior?b. What are the effects of trading frequency on portfolio performance?c. How does the snakebite effect impact investors?
Dow theory asserts that three forces are at work in the stock market at any time. Which of the following is not one of these Dow theory forces?a. Daily price fluctuationsb. A secondary reaction or
The table below shows the closing monthly stock prices for Penn Co. and Teller, Inc. Calculate the simple three-month moving average for each month for both companies.
Identify which technical indicator has been most profitable for trading Cisco (CSCO).
a. What is the representativeness heuristic?b. What is the hot-hand fallacy? How could it affect investor decisions?c. What is the gambler’s fallacy? How could it affect investor decisions?
The advance/decline line is typically used to:a. Measure psychological barriers.b. Measure market breadth.c. Assess bull market sentiment.d. Assess bear market sentiment.
Using the stock prices in Problem 3, calculate the exponential three-month moving average for Penn and Teller. Place 50 percent of the average weight on the most recent price. How does this
The closing Arms (TRIN) ratio is the ratio of:a. Average trading volume in declining stocks to advancing stocks.b. Average trading volume in NYSE stocks to Nasdaq stocks.c. The number of advancing
a. What does the term “limits to arbitrage” mean?b. If there were no limits to arbitrage, what would have been the relationship between 1 share of 3Com and 1.5 shares of Palm?c. If there were no
Resistance and support areas for a stock market index are viewed as technical indicators of:a. Economic barriers.b. Psychological barriers.c. Circuit breakers.d. Holding patterns.
a. What is technical analysis?b. What is the purpose of charting a stock’s past price?c. What is the purpose of using technical indicators?
Suppose you are given the following information on a broad equity market index:Calculate the simple three-day moving average for the index and the exponential three-day moving average where
When companies changed the structure of 401(k) plans to allow employees to opt out rather than in, the participation rates significantly increased.This is an example of:a. Representativeness.b. The
When someone who wins money is more willing to lose the gains, this is referred to as:a. Representativeness.b. The house money effect.c. Frame dependence.d. A heuristic.
Investors are generally more likely to choose a wellknown company when faced with a choice between two firms. This is an example of:a. Representativeness.b. The house money effect.c. Frame
Many investors try to simplify the investment process by using rules of thumb to make decisions. This is an example of:a. Representativeness.b. The house money effect.c. Frame dependence.d. A
All of the following are ways to help reduce behavioral biases except:a. Learning about the biases.b. Diversifying your portfolio.c. Watching more financial news programs.d. Creating objective
Which of the following topics related to behavioral finance deals with the idea that investors experience more pain from a loss than pleasure from a comparable gain?a. Frame dependenceb. Prospect
Which of the following is not a reason that rational, well-capitalized investors can correct a mispricing, at least not immediately?a. Firm-specific riskb. Implementation costsc. Aversion
Use the information from Problem 13 to calculate the three-day and five-day exponential moving averages for Auction Makers and graph your results. Place two-thirds of the average weight on the most
Which of the following techniques deals with the breadth of the market?a. Price channelsb. Advance/decline linesc. Bollinger bandsd. Support and resistance lines.
From the data below for the Dow Jones Industrial Average, calculate the three-day simple moving average. Fill in the “Buy/Sell Signal” column for this trading indicator. Then, calculate the
Which of the following techniques does not assume there are psychologically important barriers in stock prices?a. Price channelsb. Advance/decline linesc. Bollinger bandsd. Support and resistance
From the data below, calculate the upper and lower Bollinger bands, which represent plus (or minus) two standard deviations of the 20-day simple moving average added (subtracted) from the 20-day
a. Which money market interest rates are most important to commercial banks?b. Which money market interest rates are most important to nonbank corporations?
The rate on a particular money market instrument, quoted on a discount basis, is 5 percent. The instrument has a face value of $100,000 and will mature in 40 days. What is its price?
Which of the following interest rates is a bellwether (leading indicator) rate of bank lending to business?a. Unsecured business loan rateb. Prime ratec. Commercial paper rated. Banker’s
Compare benchmark interest rates across countries.
Undoubtedly, your instincts tell you that $1,000 received in three years is not the same as $1,000 received today. But if you are going to receive $1,000 today, what is an equivalent amount of money
a. What are the three different types of interest rate quotes that are important for money market instruments?b. How are T-bill rates quoted? How are CD rates quoted?c. Of the three different types
Suppose a T-bill has 75 days to maturity and an ask discount of 4 percent. What is the bond equivalent yield?
Among the following interest rates, which is normally the highest rate?a. Commercial paper rateb. U.S. Treasury bill ratec. Federal funds rated. Federal Reserve discount rate.
The rate on a particular money market instrument, quoted on a discount basis, is 4 percent. The instrument has a face value of $100,000 and will mature in 71 days. What is its price? What if it has
a. What is the yield curve? Why is it important?b. Why are corporate bond yields higher than Treasury bond yields?c. Why are municipal bond yields lower than Treasury bond yields?
Download a pricing calculator for bonds and explore the primary inputs.
U.S. Treasury bill with 180 days to maturity has a discount yield of 5 percent and a face value of $100,000. What is its current price?a. $97,500b. $95,000c. $92,500d. $90,000.
Suppose you wanted to buy a T-bill with 85 days to maturity and a face value of $5,000,000. How much would you have to pay if the ask discount is 3.41 percent?
a. What is the yield to maturity (YTM) on a STRIPS maturing in five years if its ask price quote is 77.75?b. What is the YTM of a STRIPS maturing in 15 years if its ask price quote is 36.813?c. What
Examine the current yield curve and identify whether it is a traditional upward-sloping pattern.
A U.S. Treasury bill with 90 days to maturity has a price of $95,000. What is its discount yield?a. 5 percentb. 10 percentc. 15 percentd. 20 percent.
Suppose a T-bill has 45 days to maturity and an ask discount of 5 percent. What is the bond equivalent yield?
a. What is the difference between a nominal interest rate and a real interest rate?b. What does the Fisher hypothesis assert?c. What is the distinguishing feature of inflation-indexed Treasury
A 30-day U.S. Treasury bill is selling at a 12 percent yield on a discount basis. Which of the following is the approximate bond equivalent yield?a. 6.0 percentb. 11.7 percentc. 12.0
What is SOFR? Why is it important?
Calculate the ask yield (bond equivalent yield) for a T-bill price quoted in December 2023 with 119 days to maturity and an ask discount of 5.41 percent.
a. According to the expectations theory, what does an upward-sloping term structure indicate?b. What basic assertion does maturity preference theory make about investor preferences? If this assertion
Generate an RSI chart for CVS.
a. What is the “1/n phenomenon”?b. Explain herding behavior by investors.c. What potential biases might affect how you invest?
Suppose we have two bonds, both with a 6 percent coupon rate and the same yield to maturity of 4 percent, but with different maturities of 5 and 15 years. Which has the higher price? Verify your
In which one of the following cases is the bond selling at a discount?a. Coupon rate is greater than current yield, which is greater than yield to maturity.b. Coupon rate, current yield, and yield
a. What is a straight bond?b. What is a bond’s coupon rate? Its current yield?
Consider two bonds, both with eight years to maturity and a 7 percent coupon. One bond has a yield to maturity of 5 percent, while the other has a yield to maturity of 9 percent. Which of these bonds
a. A straight bond’s price has two components. What are they?b. What do you call a bond that sells for more than its face value?c. What is the relationship between a bond’s price and its term to
Download an Excel template for comparing fixed-income products.

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