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fundamentals of investments valuation

Questions and Answers of Fundamentals Of Investments Valuation

Suppose you purchase five December T-bond contracts at the prior settle price of 122’175. How much will you pay today? Suppose in one month you close your position and the December futures price at
Assume that you have identified three different stocks that you would like to purchase. You decide to buy 100 shares of each stock. Stock A is priced at $30; Stock B is priced at $40; and Stock C is
Suppose you want the right to sell 200 shares of Nike sometime before February 18, 2022, at a price of $140. In light of the information in Figure 3.5, what contract should you buy? How much will it
You plan to purchase Nike call options with a strike price of $140 and a current ask premium of $3.75 per share. If you buy 10 contracts, how much will you pay? Suppose that just as the option is
In Example 3.4, you bought two Nike 140 put contracts for $562. Suppose that the expiration date arrives and Nike is selling for $130 per share. How did you do? What’s the break-even stock price,
If you wanted to purchase the right to sell 2,000 shares of Target stock in March 2022 at a strike price of $210 per share, how much would this cost you?
In Problem 14, suppose Target stock sells for $200 per share immediately before your options’ expiration. What is the rate of return on your investment? What is your rate of return if the stock
You purchase 25 call option contracts with a strike price of $45, a premium of $2.77, and four months until expiration.a. If the stock price at expiration is $52, what is your dollar (and percent)
Look up the management team for the Fidelity Magellan (FMAGX) mutual fund.
In our discussion above, suppose you were in a 37 percent tax bracket. Which type of fund is more attractive?
Which of the following is most true of a closed-end investment company?a. The fund’s share price is usually greater than net asset value.b. The fund’s share price is set equal to net asset
Suppose you purchased 2,000 shares in the New Pacific Growth Fund on January 2, 2022, at an offering price of $47.10 per share. The front-end load for this fund is 5 percent, and the back-end load
Suppose there are only two stocks in the market and the following information is given:Construct price- and value-weighted indexes and calculate the percentage changes in each. Betty Co. Gray Bull,
Suppose there are only two stocks in the market and the following information is given:Construct price- and value-weighted indexes and calculate the percentage changes in each. Ally Co. McBeal,
Take a look back at Example 5.1. Suppose that Gray Bull splits 5-for-1. Based on beginning information, what is the new divisor?Example 5.1Suppose there are only two stocks in the market and the
In Problem 1, suppose that McBeal splits 3-for-1. Based on beginning information, what is the new divisor?Problem 1Suppose there are only two stocks in the market and the following information is
Beachwood Builders merged with Country Point Homes on December 31, 2002. Both companies were builders of midscale and luxury homes in their respective markets. In 2019, because of tax considerations
Suppose dividends for Layton’s Pizza Company are projected to grow at 6 percent forever. If the discount rate is 16 percent and the current dividend is $2, what is the value of the stock?
A company has a return on equity (ROE) of 20 percent, and from earnings per share of $5 it pays a $2 dividend. What is the company’s sustainable growth rate?a. 8 percentb. 10 percentc. 12
Identify the forecasted dividend for GE.
You plan to buy a common stock and hold it for one year. You expect to receive both $1.50 from dividends and $26 from the sale of the stock at the end of the year. If you wanted to earn a 15 percent
Suppose you buy some stock in Concannon Plastics for $35 per share. After one year, the price is $49 per share. During the year, you received a $1.40 dividend per share. What is the dividend yield?
Generate a histogram of the historical returns for the S&P 500 Index (SPX) over the last 10 years.
Using the following returns, calculate the arithmetic average returns, the variances, the standard deviations, and the geometric returns for the following stocks: Year 1 2 3 4 5 Michele,
a. With 20/20 hindsight, which investment category performed best for the period 1926–1935?b. Why doesn’t everyone just buy small-company stocks as investments?c. What was the smallest return
A portfolio of non-dividend-paying stocks earned a geometric mean return of 5 percent between January 1, 2010, and December 31, 2016. The arithmetic mean return for the same period was 6 percent. If
Suppose you buy stock in Moderna (MRNA) at a price of $28 per share. Four months later, you sell for $29.40 per share. No dividend is paid. What is your annualized return on this investment?
Calculate the total return for someone who held Intel (INTC) stock from January 2, 2019, to January 2, 2022.
a. What do we mean by excess return and risk premium?b. What is the historical risk premium on small-company stocks? On U.S. Treasury bonds?c. What is the first lesson from financial market history?
Which of the following statements about standard deviation is true? Standard deviation:a. Is the square of the variance.b. Can be a positive or negative number.c. Is denominated in the same units
Collect the current equity risk premiums for the United States and China.
a. In words, how do we calculate a variance? A standard deviation?b. What is the second lesson from financial market history?
An investment strategy has an expected return of 12 percent and a standard deviation of 10 percent. If the investment returns are normally distributed, the probability of earning a return less than 2
Identify which world stock market has had the best year-to-date return.
What are the mean and standard deviation of a standard normal distribution? a. Mean Standard Deviation b. O 0 C. 1 d. 1 0 1 0 1
a. Over a 5-year period, an investment in a broad market index yielded annual returns of 10, 16, −5, −8, and 7 percent. What were the arithmetic and geometric average annual returns for this
Given a data series that is normally distributed with a mean of 100 and a standard deviation of 10, about 95 percent of the numbers in the series will fall within which of the following ranges?a. 60
Stocks, bonds, options, and futures are the four major types of:a. Debt.b. Real assets.c. Equity.d. Financial assets.
Suppose the value of an investment doubles in a one-year period. In this case, the rate of return on this investment over that one-year period is what amount?a. 100 percent even if the gain is not
Which of the following asset categories has an annual returns history most closely linked to historical annual rates of inflation?a. U.S. Treasury billsb. Corporate bondsc. Large-company
Based on the annual returns history since 1926, which asset category, on average, has yielded the highest risk premium?a. U.S. government bondsb. Corporate bondsc. Large-company
Over a four-year period, an investment in Outa’synch common stock yields returns of −10, 40, 0, and 20. What is the arithmetic return over this period?a. 5 percentb. 7.5 percentc. 10
You calculate an average historical return of 20 percent and a standard deviation of return of 10 percent for an investment in Stonehenge Construction Co. You believe these values well represent the
Which of the following statements about a normal distribution is incorrect?a. A normal distribution is symmetrically centered on its mean.b. The probability of being within one standard deviation
Based on a normal distribution with a mean of 500 and a standard deviation of 150, the z-value for an observation of 200 is closest to:a. −2.00b. −1.75c. 1.75d. 2.00
A normal distribution would least likely be described as:a. Asymptotic.b. A discrete probability distribution.c. A symmetrical or bell-shaped distribution.d. A curve that theoretically extends
a. What does the term “risk-averse” mean?b. What are some of the constraints investors face in making investment decisions?c. What is asset allocation?
Investment Objectives (LO1, CFA9) An individual investor’s investment objectives should be expressed in terms of:a. Risk and return.b. Capital market expectations.c. Liquidity needs and time
Identify the top five brokers by volume.
a. What are the differences between full-service and deep-discount brokers?b. What is the SIPC? How does SIPC coverage differ from FDIC coverage?
Suppose that in the previous problem you shorted 10,000 shares instead of buying. The initial margin is 60 percent. What does the account balance sheet look like following the short?
Determine the amount of short interest currently outstanding in Tesla (TSLA) stock.
Suppose you have $3,000 in cash in a trading account with a 50 percent initial margin requirement. What is the largest order you can place (ignoring commissions)? If the initial margin were 60
a. What is the difference between a cash and a margin account?b. What is the effect of a margin purchase on gains and losses?c. What is a margin call?
You deposit $100,000 cash in a brokerage account and purchase $200,000 of stocks on margin by borrowing $100,000 from your broker. Later, the value of your stock holdings falls to $150,000, whereupon
Create a graph of short positions through time in Tesla.
a. What is a short sale?b. Why might an investor choose to short a stock?c. What is the maximum possible loss on a short sale? Explain.
You deposit $100,000 cash in a brokerage account and short sell $200,000 of stocks. Later, the value of the stocks held short rises to $250,000, whereupon you get nervous and close your account. What
Generate a list of the largest short positions in the U.S. by the percentage of shares outstanding.
a. Besides risk tolerance, what are some other constraints, strategies, and policies that investors use in forming an investment portfolio?b. Why could two investors of the same age wind up with
You deposit $100,000 cash in a brokerage account and purchase $200,000 of stocks on margin by borrowing $100,000 from your broker. Later, the value of your stock holdings falls to $175,000. What is
You deposit $100,000 cash in a brokerage account and purchase $200,000 of stocks on margin by borrowing $100,000 from your broker. Later, the value of your stock holdings falls to $150,000. What is
You deposit $100,000 cash in a brokerage account and short sell $200,000 of stocks on margin. Later, the value of the stocks held short rises to $225,000. What is your account margin in
You decide to buy 1,600 shares of stock at a price of $64 and an initial margin of 65 percent. What is the maximum percentage decline in the stock before you will receive a margin call if the
You deposit $100,000 cash in a brokerage account and short sell $200,000 of stocks on margin. Later, the value of the stocks held short rises to $250,000. What is your account margin in
You deposit $100,000 cash in a brokerage account and purchase $200,000 of stocks on margin by borrowing $100,000 from your broker, who requires a maintenance margin of 30 percent. Which of the
You deposit $100,000 cash in a brokerage account and short sell $200,000 of stocks. Your broker requires a maintenance margin of 30 percent. Which of the following is the lowest value for the stocks
You purchased a stock at the end of last year at a price of $84. At the end of this year, the stock pays a dividend of $2.10 and you sell the stock for $101. What is your return for the year? Now
Which of the following investment factors, strategies, or tactics is the least relevant to a passive investment policy?a. Market timingb. Asset allocationc. Political environmentd. Tax status.
Which of the following investment factors, strategies, or tactics is most associated with an active investment policy?a. Market timingb. Asset allocationc. Security selectiond. Tax status.
Which of the following investment strategies or tactics will likely consume the greatest amount of resources, time, effort, and so on, when implementing an active investment policy?a. Market
Which of the following investment strategies or tactics is likely the most relevant in the decision to short sell a particular stock?a. Market timingb. Asset allocationc. Security selectiond. Tax
Which of the following investment constraints is expected to have the most fundamental impact on the investment decision process for a typical investor?a. Investor’s tax statusb. Investor’s
Suppose you take out a margin loan for $65,000. The rate you pay is an 8.7 percent effective rate. If you repay the loan in six months (or 180 days), how much interest will you pay?
Generate a listing of outstanding bonds for McDonald’s (MCD).
Suppose you buy $100,000 in face amount of a just-issued five-year U.S. Treasury note. If the coupon rate is 5 percent, what will you receive over the next five years if you hold on to your
a. What are the three basic types of financial assets?b. Why are some financial assets hard to classify?
Suppose you are planning to purchase a Comcast Corporation bond that matures in 2038 and has a 3.15 percent coupon rate. The last price, as a percentage of face value, is 99.148, or 99.148 percent.
Which of the following is not a common characteristic of money market securities?a. They are sold on a discount basis.b. They mature in less than one year.c. The most important risk is default
Access the description for Nike (NKE) stock and determine the industry in which it is categorized.
In Figure 3.1, which bond has the longest maturity? Assuming a face value of $1,000 each, how much would you have to pay for 100 of these bonds?Figure 3.1 Corporate Bond Trading FINRA TRACE Market
Which of the following money market securities is the most liquid?a. U.S. Treasury billsb. Bank certificates of depositc. Corporate money market debtd. Municipality money market debt.
Find a list of available options on Disney (DIS) stock.
A corporation with common stock issued to the public pays dividends:a. At the discretion of management, who are elected by the shareholders.b. At the discretion of shareholders since they own the
a. How do mutual funds usually get started?b. How are mutual funds taxed?c. How does mutual fund trading differ from stock trading?
a. What are the two basic types of interest-bearing assets?b. What are the two basic features of a fixed-income security?
Find a list of the most active securities for the current trading day.
a. What are the two types of equity securities?b. Why is preferred stock sometimes classified as a fixed-income security?
A European option can be exercised:a. Only after American options.b. Anytime up to and including the expiration date.c. Only on the day before the expiration date.d. Only on a European exchange.
Screen for stocks that have the highest current dividend yield.
a. What is a futures contract?b. What are the general types of futures contracts?c. Explain how you make or lose money on a futures contract.
Your friend told you she just received her semiannual coupon payment on a U.S. Treasury note with a $100,000 face value that pays a 6 percent annual coupon. How much money did she receive from this
You purchase 4,000 bonds with a par value of $1,000 for $978 each. The bonds have a coupon rate of 7.7 percent paid semiannually and mature in 10 years. How much will you receive on the next coupon
a. What is a call option? A put option?b. If you buy a call option, what do you hope will happen to the underlying stock? What if you buy a put option?c. What are the two key differences between a
You buy (go long) five copper futures contracts at 100 cents per pound, where the contract size is 25,000 pounds. At contract maturity, copper is selling for 102 cents per pound. What is your profit
You sell (go short) 10 gold futures contracts at $400 per ounce, where the contract size is 100 ounces. At contract maturity, gold is selling for $410 per ounce. What is your profit (+) or loss (−)
You buy 100 CJC call option contracts with a strike price of $95 at a quoted price of $1. At option expiration, CJC sells for $97. What is your net profit on the
You buy 100 CJC put option contracts with a strike price of $92 at a quoted price of $8. At option expiration, CJC sells for $83.80. What is your net profit on the
Which of the following statements about short selling is true?a. A short position may be hedged by writing call options.b. A short position may be hedged by purchasing put options.c. Short-sellers
Analyze the price and NAV of the ETF with the ticker symbol SPY. Why is the difference so small?

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