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investment analysis portfolio

Questions and Answers of Investment Analysis Portfolio

2. Contrast the traditional Porsche customer decision process to the decision process for a Cayenne or Panamera customer. pg103
1. Analyse the buyer decision process of a traditional Porsche customer. pg103
It has been contended that the derivation of an appropriate model for evaluating the performance of a bond manager is more difficult than an equity portfolio evaluation model because more decisions
Performance attribution analysis is an attempt to divide a manager’s “active” residual return into an allocation effect and a selection effect. Explain how these two effects are measured and
The information ratio (IR) has been described as a benefitcost ratio. Explain how the IR measures portfolio performance and whether this analogy is appropriate.
Describe how the Jensen measure of performance is calculated.Under what conditions should it give a similar set of portfolio rankings as the Sharpe and Treynor measures?Is it possible to adjust the
The Sharpe and Treynor performance measures both calculate a portfolio’s average excess return per unit of risk.Under what circumstances would it make sense to use both measures to compare the
Compare and contrast four prominent approaches to measuring investment performance on a risk-adjusted basis. In developing your answer, comment on the conditions under which each measure will be most
Describe two major factors that a portfolio manager should consider before designing an investment strategy.What types of decisions can a manager make to achieve these goals?
What are soft dollar arrangements? Describe one potential way they can be used to transfer wealth from the investor to the manager.
Most money managers have a portion of their compensation tied to the performance of the portfolios they manage. Explain how this arrangement can create an ethical dilemma for the manager.
You are told that Fund X experienced above-average performance over the past two years. Do you think it will continue over the next two years? Why or why not?
As an investigator evaluating how well mutual fund managers select undervalued stocks or project market returns, discuss whether net or gross returns are more relevant.
Should you care about how well a mutual fund is diversified?Why or why not?
What is the difference between a load fund and a no-load fund?
Closed-end funds generally invest in securities and financial instruments that are relatively illiquid whereas most mutual funds invest in widely traded stocks and bonds.Explain the difference
It has been suggested that the professional asset management community is rapidly becoming dominated by a fairly small number of huge, multiproduct firms. Discuss whether the data presented on the
What are the differences between a management and advisory firm and an investment company? Describe the approach toward portfolio management adopted by each organization.
During a conference with a client, the subject of classical immunization is introduced.The client questions the fee charged for developing and managing an immunized portfolio. The client believes it
You begin with an investment horizon of four years and a portfolio with a duration of four years with a market interest rate of 10%. A year later, what is your investment horizon? Assuming no change
How would you explain to a casual observer why highyield bond returns are more correlated to common stock returns than to investment-grade bond returns?
Because of inflationary expectations, you expect natural resource stocks, such as mining companies and oil firms, to perform well over the next three to six months. As an active portfolio manager,
What are the trade-offs involved when constructing a portfolio using a full replication versus a sampling method?
Describe the difference between a price momentum strategy and an earnings momentum strategy. Under what conditions would you expect the two approaches to produce similar portfolios?
Discuss how the four asset allocation strategies differ from one another.
How do trading costs and market efficiencies affect the active manager? How may an active manager try to overcome these obstacles to success?
Discuss three strategies active managers can use to add value to their portfolios.
Describe several techniques for constructing a passive portfolio.
Briefly describe four techniques considered active equity portfolio management strategies.
What is meant by an indexing portfolio strategy and what is the justification for this strategy? How might it differ from another passive portfolio?
Why have passive portfolio management strategies increased in use over time?
Bonds and preferred stock that are convertible into common stock are said to provide investors with both upside potential and downside protection. Explain how one security can possess both
We have seen that equity warrants are not as valuable as an otherwise identical call option on the stock of the same company. Explain why this must be the case. Also, what is the incentive for a firm
Total return swaps and credit default swaps were both developed as tools to help investors manage for credit risk. In practice, however, credit default swaps are used far more widely. Compare the
“When the yield curve is upward-sloping, the fixed rate on a multiyear swap must be higher than the current level of LIBOR.With a downward-sloping yield curve, the opposite will occur.” Explain
On October 19, 1987, the stock market (as measured by the Dow Jones Industrial Average) lost almost onequarter of its value in a single day. Nevertheless, some traders made a profit buying call
Explain why a change in the time to expiration (i.e., T)can have either a positive or negative impact on the value of a European-style put option. In this explanation, it will be useful to contrast
“Although options are risky investments, they are valued by virtue of their ability to convert the underlying asset into a synthetic risk-free security.” Explain what this statement means, being
It is often stated that a stock index arbitrage trade is easier to implement when the stock index futures contract price is above its theoretical level than when it is below that value.What
You own an equally weighted portfolio of 50 different stocks worth about $5,000,000. The stocks are from several different industries, and the portfolio is reasonably well diversified.Which do you
A multinational corporation is about to embark on a major financial restructuring program. One critical stage will be the issuance of seven-year Eurobonds sometime within the next month.The CFO is
Suppose you are a derivatives trader specializing in creating customized commodity forward contracts for clients and then hedging your position with exchange-traded futures contracts.Your latest
“Hedgers trade price risk for basis risk.”What is meant by this statement? In particular, explain the concept of the basis in a hedge transaction and how forward and futures contracts can be
We have futures contracts on Treasury bonds, but we do not have futures contracts on individual corporate bonds.We have cattle and hog futures but no chicken futures.Explain why the market has
Put-call-forward parity and range forward positions both involve the purchase of a call option and the sale of a put option (or vice versa) on the same underlying asset. Describe the relationship
Straddles have been described as “volatility plays.”Explain what this means for both long and short straddle positions. Given the fact that volatility is a primary factor in how options are
If the current price of a non-dividend-paying stock is$32 and a one-year futures contract on that stock has a contract price of $35, explain how an investor could create an “off-market” long
Discuss the difficulties that having options in a security portfolio create for the measurement of portfolio risk. Specifically, explain why standard deviation is a deficient statistic for capturing
It has been said that, from an investor’s perspective, a long position in a call option represents the “good half ”of a long position in a forward contract. Explain what is meant by this
Explain how call and put options can represent a leveraged way of investing in the stock market and also enable investors to hedge their risk completely.Specifically, under what circumstances will
Compare and contrast the gain and loss potential for investors holding the following positions: long forward, short forward, long call, short call, long put, and short put. Indicate what the terms
When comparing futures and forward contracts, it has been said that futures are more liquid but forwards are more flexible. Explain what this statement means and comment on how differences in
Explain why the difference between put and call prices depends on whether or not the underlying security pays a dividend during the life of the contracts.
The Francesca Finance Corporation has issued a bond with the following characteristics:Maturity—25 years Coupon—9%Yield to maturity—9%Callable—after 3 years @ 109 Duration to maturity—8.2
At the present time, you expect a decline in interest rates and must choose between two portfolios of bonds with the following characteristics:Portfolio A Portfolio B Average maturity 10.5 years 10.0
You expect interest rates to decline over the next six months.a. Given our interest rate outlook, state what kinds of bonds you want in our portfolio in terms of duration and explain our reasoning
We discussed three alternative hypotheses to explain the term structure of interest rates. Briefly discuss the three hypotheses and indicate which one you think best explains the alternative shapes
a. Define the variables included in the following model:i (RFR, I, RP)b. Assume that the firm whose bonds you are considering is not expected to break even this year.c. Discuss which factor will be
What are the important assumptions made when we calculate the promised yield to maturity? What are the assumptions when calculating promised YTC?
Why does the present value equation appear to be more useful for the bond investor than for the common stock investor?
Discuss the difference between a foreign bond (e.g., a Samurai) and a Eurobond (e.g., a Euroyen issue).
Discuss the positives and negatives of investing in a government agency issue rather than a straight Treasury bond.
Based on the data in Exhibit 11.1, discuss the makeup of the Japanese debt market and how and why it differs from the U.S. market.
What is the purpose of bond ratings?
Why should investors be aware of the trading volume for bonds in their portfolio?
For several institutional participants in the bond market, explain what type of bond each is likely to purchase and why.
Explain the differences in taxation of income from Treasury bills, zero coupon bonds, and regular coupon bonds.
Briefly describe two indenture provisions that can affect the maturity of a bond.
Given a change in the level of interest rates, discuss how two major factors will influence the relative change in price for individual bonds.
Identify the three most important determinants of the price of a bond. Describe the effect of each.
Explain the difference between calling a bond and a bond refunding.
Discuss why most technicians follow several technical rules and attempt to derive a consensus.
Explain how you would construct a relative-strength ratio for an individual stock or an industry group.What would it mean to say a stock experienced good relative strength during a bear market?
Assuming a stock price and volume chart that also contains a 50-day and a 200-day MA line, describe a bearish pattern with the two MA lines and discuss why it is bearish.
What is the purpose of computing a moving-average line for a stock? Describe a bullish pattern using a 50-day moving-average line and the stock volume of trading. Discuss why this pattern is
Explain the reasoning behind a support level and a resistance level.
During a 10-day trading period, the cumulative net advance index goes from 1,572 to 1,053. During this same period of time, the S&P/TSX Composite index goes from 11,200 to 12,100. As a technician,
Discuss the logic behind the breadth of market index.How is it used to identify a peak in stock prices?
Describe a bearish price and volume pattern, and discuss why it is considered bearish.
Describe the Dow Theory and its three components.Which component is most important? What is the reason for an intermediate reversal?
Discuss why an increase in debit balances is considered bullish or bearish.
If the bearish sentiment index of advisory service opinions were to increase to 61%, discuss why a technician would consider this bullish or bearish.
Assume a significant decline in credit balances at brokerage firms. Discuss why a technician would consider this bearish.
If the mutual fund cash position were to increase close to 10%, would a technician consider this cash position bullish or bearish? Give two reasons why the technical analyst would think this way.
Discuss some disadvantages of technical analysis.
Briefly discuss the problems related to fundamental analysis that are considered advantages for technical analysis.
Technicians contend that stock prices move in trends that persist for long periods of time.What do technicians believe happens in the real world to cause these trends?
Technical analysts believe that one can use past price changes to predict future price changes. How do they justify this belief?
Indicate and justify a growth label for Magna International.
Given the alternative companies described in the chapter(negative growth, simple growth, dynamic growth), indicate what your label would be for Shoppers Drug Mart.Justify your label.
You are told that a growth company has a P/E ratio of 13 times and a growth rate of 15% compared to the aggregate market, which has a growth rate of 8% and a P/E ratio of 16 times.What does this
Why is it not feasible to use the dividend discount model in the valuation of true growth companies?
Discuss the reasoning behind the contention that in a completely competitive economy, there would never be a true growth company.
You are told that a company retains 80% of its earnings, and its earnings are growing at a rate of about 8% a year versus an average growth rate of 6% for all firms. Discuss whether you would
Discuss the two factors that determine the franchise value of a firm.Assuming a firm has a base cost of equity of 11% and does not have a franchise value, what will be its P/E?
Differentiate between EVA and MVA and discuss the relatively weak relationship between these two measures of performance. Is this relationship surprising to you?Explain.
Discuss why you would want to use EVA return on capital rather than absolute EVA to compare two companies or to evaluate a firm’s performance over time.
Specify the major components for the calculation of economic value added. Describe what a positive EVA signifies.
Assume that you uncover two stocks with substantially different price/sales ratios (e.g., 0.5 versus 2.5). Discuss the factors that might explain the difference.
Why has the price/cash flow ratio become a popular measure of relative value during the recent past? What factors would help explain a difference in this ratio for two firms?

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