Questions and Answers of Investments Analysis And Management

A portfolio manager begins the year with $10,000. Halfway through the year $2,000 is withdrawn by the client. The value of the portfolio at the end of the year, reflecting the performance of the
At the beginning of 2015, Fidelity’s Equity Income Fund had a beta of 0.89, whereas T. Rowe Price’s Growth and Income Fund had a beta of 0.99.
Consider a midcap stock fund whose manager emphasizes stocks that currently are out of favor with investors. The manager believes that recent events have caused these stocks to sell for less than
Paul Joubert retired from his firm. He has continued to hold his private retirement investments in a portfolio of common stocks and bonds. At the beginning of 2015, when he retired, his account was
Assume that a large‐cap value manager earned an average active return relative to the Russell 1000 Value Index (the benchmark) of 2.2 percent. Furthermore, assume that the manager’s tracking risk
What does the term “performance attribution” mean?
What does style analysis seek to accomplish?
Russell/Mellon is a leading provider of investment information services to more than 3,000 institutional investors such as pension funds, asset managers, and consultants. This company is able to
Why is Jensen’s alpha computationally efficient?
In theory, what would be the proper market index to use?
What is meant by portfolio optimization?
What rule of thumb might investors follow when considering portfolio rebalancing?
Over a recent five‐year period, small‐cap value funds significantly outperformed large‐cap value funds. Therefore, the typical owner of a small‐cap value fund during that period should expect
A portfolio manager begins the year with $10,000. Halfway through the year $2,000 is withdrawn by the client. The value of the portfolio at the end of the year, reflecting the performance of the
Assume a client provides a portfolio manager with $500,000, which is invested at the beginning of the year. At year end, the account is worth $545,000. At the beginning of year two, the client
At the beginning of 2015, Fidelity’s Equity Income Fund had a beta of 0.89, whereas T. Rowe Price’s Growth and Income Fund had a beta of 0.99.
For what type of mutual fund discussed in Chapter 3 could you expect to find complete diversification? The following facts about mutual funds illustrate their importance to investors: Approximately
At the beginning of 2015, Fidelity’s Equity Income fund had an R2 of 0.95, whereas T. Rowe Price’s Growth and Income Fund had an R2 of 0.97.
Russell/Mellon is a leading provider of investment information services to more than 3,000 institutional investors such as pension funds, asset managers, and consultants. This company is able to
Assume that a large‐cap value manager earned an average active return relative to the Russell 1000 Value Index (the benchmark) of 2.2 percent. Furthermore, assume that the manager’s tracking risk
Assume you wish to evaluate the performance of a portfolio that had a 14 percent average return for a period of time, with a standard deviation of 23 percent. The market for the same period had an
Explain how Jensen’s alpha is derived from the CAPM.
Consider a midcap stock fund whose manager emphasizes stocks that currently are out of favor with investors. The manager believes that recent events have caused these stocks to sell for less than
Why is Jensen’s alpha computationally efficient?
Consider a domestic large‐cap equity fund manager who gradually shifts more of the portfolio’s assets to international stocks. Furthermore, the manager tends to inadvertently focus on midcap
What role does statistical significance play in the Jensen measure?
In theory, what would be the proper market index to use?
Explain why the steeper the angle, the better the performance in Figure 22‐1.Figure 22‐1 Rate of return 24 22 20 18 16 4 12 10 8 RF 5 W S&P 500- M 10 15 Standard deviation of
Do the Sharpe and Jensen measures produce the same rankings of portfolio performance?
How do the Global Investment Performance Standards help investors?
What does the term “performance attribution” mean?
What does style analysis seek to accomplish?
Identify a major problem when using style analysis.
Paul Joubert retired from his firm. He has continued to hold his private retirement investments in a portfolio of common stocks and bonds. At the beginning of 2015, when he retired, his account was
What is meant by portfolio optimization?
What rule of thumb might investors follow when considering portfolio rebalancing?
Foothill College Endowment Fund Case Facts Type of investor Purpose Asset base Stated return desire Other return factors Institutional; endowment Provide annual scholarships currently totaling $39.5
Over a recent five‐year period, small‐cap value funds significantly outperformed large‐cap value funds. Therefore, the typical owner of a small‐cap value fund during that period should expect
A portfolio manager begins the year with $10,000. Halfway through the year $2,000 is withdrawn by the client. The value of the portfolio at the end of the year, reflecting the performance of the
Assume a client provides a portfolio manager with $500,000, which is invested at the beginning of the year. At year end, the account is worth $545,000. At the beginning of year two, the client
For what type of mutual fund discussed in Chapter 3 could you expect to find complete diversification? The following facts about mutual funds illustrate their importance to investors: Approximately
At the beginning of 2015, Fidelity’s Equity Income Fund had a beta of 0.89, whereas T. Rowe Price’s Growth and Income Fund had a beta of 0.99.
At the beginning of 2015, Fidelity’s Equity Income fund had an R2 of 0.95, whereas T. Rowe Price’s Growth and Income Fund had an R2 of 0.97.
Russell/Mellon is a leading provider of investment information services to more than 3,000 institutional investors such as pension funds, asset managers, and consultants. This company is able to
Assume you wish to evaluate the performance of a portfolio that had a 14 percent average return for a period of time, with a standard deviation of 23 percent. The market for the same period had an
Assume that a large‐cap value manager earned an average active return relative to the Russell 1000 Value Index (the benchmark) of 2.2 percent. Furthermore, assume that the manager’s tracking risk
Explain how Jensen’s alpha is derived from the CAPM.
Consider a midcap stock fund whose manager emphasizes stocks that currently are out of favor with investors. The manager believes that recent events have caused these stocks to sell for less than
Why is Jensen’s alpha computationally efficient?
Consider a domestic large‐cap equity fund manager who gradually shifts more of the portfolio’s assets to international stocks. Furthermore, the manager tends to inadvertently focus on midcap
Explain why the steeper the angle, the better the performance in Figure 22‐1.Figure 22‐1 Rate of return 24 22 20 18 16 4 12 10 8 RF 5 W S&P 500- M 10 15 Standard deviation of
What role does statistical significance play in the Jensen measure?
In theory, what would be the proper market index to use?
Do the Sharpe and Jensen measures produce the same rankings of portfolio performance?
How do the Global Investment Performance Standards help investors?
What does the term “performance attribution” mean?
What does style analysis seek to accomplish?
Identify a major problem when using style analysis.
Paul Joubert retired from his firm. He has continued to hold his private retirement investments in a portfolio of common stocks and bonds. At the beginning of 2015, when he retired, his account was
What is the relationship between option prices and their intrinsic values? Why?
Assume that an investor purchased 100 shares of Hewlett‐Packard last year for $40 per share and this year, with the stock price at $48, writes a (covered) six‐month call with an exercise price of
According to Table 6‐6, the standard deviation for all common stocks for the period 1926–2010 was 19.9 percent. Using data from Table 6‐1, calculate the standard deviation for the years
Fidelity’s Equity‐Income Fund has an expense ratio of approximately 0.66 percent, consisting of a management fee of 0.45 percent and other expenses of 0.21 percent. The Fund calculates that if
Consider the amount of retirement wealth that can be accumulated by one individual contributing $5,000 annually to a tax‐sheltered account if returns are compounded annually. Over many years of
A 2012 study of 401(k) retirement plan participants found that participants under age 30 had 33 percent of their assets in stocks, while people in their 30s and 40s had much larger allocations to
During 2011, investors became more risk‐averse as they reacted to a variety of events in both the United States and abroad. The European sovereign debt crisis (Greece, etc.) and banking crisis, and
The years 2000–2002 each showed negative returns for the major stock indexes, as did 2008. For large company stocks, those were the only negative return years since 1990. While investors expected
Investors have often sought out emerging markets as an investing opportunity on the basis that these economies may act differently from the industrialized economies, thereby providing some offset in
In terms of Figure 1-1, when would an investor expect to earn the risk‐free rate of return?Figure 1-1 return Expected RF Large firm common stocks Corporate bonds Risk Small
Individual investors can exploit a spin‐off (defined as a division of a company that is turned into a separate publicly held company), better than institutional investors in some cases. Some
“A risk‐averse investor will not assume risk.” Agree or disagree with this statement, and explain your reasoning.
Summarize the basic nature of the investment decision in one sentence.
Distinguish between expected return and realized return.
Rational investors always attempt to minimize their risks! Agree or disagree, and explain your reasoning.
Coca‐Cola is justifiably famous for its brand name and its global marketing efforts. Its success, however, is heavily dependent on what happens in the non‐U.S. markets it has increasingly
What is meant by “indirect” investing?
A 10‐year, 10 percent coupon bond has a dollar coupon of $100 (10 percent of $1,000); therefore, knowing the percentage coupon rate is the same as knowing the coupon payment in dollars.13 This bond
Using a spreadsheet, determine what a $1,000 investment in a CD would be worth after one year if the stated interest rate is 6 percent (stated on an annual basis) and the interest is compounded
A 5 percent stock dividend would entitle an owner of 100 shares of a particular stock to an additional five shares. A 2‐for‐1 stock split would double the number of shares of stock outstanding
The price of Coca‐Cola on December 31, 2013, was $41.31. The most recent 12‐month trailing earnings per share for the company at the time was $2.08. The trailing P/E ratio, therefore, was 19.9.
Petrobras, a large energy company in Brazil, has an ADR listed on the NYSE. On the other hand, Samsung, a major producer of consumer products, has no ADR traded in the United States. However, an
What is meant by the term securitization?
What is meant by home country bias?
With regard to bond ratings, which of the following statements is INCORRECT?a. The first four categories represent investment‐grade securities.b. Ratings reflect the absolute probability of
Preferred stocks and common stocks are similar in thata. Both are equity securitiesb. Both pay a stated and fixed dividendc. The expected return for each can be estimated with precision for the
The common stockholdera. Is guaranteed a specified dividend returnb. Is senior to (i.e., ranks above) debtholders in terms of paymentc. Takes relatively small risk in any given yeard. Can best be
Municipal bond yields are stated on an after‐tax basis, while corporate bond yields are stated on a before‐tax basis. Agree or disagree, and state your reasoning.
Fidelity Investments is one of the largest investment companies in the United States, offering hundreds of alternative funds to its investors. Fidelity Investments is the fund company, or sponsor, of
What is meant by “indirect” investing?
The following two ETFs reflect the variety of ETFs in existence. The Vanguard Total Stock Market ETF (VTI) seeks to provide long‐term growth of capital and income by investing in more than 3,000
A fund’s prospectus describes the fund’s objectives, policies, operations, and fees. The prospectus for Fidelity’s Equity‐Income Fund contains the following statement: “Equity‐Income is a
For the same two funds discussed in 3‐2, the ending wealth after five years was $1.4283 per dollar invested for the Equity‐Income Fund and $1.2940 per dollar invested for the Personal Strategy
An example of a stated fund objective is, “Equity‐Income seeks reasonable income by investing mainly in income‐producing equity securities. In selecting investments, the fund also considers the
In the late 1990s, growth funds had a big run. With the incredible performance of dot.coms and technology stocks, which are primarily growth stocks, value funds performed poorly relative to growth
As of December 31, 2014, the 10‐year annualized rate of return (geometric mean) for the Wall Street Emerging Growth Fund was 9.49 percent. Assume an investor invested $10,000 in this fund on
Assume that the Titan Fund has a portfolio of stocks valued on a given day at $50,000,000. Its liabilities are $500,000, and shareholders of this fund own five million shares. The NAV is NAV
How similar is an ETF to a closed‐end fund?
For the period ending July 2012, Vanguard’s Prime Money Market Fund Investor Shares earned 0.03 percent. What was the ending wealth given a $10,000 investment?
The John Hancock Bank and Thrift Opportunity Fund had an average discount of about 13.5 percent over a five‐year period. At one point, the fund sold for a discount of 18 percent, at which time an
What does it mean for an investment company to be regulated?

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