Attached is the Finance Homework and Articles used to answer the questions. Price is flexible. Just need decent non plagiarized answers

The Intelligent Investor: How Huge Returns Mess With Your Mind - WSJ.com Page 1 of 4 News, Quotes, Companies, Videos U.S. EDITION Home Friday, January 4, 2013 As of 5:48 PM EST World Wall Street U.S. New York Heard on the Street Market Data Business Subscribe Tech Personal Finance TOP STORIES IN PERSONAL FINANCE 1 of 12 Investing Market Data Stocks Opinion Funds/ETFs Bonds 2 of 12 A 'Bucket List' for Better Diversification THE INTELLIGENT INVESTOR Markets Your 2012 Taxes--Fewer Surprises, Plenty of Pitfalls Email Commodities Real Estate Currencies Log In Careers Wealth Mgmt CFO Journal 3 of 12 4 of 12 You'd Be Surprised at What's Tax Deductible Yes, You Still Can Have a Love Life January 4, 2013, 5:48 p.m. ET How Huge Returns Mess With Your Mind Stock Quotes Article Life & Culture SEARCH By JASON ZWEIG LIKE THIS COLUMNIST Like Comments (4) 146 MORE IN INVESTING Print Happy New Year, investors. Enjoy those gains that your portfolios earned this past week. Just don't extrapolate them. This past Wednesday, the first trading day of 2013, the Standard & Poor's 500 -stock index jumped 2.5% after the White House and Congress agreed on a new tax-and-spending package. That was its biggest daily return in nearly 13 months. Even after a tepid employment report on Friday, the S&P 500 ended Enlarge Image Christophe Vorlet the week up another 0.5%. But investors' euphoria extends beyond U.S. blue-chip stocks. The Russell 2000 index of small stocks surpassed its all-time high this past week. On Wednesday, the yield on the Barclays U.S. Corporate High Yield Index fell below 6% for the first time ever, as investors pushed high-yield, or "junk," bonds to their highest prices on record. And the giddiness is global. Stock markets in Argentina, China, Egypt and Finland all shot up by at least 4% in the first two trading days of 2013, largely in response to the news out of Washington. On Thursday, Banco Bilbao Vizcaya Argentaria, BBVA +4.69% a big Spanish bank, sold $2 billion in debt at a yield of just 3.8%, another sign that bond investors are willing to pay high prices in hopes of getting even a smidgen of extra return. Starved for good news after a dozen years of bear markets and wrenching volatility, Available to WSJ.com Subscribers Terror Leader Emerges, Then Vanishes, in Sahara Medicaid Sparks New Fight Over Health Care investors need to keep their expectations in check and to avoid taking unacceptable risks in the pursuit of yield. It is especially important to recognize two related flaws of the human mind: People tend to underestimate how hard it is to earn high rates of return and how much wealth those growth rates would achieve. A 2.5% return doesn't sound particularly hard to sustain, but if the market went up at that same daily pace each of the other 20 trading days in January, investors would U.S., Europe Seek to Cool Jitters Retail Currency Market Eyes Card Ban http://online.wsj.com/article/SB10001424127887323689604578221783598474120.html?... 2/12/2013 The Intelligent Investor: How Huge Returns Mess With Your Mind - WSJ.com earn a 65% return. A full year's worth of 2.5% daily returns would yield a return of more than 50,000%. More Weekend Investor Tax Report: How Much Will Your Taxes Jump? Family Value: Time to Convert To a Roth 401 (k)? Upside: Weighing Three Retailers' BargainBasement Stocks The Disappearing College Loan Where to Find Growth in '13 Seeking Yield in Direct Loans Page 2 of 4 Don't Miss [?] Because the human mind isn't very good at appreciating the power of exponential growth, thinking realistically about high returns is hard. Consider the oft-told myth about the inventor of chess: Granted any wish by a grateful king, the inventor asked to be paid with one grain of rice on the first square of the chessboard, with the amount to be doubled on each successive square. The king casually agreed, Opinion: Get Ready for a Third SinoJapanese War Go Daddy: 'Your Big Idea Co.' Why Mr. Mom Is Dead Most Popular Emailed Read 1. Video Commented Apple Testing Watch-Like Device expecting to pay out a few handfuls of rice, only to discover that by the 64th square he would owe the inventor quintillions of grainsenough to carpet the entire planet 2. Pope Benedict to Resign with rice pilaf. 3. Opinion: Best of the Web Today: Not the Drones They Thought They Knew According to recent research by economists Joshua Tasoff of Claremont Graduate University and Matthew Levy of the London School of Economics, many people 4. believe that a one-percentage-point increase in compounding is equally valuable at all growth rates. 5. That probably is because compound growthin which the original amount and all additions to it grow at the same rateis rare outside the financial world. U.S. Catholics Surprised by Pope's Resignation Everybody Loves Labradors, So Why Are They Underdogs? Articles Feed Roughly one in three people, estimate Messrs. Tasoff and Levy, are completely flummoxed by compoundingand the more severely they misunderstand it, the Recent Columns more confident they are that they have it right. It's Hard to Limit U.S. Stock Exposure People with this "exponential growth bias" believe that a boost in the compound rate of return from 2% to 3% will make as big a difference in their final wealth as an A 'Bucket List' for Better Diversification How Apple Bit Bond Holders, Too increase from 12% to 13% would. About Jason Zweig No wonder so many investors are tempted to reach for yield at today's low interest Jason Zweig writes The Intelligent Investor every Saturday for The rates, when little gains feel as if they mean a lot. But the math doesn't work in the real world the way it does in investors' minds. Over 10 years, $10,000 compounded at 2% amounts to $12,190; at 3%, it rises to Wall Street Journal. He is the author of Your Money and Your Brain, on the neuroscience of investing, and the editor of the revised edition of Benjamin Graham's The Intelligent Investor, the classic text that Warren Buffett has described as "by far the best book about investing ever written." Before joining the Journal, Jason was a senior writer for Money magazine and a guest columnist for Time $13,439, or $1,249 more. But the same $10,000 compounded at 12% for a decade yields $31,058; at 13%, $33,946, or $2887 more. magazine and CNN.com, and he also spent a year studying Middle Eastern history and culture at the Hebrew University in Jerusalem. In short, a little bit of extra return isn't nearly as valuable in a low-rate world as people intuitively believe it to be. Consumer Interest Rates Savings Mortgage Auto Loan Types Rate Some investorsforemost among them Warren Buffettfeel the power of exponential growth in their very bones. Even as a young man, according to his 1 yr CD 0.70% 6 month CD 0.44% biographer, Alice Schroeder, Mr. Buffett developed the habit of regarding any 3 month CD 0.23% money that he didn't invest as a reduction in the rate at which his future wealth could expand: "Do I really want to spend $300,000 for this haircut?" $10K MMA 0.53% MMA Find rates: Enter Zipcode Last Week Chart 0.50% SEARCH But most other investors underestimate the power of compounding, according to Messrs. Tasoff and Levy. Since these people don't fully appreciate the accelerating rate at which money builds in the future, they set less money aside in the present saving about 40% less than those who are accurate in estimating compound growth. The Intelligent Investor RSS Feed More in Investing In short, considering that just about all financial assets are at or near record highs in today's markets, the sensible thing for investors to do isn't to ratchet up their risk, A 'Bucket List' for Better Diversification trade faster or try squeezing out every last drop of yield. Instead, save more, stretch out your horizons as long as you can and let the power of compoundingeven at Latest Headlines Economic Anxiety Shadows State of the Union low ratesdo its quiet work. twitter.com/jasonzweigwsj Latest News http://online.wsj.com/article/SB10001424127887323689604578221783598474120.html?... 2/12/2013 The Intelligent Investor: How Huge Returns Mess With Your Mind - WSJ.com Page 3 of 4 Ski Resorts Open Unbeaten Paths Write to Jason Zweig at intelligentinvestor@wsj.com A version of this article appeared January 5, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: How Huge Returns Mess With Your Mind. 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Corrections Track replies to my comment http://online.wsj.com/article/SB10001424127887323689604578221783598474120.html?... 2/12/2013 The Intelligent Investor: How Huge Returns Mess With Your Mind - WSJ.com Page 4 of 4 Editors' Picks Ski Resorts Open Unbeaten Paths Apple Testing WatchLike Device Terror Leader Emerges, Then Vanishes, in Sahara Ads Tools & Features More Your Ad Choices Apps Register for Free Advertise Newsletters and Alerts Reprints Advertise Locally Graphics & Photos E-books Place a Classified Ad Columns Content Partnerships Topics Conferences Guides SafeHouse Everybody Loves Labradors, So Why Are They Underdogs? With Fewer to Lock Up, Prisons Shut Doors Jobs at WSJ Portfolio Old Portfolio Copyright 2013 Dow Jones & Company, Inc. All Rights Reserved. http://online.wsj.com/article/SB10001424127887323689604578221783598474120.html?... 2/12/2013 1. Warren Buffett wrote in June 2011: "My wealth has come from a combination of living in America, some lucky genes, and compound interest\". Read the Power of Compounding ( http://birthrightblog.wordpress.com/2011/03/18/the-power-of-compounding/) and briefly explain what compounding is. (5 points; You don't need to be very long, and 2-3 sentences would be sufficient) 2. Read "how huge returns mess with your mind ". According to Jason Zweig, earning a return of 2.5% per day would result in what compound return over a 20-day trading period and over a year? (5 points) Question 3 and 4 are on the relation between discount rate and PV: 3. Read \"Winners and losers when the Fed raises rates\" from the Wall Street Journal blog. In the discussion of "housing market," if we keep the same monthly payment (note: these are future cash outflows), will mortgage borrowers be able to buy a cheaper or more expansive house with the rate hike (note: the mortgage loan the borrower takes out to buy the house is the present value)? Explain briefly. (10 points) 4. Based on your answer to 3, fill in the blanks in the following statement regarding the relation between PV and interest rate in general. Other things being equal, the higher the discount rate, the ________ the present value. (10 points--yes! 10 points for one word! please remember this and we will revisit it in later chapters on bonds, stocks, and capital budgeting) Winners and Losers When the Fed Raises Rates By WSJ STAFF Dec 16, 2015 9:06 am ET 0 COMMENTS The Federal Reserve may be about to knock over the first domino. Many Fedwatchers are convinced the central bank is just hours away from announcing the first increase to its benchmark federal-funds rate in nearly a decade. If that happens, there will be repercussions for stocks and bonds, on Main Street and Wall Street, and for economies in all corners of the world. For some, the impact could be felt right away, and for others, the shakeout may be felt more acutely over time, especially if the Fed follows the first rate hike with sustained tightening. Here's a roundup from Journal staffers about who wins and who loses when rates rise. Banks. Banks have been yearning for the Federal Reserve to start raising rates for years to stem the decline in their net interest margin, an important measure of banks' profitability. The interest rates banks charge on many loans are directly tied to the Fed's target rate, meaning they immediately earn more interest on those items, while deposit rates move more gradually. Goldman Sachs Group Inc. analysts recommends owning the stocks of banks whose depositors are likely to stick around: Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co., PNC Financial Services Group, Inc. and E*Trade Financial Corp. -Peter Rudegeair Corporate bonds. Corporate bonds could take a hit if the Fed raises rates, but should outperform benchmark U.S. Treasury debt, analysts say. Part of the reason is bond math: When rates rise, prices fall. But corporate bonds carry higher interest rates than Treasurys, to compensate investors for the added risk of default, so these bonds have more cushion to absorb a rate increase. After a major selloff in the market for higher-yielding junk debt in recent weeks, some analysts now expect that junk bonds-excluding the hardest hit energy and commodity sectors- will perform better than investment-grade debt should the Fed make a move. \"As long as we're selective about credits, [high-yield bonds] probably offers us a better opportunity in a rising-rate environment,\" said Priscilla Hancock, global fixed income strategist at J.P. Morgan Asset Management. \"When the Fed raises rates, it's supposed to suggest the economy is strengthening.\" -Mike Cherney AP Dollar. Most investors and analysts say the dollar's nearing the end of its bull run, even if the Federal Reserve raises rates Wednesday or early in 2016. The greenback's risen ahead of past tightening cycles, and then sold off before interest rates reached their apex. \"The European Central Bank probably has to step up and ease policy again in 2016, and the Fed will likely have more than one interest-rate move next year; add those up and yield spreads still are generally moving in the dollar's favor,\" said Westpac Bank's Richard Franulovich. \"The dollar's rally is hitting its mature phase, but it's definitely got further to run.\" The dollar has already strengthened 24% against other currencies since June 2014. Many investors predict that uneven U.S. growth or volatile global markets would discourage the Fed from raising rates as rapidly as in previous tightening cycles, limiting further upside. -James Ramage Emerging markets. A rise in U.S. interest rates could provide a litmus test for many emerging economies and show how prepared they are to withstand the potential capital outflows triggered by higher U.S. yields and a stronger dollar. Retaining foreign capital has already been challenging for emerging countries, many of which are struggling with slowing growth and substantial debt. So far, emerging-market currencies have absorbed most of the pains, losing 18% against the dollar this year through last week. Stocks, which are priced in local currencies, were down 17%, but dollar-denominated EM bonds have fared better, still managing to hold on to single-digit gains this year. \"Given how much EM currencies have already fallen this year, we don't expect much turmoil in the near term,\" if the Fed begins to tighten as expected, said Jorge Mariscal, chief investment officer of emerging markets at UBS Wealth Management, which oversees $1.9 trillion in invested assets. \"What matters is the path of the interest rates in the U.S. going forward.\" UBS expects four more rate increases next year, which will be problematic for a number of vulnerable emerging countries, including Brazil, Turkey, South Africa and Indonesia. -Carolyn Cui Euro. Expectations for higher U.S. interest rates and easier monetary policy in the eurozone drove the euro down 22% against the dollar since May 2014. In theory, a Fed rate increase should push the euro even lower. But the common currency's future has been complicated by investors' penchant for using euros to fund trades for higher-yielding assets. Thus, the euro stands to gain whenever investors grow risk-averse and trim or exit those bets. In addition, eurobears have proven particularly sensitive to central-bank expectations. The euro isn't likely to reach parity with the dollar anytime soon, says Mizuho Bank's Sireen Harajli. \"Fundamentals would call for a weaker euro,\" she says. \"But unless the ECB asks for more stimulus, it would be difficult for the euro to weaken significantly from here.\" However, few investors foresee a substantial euro rally in the coming weeks, either. -James Ramage BLOOMBERG NEWS Gold. Prices slumped to five-year lows in recent weeks as expectations of higher rates from the Fed hit fever-pitch. Bets that benefit if gold prices fall outpaced wagers that gold will rally by a record margin of 17,949 contracts on Dec. 1, according to CFTC data. Tighter monetary policy is likely to make it harder for gold, which doesn't pay interest, to compete with yield-bearing assets like Treasury bonds. However, some market watchers say the policy shift is already reflected in low gold prices, and the market could pop higher if the Fed reiterates that subsequent rate increases will be spread out. -Tatyana Shumsky High-quality stocks. Stocks with healthy balance sheets, high returns on capital, muted volatility, elevated margins and track records of stable sales and earnings growth stand to benefit when rates are rising. Per data compiled by Goldman Sachs Group Inc., these names have a history of outperforming their lesser-quality counterparts in the three months following an initial rate rise. Companies with strong balance sheets, for instance, typically outperform those with weak ones by an average 5% three months after liftoff, according to Goldman. -Kristen Scholer Housing market. Higher short-term interest rates won't wreck housing, and in the near-term might have hardly any impact at all. For one, the rate of mortgages, as with those of other longterm loans, have only an indirect relationship with short-term rates and are influenced more heavily by factors such as inflation expectations and economic growth. The rate on a 30-year fixed-rate mortgage-which last week was at 3.95% according to Freddie Mac-almost surely is already pricing in expectations of a Fed move on Wednesday. That said, over the next year, some economists expect mortgage rates to rise about half a percentage point. All else being equal, that would hurt home prices as borrowers would need to buy a cheaper house to keep the same monthly payment. A recent poll of home buyers by real-estate broker Redfin Corp. said that higher mortgage rates would have the biggest impact on the lower-end of the housing market. - Joe Light Life insurers. Few companies are rooting for a sustained rise in interest rates as loudly as U.S. insurers are, and life insurers are leading the cheers. Most insurers earn substantial income from investing premiums, and they typically favor high-quality bonds, whose yields have plummeted in recent years amid the sustained low interest-rate environment. Life insurers depend more heavily on investment income than do car, home and some sorts of business insurers. That's because life insurers can collect premiums for decades before paying out a claim, and rely on that investment income to make a policy profitable. For many older policies on life insurers' books, the companies expected to earn far-higher yields than newly invested cash fetches today. MetLife Inc. Chief Executive Steve Kandarian argues that life-insurance buyers will benefit too, as low rates make the cost of the coverage \"much more expensive than it needs to be.\" Low rates also raise the cost of running risk-management programs. Such hedging programs are important for those life insurers selling certain types of income-stream guarantees. -Leslie Scism Money-market funds. The Fed's 0.25% interest-rate increase will begin showing up in the yields of money-market mutual funds within days, welcome news for investors. Funds for individual investors that invest in both corporate and government debt currently yield just 0.01% on average, according to researcher iMoneyNet Inc. The higher rates should be fully reflected in just over a month, but investors in some money funds may not see the full increase, says Peter Crane, president of Crane Data LLC. Fund managers have temporarily trimmed fees to keep expenses from eating up the funds' paltry yields and taking a bite out of investors' principal. As interest rates rise, some part of the increase is likely to go toward increasing funds' fee charges, Mr. Crane says. Across the industry, \"my wild guess is that half of the first rate hike might flow through to investors, but it could be more,\" he says. -Daisy Maxey AP Oil. The latest plunge in oil prices has pummeled the stock and bond prices of some U.S. energy producers and raised fears of a spate of defaults across the sector. Increased interest rates could hurt producers that are already struggling to pay debts amid sharply lower cash flow. That could be positive for oil prices in the long run, if U.S. producers are forced out of business and domestic production declines as a result, reducing the global glut of crude. But in the near-term, the most direct effect on oil prices would probably come from the dollar. If the dollar still has room to run in the wake of a rate hike, the rising dollar could weigh on oil prices by making dollar-traded oil more expensive for buyers using foreign currencies. -Nicole Friedman Rate-sensitive stocks. Companies considered rate-sensitive are those that have high dividend yields. Consumer staples, telecoms and utilities fall into this category, as all three sectors yield more than the S&P 500. They have been attractive investments amid the low-yield environment the past several years. But, as rates rise, bonds are poised to become more attractive than their current state, which could steal some of the thunder away from high-dividend yielding shares. - Kristen Scholer Stocks with a large portion of floating-rate debt. Firms that have a decent amount of variable debt-where interest payments adjust as market rates rise or fall-stand to take a hit. As rates rise, so too will the cost of floating-rate debt. \"When the tightening cycle finally starts, the immediate impact will be felt by firms with high proportions of variable rate borrowing,\" wrote Goldman. Among the 10 S&P 500 sectors, financials and industrials have the greatest portion of floatingrate debt with it accounting for 16% and 10%, respectively, of all debt for those sectors. -Kristen Scholer Treasurys. The Fed's policy has a more direct impact on short-term government debt whose yields are highly sensitive to changes in the fed-fund rate. The yield on the two-year note recently traded near 1%, headed for the highest closing since May 2010. Many investors expect the yield to rise if the Fed raises interest rates on Wednesday. But some argue the yield has nearly doubled in the past two months and if the Fed signals that further tightening will happen at a very slow pace, some may book profit from their short bets on the two-year notes. The Fed's impact on long-term bonds is more subdued. The value of those bonds are influenced by a broad basket of factors, including the global growth and inflation outlook. A rate increase by the Fed may drive some investors to sell long-term bonds. But given concerns about the global economic outlook, there likely plenty of investors who could seek safety in long-term Treasury debt, especially with many focusing on the recent stress from the junk debt market. Any signal of a slow tightening path would keep a lid on long-term bond yields. One way an interest-rate increase could weigh on the U.S. government debt market is by making newly-minted bonds more attractive to buy, thus dragging down the value of outstanding bonds. -Min Zeng