Chapter 5

9. On its Web site, one mutual fund company describes its "disciplined and sophisticated investment strategies." (The term investment is used to mean the choice of securities.) Let's change the company's name to "Smith." With this alteration, the site says:

At the center of Smith's investment process is the Smith Investment Committee. It consists of a select group of senior investment professionals who are supported by an extensive staff. This staff provides multilevel analyses of the economic and investment environments, including actual and projected corporate earnings, interest rates, and the effect of economic forecasts on market sectors, individual securities, and client portfolios. Does this statement convince you to buy Smith mutual funds? Why or why not?

10. Suppose you hold most of your wealth in stock. What kinds of options should you buy or sell in each of the following circum- stances?

a. You think the stock market will probably do well, but you worry about a crash. b. You want to get a steady return on your assets. You don't care whether you get

rich from a big rise in the market. c. You think there will soon be big news about firms' earnings, but you don't know whether the news will be good or bad

Chapter 8

1. HSBC has more than $1 trillion in assets and operates in about 100 countries. It calls itself "the world's local bank." What business strategies does this phrase suggest? Why might these strategies be successful?

2. Suppose that Melvin's Bank purchases Gertrude's Bank, making Gertrude a subsidiary of Melvin. Does this acquisition benefit the stockholders of Melvin's Bank? Does the answer depend on the motives for the purchase? Explain. (Hint: Review the motives for bank consolidation discussed in Section 8.2.)

3. Securitization has spread from mortgages to student loans and credit card debt. However, few loans to businesses have been securitized. Explain why.