INVESTMENT QUESTIONS

1.

Suppose your expectations regarding the stock price are as follows:

State of the Market	Probability	Ending Price	HPR (including dividends)
Boom	0.22	$140	49.5%
Normal growth	0.21	110	21.5
Recession	0.57	80	?19.0

Use Equations	,	to compute the mean and standard deviation
of the HPR on stocks. (Omit the % sign in your response. Do not round intermediate calculations. Enter your answers as decimals rounded to 2 places.)

2.

The offering price of an open-end fund is $12.60 per share and the fund is sold with a front-end load of 3%.

What is its net asset value? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

3.

The Closed Fund is a closed-end investment company with a portfolio currently worth $170 million. It has liabilities of $6 million and 9 million shares outstanding.

a.	What is the NAV of the fund? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

NAV

$

b.	If the fund sells for $20 per share, what is its premium or discount as a percent of net asset value?(Input the amount as a positive value. Round your answer to 1 decimal place. Omit the "%" sign in your response. )

(Click to select) Premium Discount of

%

References

eBook & Resources

4.

Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with an 3.5% coupon if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as follows: (Assume the entire 3.5% coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" & "%" signs in your response.)

Economy	Probability	YTM	Price	Capital Gain	Coupon Interest	HPR
Boom	0.25	9.0	%	$	$	$	%
Normal Growth	0.50	7.0	%	$	$	$	%
Recession	0.25	6.0	%	$	$	$	%

5.

During a period of severe inflation, a bond offered a nominal HPR of 83% per year. The inflation rate was 74% per year.

a.	What was the real HPR on the bond over the year? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Real HPR

%

b.	Find the approximation rr ? rn ? i . (Omit the "%" sign in your response.)

Approximation

6.

The continuously compounded annual return on a stock is normally distributed with a mean of 10% and standard deviation of 15%. With 95.44% confidence, we should expect its actual return in any particular year to be between which pair of values? Hint: Refer Figure 5.4.

?10.0% and 40.0%

?5.0% and 25.0%

?35.0% and 55.0%

?20.0% and 40.0%

7.

A closed-end fund starts the year with a net asset value of $11.00. By year-end, NAV equals $11.20. At the beginning of the year, the fund was selling at a 3% premium to NAV. By the end of the year, the fund is selling at a 6.5% discount from NAV. The fund paid year-end distributions of income and capital gains of $2.10.

a.	What is the rate of return to an investor in the fund during the year? (Do not round intermediate calculations. Round your answer to 1 decimal place. Omit the "%" sign in your response.)

Rate of return

%

b.	What would have been the rate of return to an investor who held the same securities as the fund manager during the year? (Do not round intermediate calculations. Round your answer to 1 decimal place. Omit the "%" sign in your response.)

Rate of return

%

8.

City Street Fund has a portfolio of $600 million and liabilities of $50 million.

a.	If there are 25 million shares outstanding, what is net asset value? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Net asset value

$ per share

9.

The composition of the Fingroup Fund portfolio is as follows:

Stock	Shares	Price
	A	200,000		$ 39
	B	296,000		38
	C	402,000		22
	D	620,000		35

During the year the portfolio manager sells all of the holdings of stock D and replaces it with 200,000 shares of stock E at $30 per share and 314,000 shares of stock F at $50 per share.

What is the portfolio turnover rate? (Round your answer to 1 decimal place. Omit the "%" sign in your response.)

Turnover rate

%

10.

Consider these long-term investment data:

?	The price of a 10-year $100 par zero coupon inflation-indexed bond is $80.65.
?	A real-estate property is expected to yield 2% per quarter (nominal) with a SD of the (effective) quarterly rate of 10%.

a.	Compute the annual rate on the real bond. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Annual rate

%

1. Suppose your expectations regarding the stock price are as follows: State of the Market Boom Normal growth Recession Probability Ending Price 0.22 $140 0.21 110 0.57 80 HPR (including dividends) 49.5% 21.5 -19.0 Use Equations, to compute the mean and standard deviation of the HPR on stocks. (Omit the % sign in your response. Do not round intermediate calculations. Enter your answers as decimals rounded to 2 places.) 2. The offering price of an open-end fund is $12.60 per share and the fund is sold with a front-end load of 3%. What is its net asset value? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) 3. The Closed Fund is a closed-end investment company with a portfolio currently worth $170 million. It has liabilities of $6 million and 9 million shares outstanding. a. What is the NAV of the fund? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) NAV $ b. If the fund sells for $20 per share, what is its premium or discount as a percent of net asset value? (Input the amount as a positive value. Round your answer to 1 decimal place. Omit the "%" sign in your response. ) o (Click to select) f References eBook & Resources % 4. Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with an 3.5% coupon if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as follows: (Assume the entire 3.5% coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" & "%" signs in your response.) Economy Probability YTM Boom 0.25 9.0% Normal Growth 0.50 7.0% Recession 0.25 6.0% Price $ Capital Gain $ Coupon Interest $ $ $ $ $ $ $ 5. During a period of severe inflation, a bond offered a nominal HPR of 83% per year. The inflation rate was 74% per year. a. What was the real HPR on the bond over the year? (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Real HPR % b. Find the approximation rr rn - i . (Omit the "%" sign in your response.) Approximation 6. The continuously compounded annual return on a stock is normally distributed with a mean of 10% and standard deviation of 15%. With 95.44% confidence, we should expect its actual return in any particular year to be between which pair of values? Hint: Refer Figure 5.4. 10.0% and 40.0% -5.0% and 25.0% -35.0% and 55.0% -20.0% and 40.0% HP 7. A closed-end fund starts the year with a net asset value of $11.00. By year-end, NAV equals $11.20. At the beginning of the year, the fund was selling at a 3% premium to NAV. By the end of the year, the fund is selling at a 6.5% discount from NAV. The fund paid year-end distributions of income and capital gains of $2.10. a. What is the rate of return to an investor in the fund during the year? (Do not round intermediate calculations. Round your answer to 1 decimal place. Omit the "%" sign in your response.) % Rate of return b. What would have been the rate of return to an investor who held the same securities as the fund manager during the year? (Do not round intermediate calculations. Round your answer to 1 decimal place. Omit the "%" sign in your response.) % Rate of return 8. City Street Fund has a portfolio of $600 million and liabilities of $50 million. a. If there are 25 million shares outstanding, what is net asset value? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) $ Net asset value per share 9. The composition of the Fingroup Fund portfolio is as follows: Stock Shares 200,00 A 0 296,00 B 0 402,00 C 0 D 620,00 Price $ 39 38 22 35 0 During the year the portfolio manager sells all of the holdings of stock D and replaces it with 200,000 shares of stock E at $30 per share and 314,000 shares of stock F at $50 per share. What is the portfolio turnover rate? (Round your answer to 1 decimal place. Omit the "%" sign in your response.) Turnover rate % 10. Consider these long-term investment data: The price of a 10-year $100 par zero coupon inflation-indexed bond is $80.65. A real-estate property is expected to yield 2% per quarter (nominal) with a SD of the (effective) quarterly rate of 10%. a. Compute the annual rate on the real bond. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual rate %