Question: Dave and Marlene Carter live in the

> A 25-year, zero-coupon bond was recently being quoted at 11.625% of par. Find the current yield and the promised yield of this issue, given that the bond has a par value of $1,000. Using semiannual compounding, determine how much an investor would have t

> Two bonds have par values of $1,000. One is a 5%, 15-year bond priced to yield 8%. The other is a 7.5%, 20-year bond priced to yield 6%. Which of these has the lower price? (Assume annual compounding in both cases.)

> Assume that an investor is looking at two bonds: Bond A is a 20-year, 9% (semiannual pay) bond that is priced to yield 10.5%. Bond B is a 20-year, 8% (annual pay) bond that is priced to yield 7.5%. Both bonds carry 5-year call deferments and call prices

> A 10%, 25-year bond has a par value of $1,000 and a call price of $1,075. (The bond’s first call date is in five years.) Coupon payments are made semiannually (so use semiannual compounding where appropriate). a. Find the current yield, YTM, and YTC on t

> What are indicators of bond market behavior, and how are they different from stock market indicators? Name three sources of bond yield data.

> Compute the current yield of a 10%, 25-year bond that is currently priced in the market at $1,200. Use annual compounding to find the promised yield on this bond. Repeat the promised yield calculation, but this time use semiannual compounding to find yie

> An investor is considering the purchase of an 8%, 18-year corporate bond that’s being priced to yield 10%. She thinks that in a year, this bond will be priced in the market to yield 9%. Using annual compounding, find the price of the bond today and in on

> What is the current yield for a $1,000 par value bond that pays interest semiannually, has nine years to maturity, and is currently selling for $937 with a bond equivalent yield of 12%?

> Assume that you pay $850 for a long-term bond that carries a 7½% coupon. Over the course of the next 12 months, interest rates drop sharply. As a result, you sell the bond at a price of $962.50. a. Find the current yield that existed on this bond at the

> Which of the following bonds offers the highest current yield? a. A 9½%, 20-year bond quoted at 97¾ b. A 16%, 15-year bond quoted at 164⅝ c. A 5¼%, 18-year bond quoted at 54

> What is day trading, and why is it risky? How can you avoid problems as an online trader?

> Briefly describe each of the following and note how it is computed and how it is used by technicians: a. Advance-decline lines b. Arms index c. On-balance volume d. Relative strength index e. Moving averages

> Sara Nixon is looking for a fixed-income investment. She is considering two bond issues: a. A Treasury with a yield of 5% b. An in-state municipal bond with a yield of 4% Sara is in the 33% federal tax bracket and the 8% state tax bracket. Which bond wou

> Maria Lopez is a wealthy investor who’s looking for a tax shelter. Maria is in the maximum (35%) federal tax bracket and lives in a state with a very high state income tax. (She pays the maximum of 11½% in state income tax.) Maria is currently looking at

> An investor lives in a state with a 3% income tax rate. Her federal income tax bracket is 35%. She wants to invest in one of two bonds that are similar in terms of risk (and both bonds currently sell at par value). The first bond is fully taxable and off

> Which indexes can you use to compare your investment performance to general market returns? Briefly explain each of these indexes.

> An investor is in the 28% tax bracket and lives in a state with no income tax. He is trying to decide which of two bonds to purchase. One is a 7.5% corporate bond that is selling at par. The other is a municipal bond with a 5.25% coupon that is also sell

> Find the conversion value of a convertible preferred stock that carries a conversion ratio of 1.8, given that the market price of the underlying common stock is $40 a share. Would there be any conversion premium if the convertible preferred were selling

> Assume you just paid $1,200 for a convertible bond that carries a 7½% coupon and has 15 years to maturity. The bond can be converted into 24 shares of stock, which are now trading at $50 a share. Find the bond investment value of this issue, given that c

> An 8% convertible bond carries a par value of $1,000 and a conversion ratio of 20. Assume that an investor has $5,000 to invest and that the convertible sells at a price of $1,000 (which includes a 25% conversion premium). How much total income (coupon p

> A certain 6% annual coupon rate convertible bond (maturing in 20 years) is convertible at the holder’s option into 20 shares of common stock. The bond is currently trading at $800. The stock (which pays 75¢ a share in annual dividends) is currently price

> You are considering investing $800 in Higgs B. Technology Inc. You can buy common stock at $25 per share; this stock pays no dividends. You can also buy a convertible bond ($1,000 par value) that is currently trading at $790 and has a conversion ratio of

> A certain convertible bond has a conversion ratio of 21 and a conversion premium of 20%. The current market price of the underlying common stock is $40. What is the bond’s conversion equivalent?

> What is the random walk hypothesis, and how does it apply to stocks? What is an efficient market? How can a market be efficient if its prices behave in a random fashion?

> Differentiate between the services and costs associated with full-service, premium discount, and basic discount brokers. Be sure to discuss online transactions.

> Red Electrica España SA (E.REE) is refinancing its bank loans by issuing Eurobonds to investors. You are considering buying $10,000 of these bonds, which will yield 6%. You are also looking at a U.S. bond with similar risk that will yield 5%. You expect

> What role does current market information play in analyzing investment returns? How do changes in economic and market activity affect investment returns? Explain.

> Letticia Garcia, an aggressive bond investor, is currently thinking about investing in a foreign (non-dollar-denominated) government bond. In particular, she’s looking at a Swiss government bond that matures in 15 years and carries a 9½% coupon. The bond

> In early January 2010, you purchased $30,000 worth of some high-grade corporate bonds. The bonds carried a coupon of 8â…›% and mature in 2024. You paid a price of 94.125 when you bought the bonds. Over the five years from 2010 through 201

> You are presented with the following data: Calculate the MFCR for each week. Based on the result, are you bullish or bearish? Mutual Fund Cash Mutual Fund Total Week Position Assets Most recent $281,478,000 $2,345,650,000 2 $258,500,000 $2,350,000,

> You are given the following information for the number of stocks making new highs and new lows for each day: a. Calculate the 10-day moving-average NH-NL indicator. b. If there are 120 new highs and 20 new lows today, what is the new 10-day moving aver

> Below are figures representing the number of stocks making new highs and new lows for each month over a six-month period: Would a technical analyst consider the trend to be bullish or bearish over this period? Explain. Month New Highs New Lows July

> Compute the level of on-balance volume (OBV) for the following three-day period for a stock, if the beginning level of OBV is 50,000 and the stock closed yesterday at $25. Does the movement in OBV appear to confirm the rising trend in prices? Explain.

> Listed below are data that pertain to the corporate bond market. (Note: Each “period” below covers a span of six months.) a. Compute the confidence index for each of the four periods listed above. b. Assume that the

> Data on a stock’s closing price and its price change for the last 14 trading days appears below. a. Over this 14-day period what is the average gain on up days? (Note: to calculate the average, divide the sum of all gains by 14, not b

> Briefly describe the P/E approach to stock valuation and note how this approach differs from the variable-growth DVM. Describe the P/CF approach and note how it is used in the stock valuation process. Compare the P/CF approach to the P/E approach, noting

> You find the closing prices for a stock you own. You want to use a 10-day moving average to monitor the stock. Calculate the 10-day moving average for days 11 through 20. Based on the data in the table below, are there any signals you should act on? Expl

> Why is it important to continuously manage and control your portfolio?

> If growth, income, and capital preservation are the primary objectives of mutual funds, why do we bother to categorize funds by type? Do you think such classifications are helpful in the fund selection process? Explain.

> Differentiate among market orders, limit orders, and stop-loss orders. What is the rationale for using a stop-loss order rather than a limit order?

> Compute the Arms index for the S&P 500 over the following three days: Which of the three days would be considered the most bullish? Explain why. Number of Number of Stocks Rising in Price Stocks Falling Volume for Stocks Volume for Stocks Day i

> Melissa Popp is thinking about buying some shares of R. H. Lawncare Equipment, at $48 per share. She expects the price of the stock to rise to $60 over the next three years. During that time she also expects to receive annual dividends of $4 per share. a

> Last year, InDebt Company paid $75 million of interest expense, and its average rate of interest for the year was 10%. The company’s ROE is 15%, and it pays no dividends. Estimate next year’s interest expense assuming that interest rates will fall by 25%

> World Wide Web Wares (4W, for short) is an online retailer of small kitchen appliances and utensils. The firm has been around for a few years and has created a nice market niche for itself. In fact, it actually turned a profit last year, albeit a fairly

> Newco is a young company that has yet to make a profit. You are trying to place a value on the stock, but it pays no dividends and you obviously cannot calculate a P/E ratio. As a result, you decide to look at other stocks in the same industry as Newco t

> Assume you obtain the following information about a certain company: Total assets ……………………………………………………………………. $50,000,000 Total equity ……………………………………………………………………. $25,000,000 Net income ……………………………………………………………………… $3,750,000 EPS ………………………………………………………………

> Assume a major investment service has just given Oasis Electronics its highest investment rating, along with a strong buy recommendation. As a result, you decide to take a look for yourself and to place a value on the company’s stock. Here’s what you fin

> A particular company currently has sales of $250 million; sales are expected to grow by 20% next year (year 1). For the year after next (year 2), the growth rate in sales is expected to equal 10%. Over each of the next two years, the company is expected

> How would you go about finding the expected return on a stock? Note how such information would be used in the stock selection process.

> New Millennium Company earned $2.5 million in net income last year. It took depreciation deductions of $300,000 and made new investments in working capital and fixed assets of $100,000 and $350,000, respectively. a. What was New Millennium’s free cash fl

> Assume there are three companies that in the past year paid exactly the same annual dividend of $2.25 a share. In addition, the future annual rate of growth in dividends for each of the three companies has been estimated as follows: Assume also that as

> Briefly differentiate among the following types of brokerage accounts: a. Single or joint b. Custodial c. Cash d. Margin e. Wrap

> This year, Shoreline Light and Gas (SL&G) paid its stockholders an annual dividend of $3 a share. A major brokerage firm recently put out a report on SL&G predicting that the company’s annual dividends would grow at the rate of 10% per year for each of t

> The price of Myrtle’s Plumbing Supply Co. is now $80. The company pays no dividends. Ms. Bossard expects the price three years from now to be $110 per share. Should she buy Myrtle’s Plumbing stock if she desires a 10% rate of return? Explain.

> Let’s assume that you’re thinking about buying stock in West Coast Electronics. So far in your analysis, you’ve uncovered the following information: The stock pays annual dividends of $5.00 a share indefinitely. It trades at a P/E of 10 times earnings an

> Assume you’ve generated the following information about the stock of Bufford’s Burger Barns: The company’s latest dividends of $4 a share are expected to grow to $4.32 next year, to $4.67 the year after that, and to $5.04 in three years. After that, you

> An investor estimates that next year’s sales for Dursley’s Hotels, Inc., should amount to about $100 million. The company has five million shares outstanding, generates a net profit margin of about 10%, and has a payout ratio of 50%. All figures are expe

> Financial Learning Systems has 2.5 million shares of common stock outstanding and 100,000 shares of preferred stock. (The preferred pays annual cash dividends of $5 a share, and the common pays annual cash dividends of 25 cents a share.) Last year, the c

> Highgate Computer Company produces $1.8 million in profits from $27 million in sales. It has total assets of $15 million. a. Calculate Highgate’s total asset turnover and its net profit margin. b. Find the company’s ROA, ROE, and book value per share, gi

> What role could an asset allocation fund play? What makes an asset allocation scheme effective?

> Jack Arnold is a resident of Lubbock, Texas, where he is a prosperous rancher and businessman. He has also built up a sizable portfolio of common stock, which, he believes, is due to the fact that he thoroughly evaluates each stock he invests in. As Jack

> PEGCOR has a P/E ratio of 15. Earnings per share are $2.00, and the expected EPS five years from today is $3.22. Calculate the PEG ratio.

> The Amherst Company has net profits of $10 million, sales of $150 million, and 2.5 million shares of common stock outstanding. The company has total assets of $75 million and total stockholders’ equity of $45 million. It pays $1 per share in common divid

> The following summary financial statistics were obtained from the 2015 Otago Bay Marine Motors (OBMM) annual report. 2015 ($ in millions) Sales revenue ………………………………………………………………………………… $179.3 Total assets …………………………………………………………………………………… $136.3 Net earni

> Describe the types of services offered by brokerage firms, and discuss the criteria for selecting a suitable stockbroker.

> The following table lists the 2015 and 2016 financial statements for Otago Bay Marine Motors, a major manufacturer of top-of-the-line outboard motors. a. On the basis of the information provided, calculate the following financial ratios for 2015 and

> Listed below are six pairs of stocks. Pick one of these pairs and then, using the resources available at your campus or public library (or on the Internet), comparatively analyze the two stocks. Which is fundamentally stronger and holds more promise for

> Using the resources available at your campus or public library (or on the Internet), select any common stock you like and determine as many of the profitability, activity, liquidity, leverage, and market ratios covered in this and the preceding chapter a

> Stroud Sporting Gear Inc. has a net profit margin of 9%, a total asset turnover of 2.4, total assets of $225 million, and total equity of $120 million. What is the company’s return on equity?

> Find the EPS, P/E ratio, and dividend yield of a company that has five million shares of common stock outstanding (the shares trade in the market at $25), earns 10% after taxes on annual sales of $150 million, and has a dividend payout ratio of 35%. At w

> Briefly describe the basic approaches to asset allocation: (a) fixed weightings, (b) flexible weightings, and (c) tactical asset allocation.

> The Buffalo Manufacturing Company has total assets of $12 million, an asset turnover of 2.2 times, and a net profit margin of 14%. a. What is Buffalo’s return on assets? b. Find Buffalo’s ROE, given that 40% of the assets are financed with stockholders’

> What is the difference between the variable-growth dividend valuation model and the free cash flow to equity approach to stock valuation? Which procedure would work better if you were trying to value a growth stock that pays little or no dividends? Expla

> Assume you are given the following abbreviated financial statement. ($ in millions) Current assets …………………………………………………………………………………. $150.0 Fixed and other assets ……………………………………….…………………………… $200.0 Total assets ……………………………………….……………………………………………. $350.0 C

> Consider the following information about Truly Good Coffee, Inc. Total assets …………………………………………………………………… $240 million Total debt ……………………………………………………………………….. $115 million Preferred stock ……………………………………………………………….. $ 25 million Common stockholders’ equi

> On January 1, 2013, an investor bought 200 shares of Gottahavit, Inc., for $50 per share. On January 3, 2014, the investor sold the stock for $55 per share. The stock paid a quarterly dividend of $0.25 per share. How much (in $) did the investor earn on

> George Robbins considers himself an aggressive investor. He’s thinking about investing in some foreign securities and is looking at stocks in (1) Bayer AG, the big German chemical and health-care firm, and (2) Swisscom AG, the Swiss telecommunications co

> Discuss each of the following as they are related to assessing bond market behavior. a. Bond yields b. Bond indexes

> Ravi Dumar is a stockbroker who lives with his wife, Sasha, and their five children in Milwaukee, Wisconsin. Ravi firmly believes that the only way to make money in the market is to follow an aggressive investment posture—for example, to use margin tradi

> In January 2012 an investor purchased 800 shares of Engulf & Devour, a rapidly growing high-tech conglomerate. From 2012 through 2016, the stock turned in the following dividend and share price performance. On the basis of this information, find th

> Using the resources at your campus or public library or on the Internet, select any three common stocks you like and determine the latest book value per share, earnings per share, dividend payout ratio, and dividend yield for each. (Show all your calcula

> What is asset allocation? How does it differ from diversification? What role does asset allocation play in constructing an investment portfolio?

> Southern Cities Trucking Company has the following five-year record of earnings per share. Year ……………………………………………………..………………………………… EPS 2012 ……………………………………………………………………………………… $1.40 2013 ……………………………………………………………………………………… $2.10 2014 …………………………………………………………

> Wilfred Nadeau owns 200 shares of Consolidated Glue. The company’s board of directors recently declared a cash dividend of 50 cents a share payable April 18 (a Wednesday) to shareholders of record on March 22 (a Thursday). a. How much in dividends, if an

> Briefly describe the dividend valuation model and the three versions of this model. Explain how CAPM fits into the DVM.

> An investor owns some stock in Harry’s Pottery Inc. The stock recently underwent a 5-for-3 stock split. If the stock was trading at $40 per share just before the split, how much is each share most likely selling for after the split? If the investor owned

> Assume you wish to evaluate the risk and return behaviors associated with various combinations of assets V and W under three assumed degrees of correlation: perfect positive, uncorrelated, and perfect negative. The following average return and risk value

> You have been asked for your advice in selecting a portfolio of assets and have been supplied with the following data. You have been told that you can create two portfolios—one consisting of assets A and B and the other consisting of

> You have been given the following return data on three assets—F, G, and H—over the period 2018–2021. Using these assets, you have isolated three investment alternatives: Alternative Investment

> Refer to Problem 5.3. Assume that asset L represents 60% of the portfolio and asset M is 40%. Calculate the average return and standard deviation of this portfolio’s returns over the six-year period. Compare your answers to the answers

> Referring to Problem 5.30, assume that you believe that each of the five assets will earn the return shown in the table below. Based on these figures and the weights in Problem 5.29, what returns do you believe that Portfolios A and B will earn. Which po

> Briefly describe the composition and general thrust of each of the following indexes. a. NYSE Composite Index b. NYSE MKT Composite Index c. Nasdaq Stock Market indexes d. Value Line Composite Index

> Describe the two items an investor should consider before reaching a decision to sell an investment.

> Assume you are considering a portfolio containing two assets, L and M. Asset L will represent 40% of the dollar value of the portfolio, and asset M will account for the other 60%. The projected returns over the next six years, 2018–2023

> Jeanne Lewis is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. She is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the

> Stock A has a beta of 0.8, stock B has a beta of 1.4, and stock C has a beta of -0.3. a. Rank these stocks from the most risky to the least risky. b. If the return on the market portfolio increases by 12%, what change in the return for each of the stocks

> In the stock valuation framework, how can you tell whether a particular security is a worthwhile investment candidate? What roles does the required rate of return play in this process? Would you invest in a stock if all you could earn was a rate of retur

> If portfolio A has a beta of 1.5 and portfolio Z has a beta of -1.5, what do the two values indicate? If the return on the market rises by 20%, what impact, if any, would this have on the returns from portfolios A and Z? Explain.

> For his portfolio, Jack Cashman randomly selected securities from all those listed on the New York Stock Exchange. He began with one security and added securities one by one until a total of 20 securities were held in the portfolio. After each security w

> Portfolios A through J, which are listed in the following table along with their returns (rp) and risk (measured by the standard deviation, sp), represent all currently available portfolios in the feasible or attainable set. a. Plot the feasible, or at