Question: Differentiate between a bull market and a

> If small stocks outperform large stocks, does that violate market efficiency? If yes, why? If not, what else would have to be true to conclude that the pattern did violate market efficiency?

> Calculate the following. a. The present value of $500 to be received four years from now, using an 11% discount rate. b. The present value of the following end-of-year income streams, using a 9% discount rate and assuming it is now the beginning of 2020

> Erin McQueen purchased 50 shares of BMW, a German stock traded on the Frankfurt Exchange, for €85.5 (euros) per share exactly one year ago when the exchange rate was 1.10$/€ (i.e, €1 was worth $1.10). Today the stock is trading at €87.10 per share, and t

> Each year the financial media publishes lists of the top-performing mutual fund managers. And every year there are some fund managers who earn much higher returns than the market average, and in some cases they do so without taking above-average risk. Is

> Briefly define each of the following, and note the conditions that would suggest the market is technically strong. a. Breadth of the market b. Short interest c. Relative strength index d. Theory of contrary opinion e. Head and shoulders

> Much has been written about the concept of an efficient market. It’s probably safe to say that some of your classmates believe the markets are efficient and others believe they are not. Have a debate to see whether you can resolve this issue (at least am

> Assume an investor uses the constant-growth DVM to value a stock. Listed are various situations that could affect the computed value of a stock. Look at each one of these individually and indicate whether it would cause the computed value of a stock to g

> Explain the role that the future plays in stock valuation. Why not base the valuation solely on historical information? Explain how a stock’s intrinsic value relates to its required return. Illustrate what happens to a stock’s value when the required ret

> In this chapter, we examined nine stock valuation procedures: • Zero-growth DVM • Constant-growth DVM • Variable-growth DVM • Free cash flow to equity approach • Expected return (IRR) approach • P/E approach • Price-to-cash-flow ratio • Price-to-sales ra

> Select a company from Yahoo! Finance or another online source. (Hint: Pick a company that’s been publicly traded for at least 10 years, and avoid public utilities, banks, and other financial institutions.) Using the historical and forecasted data reporte

> Match the specific ratios in the left-hand column with the category in the right-hand column to which it belongs. a. Inventory turnover b. Debt-equity ratio c. Current ratio d. Net profit margin e. Return on assets f. Total asset turnover g. Price-to-ear

> As an investor, what kind(s) of economic information would you look for if you were thinking about investing in the following? a. An airline stock b. A cyclical stock c. An electrical utility stock d. A building materials stock e. An aerospace firm, with

> Economic analysis is generally viewed as an integral part of the top-down approach to security analysis. In this context, identify each of the following and note how each would probably behave in a strong economy. a. Fiscal policy b. Interest rates c. In

> The accompanying table shows a series of transactions in a savings account. The account pays 6% simple interest, and the account owner withdraws interest as soon as it is paid. Create a new table that shows (a) the account balance at the end of each year

> Briefly define each of the following types of investment programs and note the kinds of stock (blue chips, speculative stocks, etc.) that would best fit with each. a. A buy-and-hold strategy b. A current-income portfolio c. Long-term total return d. Aggr

> Identify and briefly describe the three sources of return to U.S. investors in foreign stocks. How important are currency exchange rates? With regard to currency exchange rates, when is the best time to be in foreign securities? a. Listed are exchange ra

> Assume that a wealthy woman comes to you looking for some investment advice. She is in her early forties and has $250,000 to put into stocks. She wants to build up as much capital as she can over a 15-year period and is willing to tolerate a “fair amount

> Given the information in Figure 6.4, answer the following questions for Netflix. a. On what day did the trading activity occur? b. At what price did the stock sell when the market closed? c. What is the firm’s price-to-earnings ratio? What does that indi

> Look at the record of stock returns in Table 6.1. a. How would you compare the average annual returns for the various decades? b. Considering the average annual returns that have been generated over holding periods of 10 years or more, what rate of retur

> Search online to find forecasts of the U.S. inflation rate for next year. Also find the current interest rate paid by one-year Treasury bills (this will be the nominal rate of interest for that type of security). Use the data to estimate the current real

> Two investments offer a series of cash payments over the next four years, as shown in the following table. a. What is the total amount of money paid by each investment over the four years? b. From a time value of money perspective, which of these investm

> Choose a publicly traded company that has been listed on a major exchange or in the over-the-counter market for at least five years. Use any data source of your choice to find the annual cash dividend, if any, paid by the company in each of the past five

> Describe how, if at all, a conservative and an aggressive investor might use each of the following types of orders as part of their investment programs. Contrast these two types of investors in view of these preferences. a. Market b. Limit c. Stop-loss

> Differentiate between the financial advice you would receive from a traditional investment advisor and one of the new robo-advisors. Which would you prefer to use, and why? How could membership in an investment club serve as an alternative to a paid inve

> Tyra loves to shop at her favorite store, Dollar Barrel, where she can find hundreds of items priced at exactly $1. Tyra has $200 to spend and is thinking of going on a shopping spree at Dollar Barrel, but she is also thinking of investing her money. a.

> Thomas Weisel, chief executive of a securities firm that bears his name, believes that individual investors already have too much information. “Many lose money by trading excessively on stray data,” he says. Other industry professionals oppose the SEC’s

> Why do you think some large, well-known companies such as Cisco Systems, Intel, and Microsoft prefer to trade on the Nasdaq OMX markets rather than on an organized securities exchange such as the NYSE (for which they easily meet the listing requirements)

> From 1999 to 2017, the average IPO rose by 18.4% in its first day of trading. In 1999, 117 deals doubled in price on the first day. What factors might contribute to the huge first-day returns on IPOs? Some critics of the current IPO system claim that und

> In most developed countries, prices of goods and services tend to rise over time, an economic phenomenon known as inflation. Of course, prices of some goods, such as consumer electronics, tend to fall as time passes, but from one year to the next, the ov

> In March 2018 a federal jury convicted San Diego stockbroker Paul Rampoldi of insider trading because he used information he obtained from a director at Ardea Biosciences about that firm’s upcoming (and unannounced) acquisition by AstraZeneca. Rampoldi m

> In recent years, business headlines were full of allegations of massive financial fraud committed by prominent business leaders. These allegations shocked the investment community and resulted in spectacular bankruptcies of large corporations. Civil and

> Before it was known for its financial problems, Enron, a utility firm operating pipelines and shipping natural gas, was a business pioneer, blazing new trails in the market for trading risk. In the 1980s the price of natural gas was deregulated, which me

> Buy, sell, or hold? Should investors trust and act on the investment recommendations of professional securities analysts? The evidence is somewhat mixed. Consider that from 1993 to 2015, about 55% of all analyst recommendations were to buy a stock rather

> Scandals involving fraudulent accounting practices resulted in public outrage, not only in the United States but around the world as well. In December 2013, the SEC charged Fifth Third Bank of Cincinnati and its former chief financial officer, Daniel Po

> Describe the structure of the overall investment process. Explain the role played by financial institutions and financial markets.

> The risk-free rate is 3%, and expected inflation is 2.5%. If inflation expectations change such that future expected inflation falls to 1.5%, what will the new risk-free rate be?

> What are foreign investments, and what role do they play for the individual investor?

> Define the term risk, and explain how risk is used to differentiate among investments.

> What is the relation between an investment’s risk and its return?

> Differentiate among the following types of investments, and cite an example of each: (a) securities and property investments; (b) direct and indirect investments; (c) debt, equity, and derivative securities; and (d) short-term and long-term investments.

> Define the term investment, and explain why individuals invest.

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

> 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

> List each of the major averages or indexes prepared by (a) Dow Jones & Company and (b) Standard & Poor’s Corporation. Indicate the number and type of securities used in calculating each average or index.

> Discuss the impact of the Internet on the individual investor and summarize the types of resources it provides.

> Describe the risks of investing internationally, particularly currency exchange risk.

> Given a real rate of interest of 2%, an expected inflation premium of 3%, and risk premiums for investments A and B of 4% and 6%, respectively, find the following. a. The risk-free rate of return, rf b. The required returns for investments A and B

> Describe how foreign security investments can be made, both indirectly and directly.

> Why is globalization of securities markets an important issue today? How have international investments performed in recent years?

> What are electronic communication networks?

> Explain how the dealer market works. Be sure to mention market makers, bid and ask prices, the Nasdaq market, and the OTC market. What role does the dealer market play in initial public offerings (IPOs) and secondary distributions?

> For each of the items in the left-hand column, select the most appropriate item in the right-hand column. a. Prospectus b. Underwriting c. NYSE d. Nasdaq BX e. Listing requirements f. OTC 1. Trades unlisted securities 2. Buying securities from firms and

> Briefly describe the IPO process and the role of the investment bank in underwriting a public offering. Differentiate among the terms public offering, rights offering, and private placement.

> Describe the key advantages and disadvantages of short selling. How are short sales used to earn speculative profits?

> What relevance do margin requirements have in the short-selling process? What would have to happen to experience a margin call on a short-sale transaction? What two actions could be used to remedy such a call?

> What is the primary motive for short selling? Describe the basic short-sale procedure. Why must the short seller make an initial equity deposit?

> Below are the prices on the first and last day of the year for Netflix common stock for several recent years. Netflix paid no dividends over this period. Calculate the return that an investor would have earned in each calendar year. What is the average o

> Describe the procedures and regulations associated with margin trading. Be sure to explain restricted accounts, the maintenance margin, and the margin call. Define the term debit balance, and describe the common uses of margin trading.

> How does margin trading magnify profits and losses? What are the key advantages and disadvantages of margin trading?

> What is a long purchase? What expectation underlies such a purchase? What is margin trading, and what is the key reason why investors sometimes use it as part of a long purchase?

> Briefly describe the key requirements of the following federal securities laws: a. Securities Act of 1933 b. Investment Company Act of 1940 c. Investment Advisors Act of 1940 d. Insider Trading and Fraud Act of 1988 e. Regulation Fair Disclosure (2000) f

> How are after-hours trades typically handled? What is the outlook for after-hours trading?

> Differentiate between each of the following pairs of terms. a. Money market and capital market b. Primary market and secondary market c. Broker market and dealer market

> Why do insurance companies need employees with advanced training in investments?

> Why is an understanding of investment principles important to a senior manager working in corporate finance?

> Define, compare, and contrast the following short-term investments. a. I bonds b. U.S. Treasury bills c. Certificates of deposit d. Commercial paper e. Banker’s acceptances f. Money market mutual funds (money funds)

> Briefly describe the key features and differences among the following deposit accounts. a. Passbook savings account b. NOW account c. Money market deposit account d. Asset management account

> For each of the investments shown in the following table, calculate the rate of return earned over the period.

> Explain the characteristics of short-term investments with respect to purchasing power and default risk.

> What makes an asset liquid? Why hold liquid assets? Would 100 shares of IBM stock be considered a liquid investment? Explain.

> Discuss the relation between stock prices and the business cycle.

> Describe the differing investment philosophies typically applied during each of the following stages of an investor’s life cycle. a. Youth (ages 20 to 45) b. Middle age (ages 46 to 60) c. Retirement years (age 61 and older)

> Define and differentiate among the following. Explain how each is related to federal income taxes. a. Active income b. Portfolio and passive income c. Capital gain d. Capital loss e. Tax planning f. Tax-advantaged retirement investments

> What should an investor establish before developing and executing an investment program? Briefly describe the elements of an investment policy statement.

> Briefly define and differentiate among the following investments. Which offer fixed returns? Which are derivative securities? Which offer professional investment management? a. Bonds b. Convertible securities c. Preferred stock d. Mutual funds e. Hedge f

> What is common stock, and what are its two sources of potential return?

> What are short-term investments? How do they provide liquidity?

> Differentiate between individual investors and institutional investors.

> Assume you purchased a bond for $9,700. The bond pays $100 interest every six months. You sell the bond after 18 months for $10,100. Calculate the following. a. Income b. Capital gain or loss c. Total return in dollars and as a percentage of the original

> Classify the roles of (a) government, (b) business, and (c) individuals as net suppliers or net demanders of funds.

> Briefly describe each of the following approaches to real estate market value: a. Cost approach b. Comparative sales approach c. Income approac

> What is the market value of a property? What is real estate appraisal? Comment on the following statement: “Market value is always the price at which a property sells.”

> Are real estate markets efficient? Why or why not? How does the efficiency or in efficiency of these markets affect both promotion and negotiation as parts of the property transfer process?

> How do restrictions on use, location, site, improvements, and property management affect a property’s competitive edge?

> What role does demand and supply play in determining the value of real estate? What are demographics and psychographics, and how are they related to demand? How does the principle of substitution affect the analysis of supply?

> Briefly describe the following important features to consider when making a real estate investment. a. Physical property b. Property rights c. Time horizon d. Geographic area

> Define and differentiate between income property and speculative property. Differentiate between and give examples of residential and commercial income properties.

> What are some popular types of collectibles? What important variables should be taken into account when investing in them?

> Describe the different ways in which one can hold gold and other precious metals as a form of investing. Discuss gemstone investments in terms of quality, commissions, and liquidity

> Assume you purchased a share of stock in Verizon communications at the beginning of 2017 for $54.58. A year later the stock was worth $53.53, but during 2017 it paid a dividend of $2.32. Calculate the following. a. Income b. Capital gain (or loss) c. Tot

> How does real estate investment differ from securities investment? Why might adding real estate to your investment portfolio decrease your overall risk? Explain.

> What are the three basic forms of tangible investments? Briefly discuss the investment merits of tangibles. Be sure to note the key factors that affect the future prices of tangibles.

> What are other tangibles? Briefly describe the conditions that tend to cause tangibles to rise in price.

> Briefly describe the basic structure and investment considerations associated with a real estate investment trust (REIT). What are the three basic types of REITs?

> Explain why, despite its being acceptable on the basis of NPV or of IRR, a real estate investment still might not be acceptable to a given investor.

> Define depreciation from a tax viewpoint. Explain why it is said to offer tax shelter potential. What real estate investments provide this benefit? Explain.

> List and briefly describe the five steps in the framework for real estate investment analysis.

> What is the net present value? What is the IRR? How are the NPV and IRR used to make real estate investment decisions?

> What is net operating income (NOI)? What are after-tax cash flows? Why do real estate investors prefer to use ATCFs?

> What is leverage, and what role does it play in real estate investment? How does it affect the risk–return values of a real estate investment?