Question: In each of the following cases, calculate

> 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?

> From her Investment Analysis class, Laura has been given an assignment to evaluate several securities on a risk-return tradeoff basis. The specific securities to be researched are International Business Machines, Helmerich & Payne, Inc., and the S&am

> What is real estate investment analysis? How does it differ from the concept of market value?

> Define and differentiate between real estate and other tangibles. Give examples of each of these forms of investment.

> Describe and compare the key features of each of the following types of individual retirement arrangements. a. Traditional deductible IRA b. Roth IRA c. Nondeductible IRA d. SIMPLE IRA

> Briefly describe each of the following programs for deferring taxes to retirement. a. 401(k) plans b. Keogh plans c. Individual retirement arrangements (IRAs)

> Explain conditions that favor the following strategies for deferring tax liabilities to the next year. a. A put hedge b. Selling a deep-in-the-money call option When is it best simply to hold the stock and do nothing?

> What is tax-favored income? Briefly describe the following forms of income excluded from taxation. a. Tax-free municipal bond interest b. Treasury and government agency issues c. Sale of a personal residence

> What is a tax shelter? What is the tax advantage of organizing certain business activities as a sole proprietorship or a partnership rather than as a corporation?

> How does tax avoidance differ from tax deferral? Explain whether either of these is a form of tax evasion.

> Describe the steps involved in calculating a person’s taxable income. How do tax credits differ from tax deductions?

> What is a capital asset? Explain how capital asset transactions are taxed, and compare their treatment with that of ordinary income.

> The historical returns for two investments—A and B—are summarized in the following table for the period 2016 to 2020. Use the data to answer the questions that follow. a. On the basis of a review of the return data, wh

> What is a limited liability company (LLC) and why has it become a popular business entity?

> How does a limited partnership (LP) differ from a corporation and a general partnership? How did the Tax Reform Act of 1986 affect the popularity of LPs as tax shelters?

> Discuss the investment suitability of a deferred annuity, particularly its positive and negative features. Briefly describe the procedures for buying annuities.

> Explain how a deferred annuity works as a tax shelter. How does a tax-sheltered annuity work, and who is eligible to purchase one? Discuss whether a deferred annuity is a better tax shelter than an IRA.

> Define the following terms as they are related to deferred annuities. a. Current interest rate b. Minimum guaranteed interest rate c. Payout

> Define an annuity, explain the role it might play in an investment portfolio, and differentiate between a. single-premium and installment annuities. b. immediate and deferred annuities. c. fixed and variable annuities.

> Describe how a tax swap can be used to reduce or eliminate a tax liability without significantly altering the composition of one’s portfolio.

> Briefly describe each of the following strategies that trade current income for capital gains income. a. Growth stocks b. Deep-discount bonds c. Income property depreciation

> What are guaranteed investment contracts (GICs), and what role do they play in 401(k) plans? What investment vehicles might be suitable for funding a Keogh or IRA?

> Describe and compare the key features of the following types of educational savings plans. a. Coverdell Education Savings Account (ESA) b. Section 529 College Plan

> In 2007, Amazon reported total revenue of $14.8 billion. Ten years later it generated $177.9 billion in revenue. What was the compound annual growth rate in revenue from 2007 to 2017?

> What is tax planning? Describe the current tax rate structure, and explain why it is considered progressive.

> Identify several investment uses of preferred stocks. Would preferreds be suitable for both conservative and aggressive investors? Explain.

> Discuss why the dividend yield is critical in evaluating the investment merits of high grade preferred stocks during periods when market yields are expected to decline.

> Describe how the market prices high-grade preferred stocks. What role does dividend yield play in the valuation of preferred stocks? Could you use the zero-growth dividend valuation model to value a preferred stock? Explain.

> Distinguish a cumulative preferred share from a callable preferred share. Do cumulative dividend provisions and call features affect the investment merits of preferred issues? Explain.

> What are the advantages and the disadvantages of investing in preferreds?

> In what ways is a preferred stock like equity? In what ways is it like a bond?

> Define a preferred stock. What types of prior claims do preferred shareholders enjoy? How do trust preferreds differ from traditional preferreds?

> Note several approaches to investing in commodities and explain the investment objectives of each.

> What measure is used to calculate the return on a commodities contract?

> The Minnesota-based industrial conglomerate 3M has been paying dividends and increasing them for a long time. In 1970 3M shareholders received dividends per share of $1.10, and 47 years later in 2017 they received $5.07. What is the compound annual divid

> Briefly define each of the following: a. Settlement price b. Daily price limit c. Volume d. Maximum daily price range e. Delivery month

> List and briefly define five essential parts of a commodities contract. Which parts have a direct bearing on the price behavior of the contract?

> Explain how margin trading is conducted in the futures market. a. What is the difference between an initial margin and a maintenance margin? b. Are investors ever required to put up additional margin? If so, when?

> Why are both hedgers and speculators important to a futures market?

> What is the major source of return to commodities speculators? How important is current income from dividends and interest?

> Discuss the difference between a cash market and a futures market.

> What are futures options? Explain how they can be used by speculators. Why would an investor want to use an option on an interest rate futures contract rather than the futures contract itself?

> Discuss how stock index futures can be used for speculation and for hedging. What advantages are there to speculating with stock index futures rather than specific issues of common stock?

> Describe a currency future and contrast it with an interest rate future. What is a stock index future, and how can it be used by investors?

> What is the difference between physical commodities and financial futures? What are their similarities?

> The table below shows the dividend per share paid in 2007 and 2017 for three companies. For each company, estimate the compound annual dividend growth rate over this decade.

> What is a futures contract? Briefly explain how it is used as an investment vehicle.

> Name five variables that can affect the price of options, and briefly explain how each affects prices. How important are intrinsic value and time value to in-the money options? To out-of-the-money options?

> How do you find the intrinsic value of a call? Of a put? Does an out-of-the-money option have intrinsic value?

> Briefly explain how you would make money on (a) a call option and (b) a put option. Do you have to exercise the option to capture the profit?

> Why do call and put options have expiration dates? Is there a market for options that have passed their expiration dates?

> What is a strike price? How does it differ from the market price of the stock?

> What is a stock option? What is the difference between a stock option and a derivative security? Describe a derivative security and give several examples.

> What are the main investment attractions of call and put options? What are the risks?

> What are listed options, and how do they differ from conventional options?

> What are LEAPS? Why would an investor want to use a LEAPS option rather than a regular listed option?

> Assume that an investment generates the following income stream and can be purchased at the beginning of 2020 for $2,000 and sold at the end of 2026 for $2,200. Estimate the IRR for this investment. If a minimum return of 5% is required, would you recomm

> Why would an investor want to use index options to hedge a portfolio of common stock? Could the same objective be obtained using options on ETFs? If the investor thinks the market is in for a fall, why not just sell the stock?

> Identify and briefly discuss two ways to use stock-index options. Do the same for foreign currency options.

> Briefly describe the differences and similarities between stock-index options and stock options. Do the same for foreign currency options and stock options.

> What’s the most that can be made from writing calls? Why would an investor want to write covered calls? Explain how you can reduce the risk on an underlying common stock by writing covered calls.

> Describe three ways in which investors can use stock options.

> Describe call and put options. Are they issued like other corporate securities?

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