Question: You purchased 100 shares of a $3

> Hector Francisco is a successful businessman in Atlanta. The box-manufacturing firm he and his wife, Judy, founded several years ago has prospered. Because he is self-employed, Hector is building his own retirement fund. So far, he has accumulated a subs

> Charles Spurge, a mathematician with Ansco Petroleum Company, wishes to develop a rational basis for timing his portfolio transactions. He currently holds a security portfolio with a market value of nearly $100,000, divided equally between a very conserv

> Mary and Nick Stalcheck have an investment portfolio containing four investments. It was developed to provide them with a balance between current income and capital appreciation. Rather than acquire mutual fund shares or diversify within a given class of

> Calvin Jacobs is a widower who recently retired after a long career with a major Midwestern manufacturer. Beginning as a skilled craftsman, he worked his way up to the level of shop supervisor over 30 years with the firm. Calvin receives Social Security

> The Reverend Mark Thomas is a minister in San Diego. He is married, has one young child, and earns a modest income. Because religious organizations are not notorious for their generous retirement programs, the reverend has decided he should do some inves

> Grace Hesketh is the owner of an extremely successful dress boutique in downtown Chicago. Although high fashion is Grace’s first love, she’s also interested in investments, particularly bonds and other fixed-income securities. She actively manages her ow

> Dave and Marlene Carter live in the Boston area, where Dave has a successful orthodontics practice. Dave and Marlene have built up a sizable investment portfolio and have always had a major portion of their investments in fixed-income securities. They ad

> It’s probably safe to say that there’s nothing more important in determining a bond’s rating than the underlying financial condition and operating results of the company issuing the bond. Just as fina

> Max and Veronica Shuman, along with their teenage sons Terry and Thomas, live in Portland, Oregon. Max is a sales rep for a major medical firm, and Veronica is a personnel officer at a local bank. Together they earn an annual income of about $100,000. Ma

> Several months ago, Deb Forrester received a substantial sum of money from the estate of her late aunt. Deb initially placed the money in a savings account because she was not sure what to do with it. Since then, however, she has taken a course in invest

> Imagine that the Mini-Dow Average (MDA) is calculated by adding up the closing prices of five stocks and dividing that sum by a divisor. The divisor used in the calculation of the MDA is currently 0.775. The closing prices for each of the five stocks in

> Brett Daly is an active stock trader and an avid market technician. He got into technical analysis about 10 years ago, and although he now uses the Internet for much of his analytical work, he still enjoys running some of the numbers and doing some of th

> Marc Dodier is a recent university graduate and a security analyst with the Kansas City brokerage firm of Lippman, Brickbats, and Shaft. Marc has been following one of the hottest issues on Wall Street, C&I Medical Supplies, a company that has turned

> Chris Norton is a young Hollywood writer who is well on his way to television superstardom. After writing several successful television specials, he was recently named the head writer for one of TV’s top-rated sitcoms. Chris fully reali

> Anna Wise is a young career woman. She lives in Phoenix, Arizona, where she owns and operates a highly successful modeling agency. Anna manages her modest but rapidly growing investment portfolio, made up mostly of high-grade common stocks. Because she’s

> 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

> Wally Wilson is a commercial artist who makes a good living by doing freelance work—mostly layouts and illustrations—for local ad agencies and major institutional clients (such as large department stores). Wally has be

> Sara Thomas is a child psychologist who has built a thriving practice in her hometown of Boise, Idaho. Over the past several years she has been able to accumulate a substantial sum of money. She has worked long and hard to be successful, but she never im

> Susan Lussier is 35 years old and employed as a tax accountant for a major oil and gas exploration company. She earns nearly $135,000 a year from her salary and from participation in the company’s drilling activities. An expert on oil a

> Walt Davies and Shane O’Brien are district managers for Lee, Inc. Over time, as they moved through the firm’s sales organization, they became close friends. Walt, who is 33 years old, currently lives in Princeton, New Jersey. Shane, who is 35, lives in H

> Over the past 10 years, Molly O’Rourke has slowly built a diversified portfolio of common stock. Currently her portfolio includes 20 different common stock issues and has a total market value of $82,500. Molly is at present considering

> Peter Tanaka is interested in starting a stock portfolio. He has heard many financial reporters talk about the Dow Jones Industrial Average as being a proxy for the overall stock market. From visiting various online investment sites, Peter is able to tra

> On January 1, 2020, Dave Coates, a 23-year-old mathematics teacher at Xavier High School, received a tax refund of $1,100. Because Dave didn’t need this money for his current living expenses, he decided to make a long-term investment. A

> Donald Belson and Laurie Hall, friends who work for a large software company, decided to leave the relative security of their employer and join the staff of Hamelin Pipers, Inc., a two year old company working on new software and hardware solutions for h

> Emily Richards recently graduated from college and will start her new career in two months. She recently learned that her grandfather left her an inheritance of $300,000 worth of stocks and bonds. Rather than spending her newfound wealth, Emily decided t

> Ravi Dumar is a stockbroker who firmly believes that the only way to make money in the market is to follow an aggressive investment posture—for example, to use margin trading. In fact, Ravi has built himself a substantial margin account over the years. H

> Darren Simmons, a financial analyst, considers himself a savvy investor. He has increased his investment portfolio considerably over the past five years. Although he has been fairly conservative with his investments, he now feels more confident in his in

> Susan Bowen, who just turned 55, is employed as an administrative assistant for the Xcon Corporation, where she has worked for the past 20 years. She is in good health, lives alone, and has two grown children. A few months ago her husband died, leaving h

> Joshua Read and Emily Todd, senior accounting majors at a large Midwestern university, have been good friends since high school. Each has already found a job that will begin after graduation. Joshua has accepted a position as an internal auditor in a med

> Jason and Kerri Consalvo, both in their 50s, have $50,000 to invest and plan to retire in 10 years. They are considering two investments. The first is a utility company common stock that costs $50 per share and pays dividends of $2 per share per year. No

> During 2018, the Smiths and the Joneses both filed joint tax returns. For the tax year ended December 31, 2018, the Smiths’ taxable income was $130,000, and the Joneses had total taxable income of $65,000. a. Using the federal tax rates given in Table 1.

> Stefani German, a 40-year-old woman, plans to retire at age 65, and she wants to accumulate $500,000 over the next 25 years to supplement the retirement programs provided by the federal government and her employer. She expects to earn an average annual r

> You have $5,000 in a 50% margin account. You have been following a stock that you think you want to buy. The stock is priced at $52. You decide that if the stock falls to $50, you would like to buy it. You place a limit order to buy 300 shares at $50. Th

> Bezie Foster has estimated the annual after-tax cash flows and after-tax net proceeds from sale (CFR) of a proposed real estate investment as noted below for the planned four-year ownership period. The initial required investment in the property is $55,0

> Walt Hubble is contemplating selling rental property that originally cost $200,000. He believes that it has appreciated in value at an annual rate of 6% over its four-year holding period. He will have to pay a commission equal to 5% of the sale price to

> In the coming year, the McCormicks expect a rental property investment costing $180,000 to have gross potential rental income of $30,000, vacancy and collection losses equaling 5% of gross income, and operating expenses of $14,000. The mortgage on the pr

> Stan Marsh, an investor, is considering two financing plans for purchasing a parcel of real estate costing $150,000. Alternative 1 involves paying cash; alternative 2 involves obtaining 80% financing at 8% interest. If the parcel of real estate appreciat

> Juan Gonzalez, a single person working for Harla, Inc., will earn $48,000 in 2018 and contribute $7,000 to the firm’s 401(k) plan. If Juan is in the 12% tax bracket, what will his reportable income be? How much tax savings will result, and how much will

> Karen Kline purchased 200 shares of Mex Inc. common stock for $10 per share exactly two years ago, in December 2017. Today, December 15, 2019, the stock is selling for $18 per share. Because Karen strongly believes that the stock is fully valued in the m

> Shawn Healy bought 300 shares of Apple Computer common stock at $132 a share. Fifteen months later, in December, Apple was up to $147 a share and Shawn was considering selling her shares because she believed Apple’s price could drop as low as $142 within

> The Akais just finished calculating their taxable income for their 2018 joint federal income tax return. It totaled $68,750 and showed no tax credits. Just prior to filing their return, the Akais realized that they had treated a $2,000 outlay as an itemi

> Sheila and Jim Smith reported the following income tax items in 2018: Salaries and wages $98,000 Interest on bonds $ 1,100* Unqualified dividends (jointly owned stocks) $ 1,000 Capital gains on securities (all held for more than 18 months) $ 1,500 Deduct

> During the year just ended, Betty Riddle’s taxable income of $148,000 was twice as large as her younger sister Rachel’s taxable income of $74,000. Use the tax rate schedule in Table 17.1 to answer the following questions with regard to the Riddle sisters

> On February 6, 2018, shares of the photo-app company Snap closed at $14.06. That night the company announced better-than-expected earnings results, and the next morning trading in the stock opened at $17.15 and then quickly rose to $21.22 before ending t

> Calculate Ed Robinson’s income tax due on his $335,000 taxable income, assuming that he files as a single taxpayer. After you make the calculation, explain to Ed what his marginal tax rate is and why it is important in making investment decisions.

> Charlene Weaver likes to speculate with preferred stock by trading on movements in market interest rates. Right now, she believes the market is poised for a big drop in rates. Accordingly, she is thinking seriously about investing in a certain preferred

> Sara-J Co. has a preferred stock outstanding that pays annual dividends of $3.50 a share. At what price would this stock be trading if market yields were 7.5%? Use one of the dividend valuation models (from Chapter 8) to price this stock, assuming you ha

> Select one of the preferred stocks listed in Table 16.1—assume the dividends qualify for the preferential tax rate. Using the resources at your campus or public library or on the Internet, determine the following. a. The stock’s latest market price b. It

> Assume that you are evaluating several investments, including the stock of a mature company that pays annual dividends of $2 and is currently trading at $25. Another investment is a trust preferred stock that pays $2.40 in annual dividends and is also tr

> The InvestCo Company has 400,000 shares of $3 trust preferred stock outstanding. The firm generates an EBIT of $35 million and has annual interest payments of $1.75 million. Given this information, determine the fixed charge coverage on these trust prefe

> The InvestCo Company has 400,000 shares of $3 preferred stock outstanding. It generates an EBIT of $35 million and has annual interest payments of $1.75 million. Given this information, determine the fixed charge coverage of the preferred stock—assume th

> An adjustable-rate preferred share is currently selling at a dividend yield of 9%. Assume that the dividend rate on the stock is adjusted once a year and that it is currently paying an annual dividend of $5.40 a share. Because of major changes that have

> A wealthy investor holds $500,000 worth of U.S. Treasury bonds. These bonds are currently being quoted at 105% of par. The investor is concerned, however, that rates are headed up over the next six months, and he would like to do something to protect thi

> Chris LeBlanc estimates that if he does five hours of research using data that will cost $175, there is a good chance that he can improve his expected return on a $10,000, one-year investment from 6% to 9%. Chris feels that he must earn at least $30 per

> Tori Reynolds has been an avid stock market investor for years. She manages her portfolio fairly aggressively and likes to short sell whenever the opportunity presents itself. Recently, she has become fascinated with stock index futures, especially the i

> George Seby is thinking about doing some speculating in interest rates. He thinks rates will fall and, in response, the price of Treasury bond futures should move from 92’15, their present quote, to a level of about 98. Given a required margin deposit of

> You were just notified that you will receive $100,000 in two months from the estate of a deceased relative. You want to invest this money in safe, interest-bearing instruments, so you decide to purchase five-year Treasury notes. You believe, however, tha

> Taryn Arsenault is a regular commodities speculator. She is currently considering a short position in July oats, which are now trading at 248. Her analysis suggests that July oats should be trading at about 240 in a couple of months. Assuming that her ex

> As it turns out, you were correct when you purchased four contracts for feeder cattle at $1.494, as the spot price on cattle rose to 1.658 on the delivery date given in your contracts. How much money did you make? What was your return on invested capital

> Because of an outbreak of mad cow disease in Britain, you think that U.S. cattle futures will rise as cattle buyers switch to U.S. suppliers. You act on your belief by purchasing four contracts (50,000 pounds per contract) for April delivery at $1.494. Y

> You think bitcoin is a fad, and an overvalued one at that. You short three bitcoin futures contracts, each of which has five bitcoins as the underlying asset, at a price of $6,410. A month later the same contract sells for $5,985. What is your dollar pro

> One of the unique features of futures contracts is that they have only one source of return—the capital gains that can accrue when price movements have an upward bias. Remember that there are no current cash flows associated with this financial asset. Th

> With regard to futures options, how much profit would an investor make if he or she bought a call option on gold at 7.20 when gold was trading at $482 an ounce, given that the price of gold went up to $525 an ounce by the expiration date on the call?

> An American currency speculator feels strongly that the value of the Canadian dollar is going to fall relative to the U.S. dollar over the short run. If he wants to profit from these expectations, what kind of position (long or short) should he take in C

> In late December you decide, for tax purposes, to sell a losing position that you hold in Twitter, which is listed on the NYSE, so that you can capture the loss and use it to offset some capital gains, thus minimizing your tax liability for the current y

> You have purchased a futures contract for euros. The contract is for €125,000, and the quote was $1.1636/€. On the delivery date, the exchange quote is $1.1050/€. Assuming you took delivery of the euros, how many dollars would you have after converting b

> A quote for a futures contract for British pounds is $1.6683/£. The contract size for British pounds is £62,500. What is the dollar equivalent of this contract?

> Not long ago, Vanessa Woods sold her company for several million dollars. She took some of that money and put it into the stock market. Today Vanessa’s portfolio of blue-chip stocks is worth $3.8 million. Vanessa wants to keep her portfolio intact, but s

> Hillary considers herself a shrewd commodities investor. She bought a May cotton contract (50,000 pounds) at $0.7744 a pound and later sold it at $0.8104 a pound. What were her profit and her return on invested capital if her initial margin was $1,260 an

> For each of the 100-share options shown in the following table, use the underlying stock price at expiration and other information to determine the amount of profit or loss an investor would have had, ignoring brokerage fees.

> Repeat the analysis of Problem 14.7, but this time focus on the Facebook call and put options that have a strike price of $87.50. If you use put-call parity to find the price of Facebook stock at the time those call prices were quoted, would you expect t

> Look at the Facebook option quotes, and focus on the call and put options with a strike price of $80. Can you use put-call parity to infer what the market price of Facebook stock must have been when these option prices were quoted? To keep things simple,

> Suppose that a call option with a strike price of $45 expires in one year and has a current market price of $5.16. The market price of the underlying stock is $46.21, and the risk-free rate is 1%. Use put-call parity to calculate the price of a put optio

> A six-month call option contract on 100 shares of Home Depot common stock with a strike price of $50 can be purchased for $500. Assuming that the market price of Home Depot stock rises to $65 per share by the expiration date of the option, what is the ca

> Abercrombie & Fitch is trading at $21.50. Put options with a strike price of $20.50 are priced at $0.85. What is the intrinsic value of the option, and what is the time value?

> You would like to purchase one Class A share of Berkshire Hathaway through your Scottrade brokerage account. Scottrade charges a $7 commission for online trades. You log into your account, check the real-time quotes for Berkshire Hathaway (you see a bid

> Using the individual tax rate schedule shown in Table 1.2, perform the following: a. Calculate the tax liability, after-tax earnings, and average tax rates for the following levels of partnership earnings before taxes: $10,000; $80,000; $300,000; $500,00

> Verizon is trading at $50. Put options with a strike price of $55 are priced at $5.79. What is the intrinsic value of the option, and what is the time value?

> John has been following the stock market very closely over the past 18 months and has a strong belief that future stock prices will be significantly higher. He has two alternatives that he can follow. The first is to use a long-term strategyâ€

> Twitter is trading at $34.50. Call options with a strike price of $35 are priced at $2.30. What is the intrinsic value of the option, and what is the time value?

> Repeat the analysis of Problem 14.18, assuming that the volatility of the stock’s return is 40%. Intuitively, would you expect this to cause the call price to rise or fall? By how much does the call price change? Data from Problem 14.18: A stock trades

> A stock trades for $45 per share. A call option on that stock has a strike price of $50 and an expiration date one year in the future. The volatility of the stock’s return is 30%, and the risk-free rate is 2%. What is the Black and Scholes value of this

> Suppose the DJIA stands at 25,500. You want to set up a long straddle by purchasing 100 calls and an equal number of puts on the index, both of which expire in three months and have a strike of 255. The put price is listed at $4.25, and the call sells fo

> Luke owns stock in a retailer that he believes is highly undervalued. Luke expects that the stock will increase in value nicely over the long term. He is concerned, however, that the entire retail industry may fall out of favor with investors as some lar

> Adam Smith just purchased 300 shares of AT&E at $54.00, and he has decided to write covered calls against these stocks. Accordingly, he sells five AT&E calls at their current market price of $4.75. The calls have three months to expiration and carry a st

> Nick Fitzgerald holds a well-diversified portfolio of high-quality large-cap stocks. The current value of Fitzgerald’s portfolio is $825,000, but he is concerned that the market is heading for a big fall (perhaps as much as 20%) over the next three to si

> Max Houck holds 600 shares of Boulder Gas and Light. He bought the stock several years ago at $52.75, and the shares are now trading at $78. Max is concerned that the market is beginning to soften. He doesn’t want to sell the stock, but he would like to

> MuleSoft, Inc. conducted its IPO on March 17, 2017, for the principal purposes of increasing its capitalization and financial flexibility, creating a public market for its Class A common stock, and enabling access to the public equity markets for it and

> Dorothy Santosuosso does a lot of investing in the stock market and is a frequent user of stock-index options. She is convinced that the market is about to undergo a broad retreat and has decided to buy a put option on the S&P 100 Index. The put option h

> Refer to Problem 14.10. What happens if you are wrong and the price of QLT increases to $25 on the expiration date? Data from Problem 14.10: You believe that oil prices will be rising more than expected and that rising prices will result in lower earnin

> You believe that oil prices will be rising more than expected and that rising prices will result in lower earnings for industrial companies that use a lot of petroleum-related products in their operations. You also believe that the effects on this sector

> Apple stock is selling for $120 per share. Call options with a $117 exercise price are priced at $12. What is the intrinsic value of the option, and what is the time value?

> On January 1, 2020, Simon Love’s portfolio of 15 common stocks had a market value of $264,000. At the end of May 2020, Simon sold one of the stocks, which had a beginning-of-year value of $26,300, for $31,500. He did not reinvest those or any other funds

> Mom and Pop had a portfolio of long-term bonds that they purchased many years ago. The bonds pay 12% interest annually, and the face value is $100,000. If Mom and Pop are in the 25% tax bracket, what is their annual after-tax HPR on this investment? (Ass

> Linda Babeu, who is in a 33% ordinary tax bracket (federal and state combined) and pays a 15% capital gains rate on dividends and capital gains for holding periods longer than 12 months, purchased 10 options contracts for a total cost of $4,000 just over

> Charlotte Smidt bought 2,000 shares of the balanced no-load LaJolla Fund exactly one year and two days ago for an NAV of $8.60 per share. During the year, the fund distributed investment income dividends of $0.32 per share and capital gains dividends of

> Jill Clark invested $25,000 in the bonds of Industrial Aromatics, Inc. She held them for 13 months, at the end of which she sold them for $26,746. During the period of ownership she received $2,000 interest. Calculate the pretax and after-tax HPR on Jill

> Jeff Krause purchased 1,000 shares of a speculative stock on January 2 for $2.00 per share. Six months later on July 1, he sold them for $9.50 per share. He uses an online broker that charges him $10 per trade. What was Jeff’s annualized HPR on this inve

> A Brazilian company called Netshoes completed its IPO on April 12, 2017, and listed on the NYSE. Netshoes sold 8,250,000 shares of stock to primary market investors at an IPO offer price of $18. Secondary market investors, however, were paying only $16.1

> John Reardon purchased 100 shares of Tomco Corporation in December 2019 at a total cost of $1,762. He held the shares for 15 months and then sold them, netting $2,500. During the period he held the stock, the company paid him $3 per share in cash dividen