Question: You want to buy a stock that

> The investment policy statement of an institution must be concerned with all of the following except: a. Its obligations to its clients. b. The level of the market. c. Legal regulations. d. Taxation.

> The ability to immunize a bond portfolio is very desirable for bond portfolio managers in some instances. a. Discuss the components of interest rate risk—that is, assuming a change in interest rates over time, explain the two risks faced by the holder o

> A clearly written investment policy statement is critical for: a. Mutual funds. b. Individuals. c. Pension funds. d. All investors.

> The aspect least likely to be included in the investment policy statement is: a. Identifying an investor’s objectives, constraints, and preferences. b. Organizing the management process itself. c. Implementing strategies regarding the choice of assets

> Your client says, “With the unrealized gains in my portfolio, I have almost saved enough money for my daughter to go to college in eight years, but educational costs keep going up.” Based on this statement alone, which one of the following appears to be

> You have been named as investment adviser to a foundation established by Dr. Walter Jones with an original contribution consisting entirely of the common stock of Jomedco, Inc. Founded by Dr. Jones, Jomedco manufactures and markets medical devices invent

> Several discussion meetings have provided the following information about one of your firm’s new advisory clients, a charitable endowment fund recently created by means of a one-time $10 million gift: Objectives Return requirement. Planning is based on a

> You are P. J. Walter, CFA, a managing partner of a prestigious investment counseling firm that specializes in individual rather than institutional accounts. The firm has developed a national reputation for its ability to blend modern portfolio theory and

> After much research on the developing economy and capital markets of the country of Otunia, your firm, GAC, has decided to include an investment in the Otunia stock market in its Emerging Markets Commingled Fund. However, GAC has not yet decided whether

> The Windsor Foundation, a U.S.-based, not-for-profit charitable organization, has a diversified investment portfolio of $100 million. Windsor’s board of directors is considering an initial investment in emerging market equities. Robert Houston, treasurer

> A global manager plans to invest $1 million in U.S. government cash equivalents for the next 90 days. However, she is also authorized to use non-U.S. government cash equivalents, as long as the currency risk is hedged to U.S. dollars using forward curren

> You are a U.S. investor considering purchase of one of the following securities. Assume that the currency risk of the Canadian government bond will be hedged, and the six-month discount on Canadian dollar forward contracts is −0.75% ver

> Sandra Kapple presents Maria VanHusen with a description, given in the following exhibit, of the bond portfolio held by the Star Hospital Pension Plan. All securities in the bond portfolio are noncallable U.S. Treasury securities. a. Calculate the modifi

> John Irish, CFA, is an independent investment adviser who is assisting Alfred Darwin, the head of the Investment Committee of General Technology Corporation, to establish a new pension fund. Darwin asks Irish about international equities and whether the

> An investor in the common stock of companies in a foreign country may wish to hedge against the of the investor’s home currency and can do so by the foreign currency in the forward market a. depreciation; selling. b. appreciation; purchasing. c

> The correlation coefficient between the returns on a broad index of U.S. stocks and the returns on indexes of the stocks of other industrialized countries is mostly , while the correlation coefficient between the returns on highly diversified portfol

> You are a U.S. investor who purchased British securities for £2,000 one year ago when the British pound cost U.S.$1.50. What is your total return (denomiated in U.S. dollars) if the value of the securities is now £2,400 and the pound is worth $1.45? No d

> A two-year investment of $2,000 results in a cash flow of $150 at the end of the first year and another cash flow of $150 at the end of the second year, in addition to the return of the original investment. What is the dollar-weighted (internal) rate of

> A portfolio of stocks generates a −9% return in 2020, a 23% return in 2021, and a 17% return in 2022. What is the annualized return (geometric mean) for the entire period?

> Assume you invested in an asset for two years. The first year you earned a 15% return, and the second year you earned a negative 10% return. What was your annual geometric return?

> An analyst wants to evaluate portfolio X, consisting entirely of U.S. common stocks, using both the Treynor and Sharpe measures of portfolio performance. The following table provides the average annual rate of return for portfolio X, the market portfolio

> The administrator of a large pension fund wants to evaluate the performance of four portfolio managers. Each portfolio manager invests only in U.S. common stocks. Assume that during the most recent five-year period, the average annual total rate of retur

> The administrator of a large pension fund wants to evaluate the performance of four portfolio managers. Each portfolio manager invests only in U.S. common stocks. Assume that during the most recent five-year period, the average annual total rate of retur

> a. Janet Meer is a fixed-income portfolio manager. Noting that the current shape of the yield curve is flat, she considers the purchase of a newly issued, option-free corporate bond priced at par; the bond is described in Table 11.9. Calculate the durati

> The Retired Fund is an open-ended mutual fund composed of $500 million in U.S. bonds and U.S. Treasury bills. This fund has had a portfolio duration (including T-bills) of between three and nine years. Retired has shown first quartile performance over th

> Carl Karl, a portfolio manager for the Alpine Trust Company, has been responsible since 2024 for the City of Alpine’s Employee Retirement Plan, a municipal pension fund. Alpine is a growing community, and city services and employee payr

> James Chan is reviewing the performance of the global equity managers of the Jarvis University endowment fund. Williamson Capital is currently the endowment fund’s only large-capitalization global equity manager. Performance data for Wi

> Trustees of the Pallor Corp. pension plan ask consultant Donald Millip to comment on the following statements. What should his response be? a. Median manager benchmarks are statistically unbiased measures of performance over long periods of time. b. Me

> During the annual review of Acme’s pension plan, several trustees questioned their investment consultant about various aspects of performance measurement and risk assessment. a. Comment on the appropriateness of using each of the following benchmarks fo

> A pension fund portfolio begins with $500,000 and earns 15% the first year and 10% the second year. At the beginning of the second year, the sponsor contributed another $500,000. What were the time-weighted and dollar weighted rates of return?

> In measuring the performance of a portfolio, the time-weighted rate of return may be preferred to the dollar-weighted rate of return because: a. When the rate of return varies, the time-weighted return is higher. b. The dollar-weighted return assumes a

> You and a prospective client are considering the measurement of investment performance, particularly with respect to international portfolios for the past five years. The data you discussed are presented in the following table a. Assume that the data fo

> Maria VanHusen, CFA, suggests that forward contracts on fixed-income securities can be used to protect the value of the Star Hospital Pension Plan’s bond portfolio against the possibility of rising interest rates. VanHusen prepares the following example

> Janice Delsing, a U.S.-based portfolio manager, manages an $800 million portfolio ($600 million in stocks and $200 million in bonds). In reaction to anticipated short-term market events, Delsing wishes to adjust the allocation to 50% stocks and 50% bonds

> Noah Kramer, a fixed-income portfolio manager based in the country of Sevista, is considering the purchase of a Sevista government bond. Kramer decides to evaluate two strategies for implementing his investment in Sevista bonds. Table 11.6 gives the deta

> Several Investment Committee members have asked about interest rate swap agreements and how they are used in the management of domestic fixed-income portfolios. a. Define an interest rate swap, and briefly describe the obligation of each party involved.

> Joan Tam, CFA, believes she has identified an arbitrage opportunity for a commodity as indicated by the information given in the following exhibit: a. Describe the transactions necessary to take advantage of this specific arbitrage opportunity. b. Calcu

> Futures contracts and options contracts can be used to modify risk. Identify the fundamental distinction between a futures contract and an option contract, and briefly explain the difference in the manner that futures and options modify portfolio risk.

> In each of the following cases, discuss how you, as a portfolio manager, could use financial futures to protect a portfolio. a. You own a large position in a relatively illiquid bond that you want to sell. b. You have a large gain on one of your long T

> A silver futures contract requires the seller to deliver 5,000 ounces of silver. Jerry Harris sells one July silver futures contract at a price of $28 per ounce, posting a $6,000 initial margin. If the required maintenance margin is $2,500, what is the f

> In futures trading, the minimum level to which an equity position may fall before requiring additional margin is most accurately termed the: a. Initial margin. b. Variation margin. c. Cash flow margin. d. Maintenance margin.

> The open interest on a futures contract is the total number of outstanding: a. Contracts. b. Unhedged positions. c. Clearinghouse positions. d. Long and short positions.

> A stock index is currently trading at 50. Paul Tripp, CFA, wants to value two-year index options using the binomial model. In any year, the stock will either increase in value by 20% or fall in value by 20%. The annual risk-free interest rate is 6%. No d

> The table below contains information for an XRAY, Inc. call option. XRAY common stock is currently selling for $41.20. a. Is the option in the money? [Set as multiple choice with radio buttons; answer options Yes / No] b. What is the profit on this posit

> a. You have just purchased the options listed below. Based on the information given, indicate whether the option is in the money, out of the money, or at the money, whether you would exercise the option if it were expiring today, what the dollar profit w

> Suppose that you purchased a conventional call option on growth in Non-Farm Payrolls (NFP) with an exercise price of 200,000 jobs. The NFP conventional contract pays out $100 for every job created in excess of the exercise price. a.What is the value of t

> Several months ago you purchased a call option on a crude oil futures contract with an exercise price of $6,300. Today is the expiration date, and the futures price is $6,350. a.Will you exercise the option? [Set as multiple choice with radio buttons;

> Michael Weber, CFA, is analyzing several aspects of option valuation, including the determinants of the value of an option, the characteristics of various models used to value options, and the potential for divergence of calculated option values from obs

> One month ago you purchased a put option on the S&P500 Index with an exercise price of $910. Today is the expiration date, and the index is at $900.96. a.Will you exercise the option? [Set as multiple choice with radio buttons; answer options Yes / No

> a. Calculate the intrinsic value for each of the following call options.(Round your answers to 2 decimal places.) b.Now assume that the effective annual interest rate is 7.06%, which corresponds to a monthly interest rate of .57%. Calculate the present v

> Calculate the elasticity of a call option with a premium of $6.00 and a strike price of $73.00. The call has a hedge ratio of .7, and the underlying stock’s price is currently $71.00. (Round your answer to 2 decimal places.) Elasticity of the call

> Use the Black-Scholes model to find the value for a European put option that has an exercise price of $62 and four months to expiration. The underlying stock is selling for $64 currently and pays an annual dividend of $1.92. The standard deviation of the

> You observe a premium of $7.14 for a call option on Birdwell Enterprises common stock, which is currently selling for $48.00. The strike price on the call option is $50.00. The option has four months to maturity. The stock pays no dividends. The current

> Use the Black-Scholes formula to find the value of a call option based on the following inputs.(Round your final answer to 2 decimal places. Do not round intermediate calculations.) Call value

> Use the information below to prepare a statement of cash flows for Windswept Woodworks, Inc. for year 2. Net income is given. (Use a minus sign to indicate negative values. Round each entry to 2 decimal places.) / / / / / / / / / / / / / / / / / /

> Based on the informationin the table below, prepare an income statement for Windswept Woodworks, Inc. for year 2. Assume that the company pays a flat tax rate of 21% on its taxable income.(Round each entry to 2 decimal places.) Windswept Woodworks, Inc.

> Based on the information in the table below, prepare comparative balance sheets for Windswept Woodworks, Inc. for years 1 and 2.(Round your answers to the nearest whole number.) Windswept Woodworks, Inc.Input Data (millions of dollars) / / / / / / /

> Ken Webster manages a $400 million equity portfolio benchmarked to the S&P 500 Index. Webster believes the market is overvalued when measured by several traditional fundamental/economic indicators. He is therefore concerned about potential losses but

> One common goal among fixed-income portfolio managers is to earn high incremental returns on corporate bonds versus government bonds of comparable durations. The approach of some corporate-bond portfolio managers is to find and purchase those corporate b

> Your firm recently lent Arlington Enterprises $23 million for one year at an interest rate of 14%. Inflation during the year is expected to be 5%. Answer the following questions to gauge the impact of inflation on the real interest to be paid.(Round all

> You have the following information about two firms, Debt Free, Inc. and Debt Spree, Inc. Both firms have the same prospects for sales and EBIT, and both have the same level of assets, tax rate and borrowing rate. They differ in their use of debt financin

> Use the information in the table below to calculate the following ratios for Windswept Woodworks for year 1 and year 2.(Round your answers to 2 decimal places.) a. Interest coverage ratio (Assume that year 1 EBIT was 1,297 and year 1 interest expense was

> Use the information in the table below to answer the following questions. /  /  /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  

> The common stock of Royal Ranch House is selling for $21.29. The firm pays dividends that are expected to grow at a rate of 5.0% indefinitely. Your investment horizon is 11 years. What do you estimate the price of Royal Ranch House stock will be at that

> Elk City Utility recently paid a dividend of $3.85 per share. Dividends are expected to grow at a rate of 4.2%. Elk City stock currently sells for $38.20 per share. If you were on the utility regulatory commission, what rate of return would you allow Elk

> Lotsa Lenses paid a dividend of $1.25 last year, and plans a dividend growth rate of 4.0% indefinitely. Lotsa’s stock price is now $14.44. What return can Lotsa Lenses’ investors expect on their stock? Expected return

> Dishwasher’s Delights plows back 70% of its earnings to take on projects that earn the firm a 16% rate of return. Dishwasher’s stockholders require a 12.5% return on their common stock. Earnings per share are expected to be $5.00 next year. a.What is t

> CD Bargain Barn is forecasting earnings per share of $3.30 next year. Its investors require a return of 16%. a. What is the no-growth value of CD’s stock?(Round your answer to 3 decimal places.) No-growth value b.If the stock’s price is currently $47,

> Jumbo Shrimp Oxy morons, Inc. recently paid a dividend of $2.15 per share. The firm expects explosive growth of 20% over the next two years. After that the firm’s managers expect that growth will drop to 14% for the following three years, then settle at

> Rich McDonald, CFA, is evaluating his investment alternatives in Ytel Incorporated by analyzing a Ytel convertible bond and Ytel common equity. Characteristics of the two securities are given in the following exhibit: a. Calculate, based on the exhibit,

> Indigo Ink Supply paid a dividend of $6.00 last year on its common stock. It is expected that this dividend will grow at a rate of 9% for the next five years. After that, the company will settle into a slower growth pattern and plans to pay dividends tha

> Dishwasher’s Delights plows back 70% of its earnings to take on projects that earn the firm a 16% rate of return. Dishwasher’s stockholders require a 12.5% return on their common stock. Earnings per share are expected to be $5.00 next year. a. What is

> Hornberger, Inc. recently paid a dividend of $2.00 per share. The next dividend is expected to be $2.05 per share. Hornberger has a return on equity of 12.00%. What percentage of its earnings does Hornberger plow back into the firm?(Round your answer to

> Plastic Pretzels stock recently paid a dividend of $1.35 per share. The dividend growth rate is expected to be 7.2% indefinitely. Stockholders require a return of 12.8% on this stock. a.What is the current intrinsic value of Plastic Pretzels stock?(Roun

> Suppose that you purchase a bond with a quoted price of $1,032 on January 15. The bond has a coupon rate of 6.5% and pays interest on May 15 and November 15 of each year. The exact number of days between November 15 and January 15 is 61, and the exact n

> Given the following listing for a Treasury note, calculate the bid-ask spread. Bid-ask spread

> The yield to maturity on one-year zero coupon bonds is 6.3%. The yield to maturity on two-year zero coupon bonds is 7.9%. a. What is the forward rate of interest for the second year? places.Forward rate b. According to the expectations hypothesis, what

> Suppose you just purchased a bond (Face Value = $1,000) with 20years to maturity that pays an annual coupon of $40 and is selling at par. Calculate the one-year holding period return for each of these three cases: a. The yield to maturity is 5.5% one yea

> a. What is the yield to maturity on a bond that you purchased for $1,249, assuming that the bond has 16 years to maturity, a par value of $1,000, and a coupon rate of 6.35%? The bond pays coupon interest semiannually.(Round your answer to 4 decimal place

> Assume that coupon interest payments are made semiannually and that par value is $1,000 for both bonds. a. Calculate the values of Bond A and Bond B Bond value A Bond value B b. Recalculate the bonds’ values if the required rate of

> Suresh Singh, CFA, is analyzing a convertible bond. The characteristics of the bond and the underlying common stock are given in the following table. Compute the bond’s: a. Conversion value. b. Market conversion price.

> A bond has a par value of $1,000, 7 years to maturity, and a coupon rate of 4.3%? Assume that coupon payments are made semiannually. a. If the required rate of return is 5.2%, what is the value of the bond? Bond value b. What is the bond’s value if

> You have invested in a Treasury Inflation Protected Security (TIPS) that has a par value of $1,000 and a coupon rate of 3.2%. You paid par value for the security, and it matures in two years. Assume that the inflation rate for next year is 3.9% and for t

> You have purchased a convertible bond for $1,120. It is convertible into 50 shares of the firm’s common stock. The current stock price is $18 per share. a. What is the market conversion value of the bond? Market conversion value b. What is the conver

> Round Barn stock has a required return of 11% and is expected to pay a dividend of $3.25 next year. Investors expect a growth rate of 6% on the dividends for the foreseeable future. a. What is the current fair price for the stock Current fair price

> You are evaluating a closed-end mutual fund and see that its price is different from its net asset value (NAV). The fund has an expense ratio () of 2.8% and a dividend yield () of 4%. The fund has experienced a risk-adjusted abnormal return () of 2%. By

> On February 1, the put/call ratio was .65. On April 1 there are 202 put options and 259 call options outstanding on a stock. Calculate the put/call ratio for April 1 Put/call ratio

> Use the information in the table below to calculate the trin ratio for October 1 and February 1. State whether each ratio represents a bullish or a bearish outlook a-1. October 1 Tri a-2: [Set up as a multiple choice with radio buttons, options: Bullish

> You invested in a 3-month certificate of deposit at your bank. Your investment was $1,500, and at the end of the term you will receive $1,530. a.What is the holding period return (HPR) on your investment?( b.What is the annual percentage rate (APR)?( c.

> You are the manager of the Mighty Fine mutual fund. The following table reflects the activity of the fund during the last quarter. The fund started the quarter on January 1 with a balance of $100 million. a. Calculate the quarterly arithmetic average ret

> You purchased a bond 72 days ago for $891.26. You received an interest payment of $20 56 days ago. Today the bond’s price is $884.89. What is the holding period return (HPR) on the bond as of today?(Round your answer to 2 decimal places.)

> A member of an investment committee interested in learning more about fixed-income investment procedures recalls that a fixed-income manager recently stated that derivative instruments could be used to control portfolio duration, saying, “A futures-like

> A portfolio earned a rate of return equal to 18% lastyear with a standard deviation of 27%. Treasury Bills returned 3%. a. What is the portfolio’s excess return Approximate real rate of return b. What is the portfolio’s Sharpe Ratio? Real rate of retu

> If the real interest rate is 6.5% per year and the expected inflation rate is 2.2%, what is the nominal interest rate according to the Fisher equation? Nominal interest rate

> You earned a nominal rate of return equal to 11.7% on your investmentslastyear.The annual inflation rate was 2.3%. a. What was your approximate real rate of return? Approximate real rate of return b. What was your exact real rate of return? Real rate of

> The common stock of Perforated Pool Liners, Inc. now sells for $50.00 per share. The table below shows the anticipated stock price and the dividend to be paid one year from now. Both the price and the dividend will depend on the level of growth experienc

> The following data represent the probability distribution of the holding period returns for an investment in Lazy Rapids Kayaks (LARK) stock. a. What is the expected return on LARK? b. What is the standard deviation of the returns on LARK?(

> Your firm invested $2,500,000 in 270-day commercial paper today. At the end of the investment period (in 270 days) the firm will receive $2,585,000. a What is the 270-day holding period rate of return on the investment? b. How many 270-day periods are t

> The Arizona Stock Exchange lists a bid price of .97 and an ask price of 1.00 for Kickingbird Energy Corporation. a.At what price can you buy the stock?(Round your answer to 2 decimal places.)Ask price b.What is the dealer’s bid-ask spread?(Round your

> ByLine, Inc. just sold 500,000 shares in a public offering for an offering price of $20 per share. The underwriting fee was 6.5% of the issue’s total value based on the offering price. As soon as the shares were issued, the price jumped to $32 per share