Question: Your portfolio had the values in the

> You notice in the WSJ a bond that is currently selling in the market for $1,070 with a coupon of 11% and a 20-year maturity. Using annual compounding, calculate the promised yield on this bond.

> You are considering the purchase of a $1,000 par value bond with an 6.5% coupon rate (with interest paid semiannually) that matures in 12 years. If the bond is priced to provide a required return of 8%, what is the bond’s current price?

> Buck buys a 7.5% corporate bond with a current yield of 4.8%. How much did he pay for the bond?

> Using settlement or closing prices from Figures 15.3 and 15.4, find the value of the following commodities and financial futures contracts. Figures 15.3: Figures 15.4: a. March 2013 corn b. July 2013 corn c. December 2013 corn d. December 2012 Treas

> A certain bond has a current yield of 6.5% and a market price of $846.15. What is the bond’s coupon rate?

> Nate purchased an interest-bearing security last year, planning to hold it until maturity. He received interest payments and, to his surprise, a sizable amount of the principal was paid back in the first year. This happened again in year two. What type o

> Rhett purchased a 13%, zero-coupon bond with a 15-year maturity and a $20,000 par value 15 years ago. The bond matures tomorrow. How much will Rhett receive in total from this investment, assuming all payments were made on these bonds as expected?

> Caleb buys an 8.75% corporate bond with a current yield of 5.6%. When he sells the bond 1 year later, the current yield on the bond is 6.6%. How much did Caleb make on this investment?

> A 9%, 20-year bond is callable in 12 years at a call price of $1,090. The bond is currently priced in the market at $923.68. What is the issue’s current yield?

> You have collected the following NH-NL indicator data: Day NH-NL Indicator 1 (yesterday) 100 2 ………………………………………….……………………………………………………. 95 3 …………………………………………………..…………………………………………. 61 4 …………………………………………………..…………………………………………. 43 5 …………………………………

> At the end of a trading day you find that on the NYSE 2,200 stocks advanced and 1,000 stocks declined. What is the value of the advance-decline line for that day?

> You hear a market analyst on television say that the advance/decline ratio for the session was 1.2. What does that mean?

> Investors expect that Amalgamated Aircraft Parts, Inc., will pay a dividend of $2.50 in the coming year. Investors require a 12% rate of return on the company’s shares, and they expect dividends to grow at 7% per year. Using the dividend valuation model,

> From 2010 to 2015 Steller Strollers, Inc., has paid dividends of $1.06, $1.13, $1.21, $1.25, $1.31, and $1.38. Use an Excel spreadsheet like the template below to find Steller’s historical dividend growth rate. A B GROWTH RATE FOR

> In Table 14.2, notice that among the options expiring in one month, the option with the highest time value is the one with a strike price of $70. Likewise, among the options expiring in three months, the option with a $70 strike has more time value than

> HighTeck has an ROE of 15%. Its earnings per share are $2.00, and its dividends per share are $0.20. Estimate HighTeck’s growth rate.

> Good stuff Corporation has total equity of $500 million and 100 million shares outstanding. Its ROE is 15%. The dividend payout ratio is 33.3%. Calculate the company’s dividends per share (round to the nearest penny).

> Granger Toothpaste Corp. has total equity of $600 million and 125 million shares outstanding. Its ROE is 18%. Calculate the company’s EPS.

> AviBank Plastics generated an EPS of $2.75 over the last 12 months. The company’s earnings are expected to grow by 25% next year, and because there will be no significant change in the number of shares outstanding, EPS should grow at about the same rate.

> You’re thinking about buying some stock in Affiliated Computer Corporation and want to use the P/E approach to value the shares. You’ve estimated that next year’s earnings should come in at about $4.00 a share. In addition, although the stock normally tr

> Consolidated Software doesn’t currently pay any dividends but is expected to start doing so in four years. That is, Consolidated will go three more years without paying dividends and then is expected to pay its first dividend (of $3 per share) in the fou

> Growth Co had sales of $55 million in 2016 and is expected to have sales of $83,650,000 for 2017. The company’s net profit margin was 5% in 2016 and is expected to increase to 8% by 2017. Estimate the company’s net profit for 2017.

> Larry and Curley are brothers. They’re both serious investors, but they have different approaches to valuing stocks. Larry, the older brother, likes to use the dividend valuation model. Curley prefers the free cash flow to equity valuation model. As it t

> Danny is considering a stock purchase. The stock pays a constant annual dividend of $2.00 per share and is currently trading at $20. Danny’s required rate of return for this stock is 12%. Should he buy this stock?

> The following data have been gathered from the financial statements of HiFly Corporation: Calculate the times interest earned ratios for 2015 and 2016. Is the company more or less able to meet its interest payments in 2016 when measured this way? 2

> Describe how, if at all, conservative and aggressive investors might use each of the following types of transactions as part of their investment programs. Contrast these two types of investors in view of these preferences. a. Long purchase b. Margin trad

> ZIPBIT common stock is selling at a P/E of 10 times trailing earnings. The stock price is $23.50. What were the firm’s earnings per share?

> A firm has $750 million in total assets, no preferred stock, and total liabilities of $300 million. There are 300 million shares of common stock outstanding. The stock is selling for $5.25 per share. What is the price-to-book ratio?

> A firm has 1 million shares of common stock outstanding with a book value of $15 per share. The firm also has total assets with a book value of $20 million. There is no preferred stock. What are the firm’s total liabilities?

> Snapgram Corporation has a net profit margin of 8%, a total asset turnover of 2.0 times, total assets of $1 billion, and total equity of $500 million. What were the company’s sales and net profit?

> P. Deen Enterprises Inc. has a total asset turnover ratio of 3.0 and a net profit margin of 9%. What is the company’s return on assets?

> West Coast Utilities had a net profit of $900 million. It has 900 million shares outstanding and paid annual dividends of $0.90 per share. What is the dividend payout ratio?

> East Coast Utilities is currently trading at $28 per share. The company pays a quarterly dividend of $0.28 per share. What is the dividend yield?

> The MedTech Company recently reported net profits after taxes of $15.8 million. It has 2.5 million shares of common stock outstanding and pays preferred dividends of $1 million per year. a. Compute the firm’s earnings per share (EPS). b. Assuming that th

> Lockhart’s Bookstores is trading at $45 per share. There are 280 million shares outstanding. What is the market capitalization of this company?

> Ron’s Rodents Co. has total assets of $5 million, total short- and long-term debt of $2.8 million, and $400,000 worth of 8% preferred stock outstanding. What is the firm’s total book value? What would its book value per share be if the firm had 50,000 sh

> When interest is compounded more frequently than annually, what happens to the true rate of interest? Under what condition would the stated and true rates of interest be equal? What is continuous compounding?

> An investor deposits $20,000 into a new brokerage account. The investor buys 1,000 shares of Tipco stock for $19 per share. Two weeks later, the investor sells the Tipco stock for $20 per share. When the investor receives his brokerage account statement,

> Bruce buys $25,000 of UH-OH Corporation stock. Unfortunately, a major newspaper reveals the very next day that the company is being investigated for accounting fraud, and the stock price falls by 50%. What is the percentage increase now required for Bruc

> The following table contains annual returns for the stocks of Home Depot (HD) and Lowe’s (LOW). The returns are calculated using end-of-year prices (adjusted for dividends and stock splits) retrieved from http://www.finance.yahoo.com/.

> Referring to Problem 5.6, what would happen if you constructed a portfolio consisting of assets A, B, and C, equally weighted? Would this reduce risk or enhance return? Problem 5.6: You have been asked for your advice in selecting a portfolio of assets

> Referring to Problem 5.19, assume you have a portfolio with $20,000 invested in each of investments A, B, and C. What is your portfolio beta? Problem 5.19: Assume the betas for securities A, B, and C are as shown here. Security ……………………………………………………………

> Referring to Problem 5.16, if you expected a significant market rally, would your decision be altered? Explain. Problem 5.16: You are evaluating two possible stock investments, Buyme Co. and Getit Corp. Buyme Co. has an expected return of 14% and a bet

> You are evaluating two possible stock investments, Buyme Co. and Getit Corp. Buyme Co. has an expected return of 14% and a beta of 1.0. Getit Corp. has an expected return of 14% and a beta of 1.2. Based only on this data, which stock should you buy and w

> The following table contains annual returns for the stocks of M and N. Use Excel to create a spreadsheet that calculates the average, standard deviation, and correlation coefficient for the two annual return series. Next, use the averages, standard devia

> Create an Excel spreadsheet that graphs the portfolio return and standard deviation combinations found in Problem 5.12 for Home Depot and Lowe’s. Problem 5.12: Use the table of annual returns in Problem 5.9 for Home Depot (HD) and Low

> Referring to Problem 5.29, if the risk-free rate is 2% and the market return is 7%, calculate the required return for each portfolio using the CAPM. Problem 5.29: Jeanne Lewis is attempting to evaluate two possible portfolios consisting of the same fiv

> At the beginning of the chapter you read about an analyst’s report on Advanced Micro Devices. Use an online source such as Yahoo! Finance or AMD’s own website to look up the company’s income statement for the fiscal year ending in early 2016. What was AM

> Use the table of annual returns in Problem 5.9 for Home Depot (HD) and Lowe’s (LOW) to create an Excel spreadsheet that calculates returns for portfolios that comprise HD and LOW using the following, respective, weightings: (1.0, 0.0),

> A Florida state savings bond pays $1,000 when it matures seven years from now. If the state bonds are to be competitive with U.S. savings bonds, which pay 2% interest compounded annually, at what price will the state’s bonds sell?

> Using a financial calculator or spreadsheet, calculate the future value in seven years of $10,000 invested today in an account that pays a stated annual interest rate of 6%, compounded monthly.

> Congratulations! You have won the lottery! Would you rather have $1 million at the end of each of the next 20 years or $15 million today? (Assume an 8% discount rate.)

> How much should you be willing to pay for a lump sum of $10,000 five years from now if you can earn 3% every six months on other similar investments?

> Referring to Problem 4A.9, at what price would the bond sell if U.S. savings bonds were paying 4% interest compounded annually? Compare your answer to your answer to the preceding problem. Problem 4A.9: A Florida state savings bond pays $1,000 when it

> A company reported net income in 2012 of $350 million. In 2016 the company expects net income to be $446.9 million. Estimate the annual compound growth rate of net income.

> A company paid dividends of $1.00 per share in 2009 and just announced that it will pay $2.21 in 2016. Estimate the compound annual growth rate of the dividends.

> Referring to Problem 4A.19, assume you have made 10 payments. What is the balance (present value) of your loan?

> In the beginning of this chapter you read about Neil Dana, who exercised his option to buy six million shares. In that transaction, Mr. Dana spent $3.6 million to acquire stock valued at $229 million. What was the strike price of the options, and what wa

> You purchased a car using some cash and borrowing $15,000 (the present value) for 50 months at 12% per year. Calculate the monthly payment (annuity).

> Sara Holliday must earn a return of 10% on an investment that requires an initial outlay of $2,500 and promises to return $6,000 in eight years. a. Use present value techniques to estimate the IRR on this investment. b. On the basis of your finding in pa

> An investor short sells 100 shares of a stock for $20 per share. The initial margin is 50%. Ignoring transaction costs, how much will be in the investor’s account after this transaction if this is the only transaction the investor has undertaken and the

> An investor short sells 100 shares of a stock for $20 per share. The initial margin is 50%. How much equity will be required in the account to complete this transaction?

> Use a financial calculator or an Excel spreadsheet to estimate the IRR each of the following investments. Initial Future End of Investment Investment Value Year A $ 1,000 $ 1,200 В $10,000 $20,000 7 $ 2,000 $ 4,000 $ 400 20 D $ 3,000 6 $ 5,500 $25,0

> Calculate a one-year holding period return for the following two investment alternatives. Which investment would you prefer, assuming they are of equal risk? Explain. Investment X Y Cash received 1st quarter $ 1.00 $ 0.00 2nd quarter $ 1.20 $ 0.00 3

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

> Assume that an investor buys 100 shares of stock at $50 per share, putting up a 60% margin. If the stock rises to $60 per share, what is the investor’s new margin position?

> Assume that an investor buys 100 shares of stock at $50 per share, putting up a 60% margin. a. What is the debit balance in this transaction? b. How much equity capital must the investor provide to make this margin transaction?

> How much would an investor earn on a stock purchased one year ago for $45 if it paid an annual cash dividend of $2.25 and had just been sold for $52.50? Would the investor have experienced a capital gain? Explain.

> An investor believes that the U.S. dollar will rise in value relative to the Japanese yen. The same investor is considering two investments with identical risk and return characteristics: One is a Japanese yen investment and the other is a U.S. dollar in

> Harold Perto purchased 100 shares of Barclays, a U.K. financial services firm, when they were trading for £260 (pounds sterling) and the exchange rate between British pounds and U.S. dollars was $1.50 per pound. A few months later, Harold sold his Barcla

> Assume you purchased a bond for $9,500. The bond pays $300 interest every 6 months. You sell the bond after 18 months for $10,000. Calculate the following. a. Income b. Capital gain or loss c. Total return in dollars and as a percentage of the original i

> In each of the following cases, calculate the price of one share of the foreign stock measured in United States dollars (US$). a. A Belgian stock priced at 103.2 euros (€) when the exchange rate is 0.93€>US$. b. A Swiss stock priced at 93.3 Swiss francs

> An investor recently sold some stock in a European company that was worth 20,000 euros. The U.S. $>euro exchange rate is currently 1.300, meaning that 1 euro buys 1.3 dollars. How many U.S. dollars will the investor receive?

> An investor buys a bond for $10,000. The bond pays $200 interest every 6 months. After 18 months, the investor sells the bond for $9,500. Describe the types of income and/or loss the investor had.

> The current exchange rate between the U.S. dollar and the Japanese yen is 120 (yen >$). That is, 1 dollar can buy 120 yen. How many dollars would you get for 1,000 Japanese yen?

> Assuming you purchased a share of stock for $50 one year ago, sold it today for $60, and during the year received three dividend payments totaling $2.70, calculate the following. a. Income b. Capital gain (or loss) c. Total return (1) In dollars (2) As a

> 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

> As it turns out, you were correct when you purchased four contracts for feeder cattle at 88.8, as the spot price on cattle rose to 101.2 on the delivery date given in your contracts. How much money did you make? What was your return on invested capital?

> You decide to act on your hunches about feeder cattle, so you purchase four contracts for April delivery at 88.8. You are required to put down 10%. How much equity/capital did you need to make this transaction?

> You just heard a news story about mad cow disease in a neighboring country, and you believe that feeder cattle prices will rise dramatically in the next few months as buyers of cattle shift to U.S. suppliers. Someone else believes that prices will fall i

> You have purchased a futures contract for euros. The contract is for 125,000 euros 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 bac

> 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?

> Josh Rink considers himself a shrewd commodities investor. Not long ago he bought one July cotton contract at $0.54 a pound and he recently sold it at $0.58 a pound. How much profit did he make? What was his return on invested capital if he had to put up

> 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

> 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 $60 can be purchased for $600. Assuming that the market price of Home Depot stock rises to $75 per share by the expiration date of the option, what is the ca

> You are considering purchasing a bond that pays annual interest of $50 per $1,000 of par value. The bond matures in one year, and at that time you will collect the par value and the interest payment. If you can purchase this bond for $950, what is the ho

> 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?

> Verizon is trading at $36. Put options with a strike price of $45 are priced at $10.50. What is the intrinsic value of the option, and what is the time value?

> 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?

> Rick owns stock in a retailer that he believes is highly undervalued. Rick 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

> Refer to Problem 14.9. What happens if you are wrong and the price of XLB increases to $25 on the expiration date? Problem 14.9: You believe that oil prices will be rising more than expected and that rising prices will result in lower earnings for indu

> 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, 2017, Simon Love’s portfolio of 15 common stocks had a market value of $264,000. At the end of May 2017, 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 fund

> 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

> 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

> Select the security in the left-hand column that best fits the investor’s desire described in the right-hand column. a. 5-year Treasury note b. A bond with a low coupon and a long maturity 1. Lock in a high-coupon yield 2. Accumula

> Following is a sample of eight Level-1 CFA exam questions that deal with many of the topics covered in Chapters 11, 12 and 13 of this text, including the structure of mutual funds, portfolio diversification, portfolio returns, and the administration of p

> 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?