4504mdterm - Frohlich Fall 2002 October 31, 2002...

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October 31, 2002 Frohlich Investments Finance 4504 Fall 2002 Midterm Total points 109 (9 extra credit) Name _________________________ In signing your test you assert that you have not used any human assistance in any manner or mode. ------------------------- Short Answers: (2 points per question—total of 34 points) Be brief but complete on Short Answer Questions. Please type answers . 1. Would it be useful to the analyst to compare industry data to basic economic data such as the GDP or consumer spending? 2. Briefly explain the fees charged by funds. 3. Distinguish between direct and indirect investing. 4. Why are upward sloping yield curves more consistent with the usual risk-return tradeoff than downward sloping yield curves? 5. What are the main differences between a closed-end and an open-end investment company? 6 Compare the cash flows an investor expects from coupon bonds, zero-coupon bonds, and preferred stock. 7. Why do stock investors pay attention to the bond market? 8. Would one expect to find higher P/E ratios in an aggressive growth fund or in a growth and income fund? 9. Jack invests primarily in U.S. Treasury bills. Since T-bills are short-term, they must be replaced as they mature, causing a lot of turnover. Mack invests primarily in three growth-oriented stock mutual funds, adding to them monthly. ( Consider load vs no-load funds and automatic deposit into fund) Both have been following their investment strategies over the past 10 years. Would Jack or Mack be more interested in inflation adjusted returns on their investments? Which would be more interested in transactions costs? 10. Would you recommend a 65-year old retiree to invest all of his/her retirement assets in an income fund? 11. When constructing a portfolio, standard deviations are typically calculated from historical data. Why may that be a problem? 12. How is the total book value of equity affected by stock splits? Stock dividends? Are the book values of common stock, capital in excess of par, or retained earnings affected by either? 1
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13. Will risk-averse investors ever include commodity futures or options in their portfolios? Explain. 14. You have decided to invest in an aggressive growth fund for long-run future needs. You have a publication listing a number of such funds with their most recent 12-month total returns. Is this a good predictor of future performance? 15. Are T-bills totally risk-free? Explain. 16. How is the individual investor's income tax position affected by owning investment companies compared to owning securities directly? 17. Which classification of funds are expected to have the lowest management fees? 2
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Essay Questions/Problems ( 75 points) SHOW ALL WORK 1. ( 5 points) Some market scholars talk about tiers of stocks in the markets. A top tier on the NYSE would be the largest, most widely held stocks. Second and third tiers would consist of stocks that are less widely
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4504mdterm - Frohlich Fall 2002 October 31, 2002...

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