FIN 3120
Homework 3
Part A. Is stock market a zero-sum game? Discuss.
The stock market is not a zero-sum game since it instances all people are
able to win. For instance if Googles stock price increases, then the
company benefits all of the owners of stoc
Ch. 1 Definitions:
Investment Commitment of current resources in the expectations of deriving greater resources in the
future
Real Assets Assets used to produce goods and service
Financial Assets Claims on real assets or the income generated by them
Fixed
Price a 30-yr 8% semiannual bond with par value of $100
the discount rate is 8% per annum (r = 4% per 6-m period).
3 methods to answer:
A. Timeline
B. =PV()
C. =PRICE()
A. Use the timeline
Years
Cashflow (CF)
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.
Mutual Fund Annual Report
Assets at the beginning
HPR (%)
Total Assets before net inflows
Net inflows (from fund's perspective)
Assets at the end
1st quarter
2nd quarter
3rd quarter
$1,000,000
$1,200,000
$2,000,000
10%
25%
-20%
$1,100,000
$1,500,000
$1,60
FIN 3120
HW 1
Q3: What is the difference between asset allocation and security selection?
Asset allocation is the first step of the investment process and it allocates between stocks/bonds
etc. And security selection is the second step and chooses specifi
HW4
Part A
Q1:
1)
2)
3)
4)
5)
Tax efficiency
Low Manager Risk
Low Cost
Diversification
Simplicity
Q2:
5000-6% = 4700
10%-0.8% = 9.2
Value after 5 years = $7298.12
Part B
Q1:
One of the benefits is the ability to invest with small quantity of money.
Q5:
Ex
HW 3
Part A
Is stock market a zero-sum game? Discuss.
Stock market is not a zero-sum game. A Zero-Sum game is when one party wins the other looses.
In the stock market if a party win, it does not affect the others parties winning as well.
Part B
Q1:
An IP
HW 6:
Q2:
The option to call the bond is valuable to the firm, allowing it to buy back the bonds and
refinance at lower interest rates when market rates fall.
The put bond gives the option to the holder to exchange for par value at some date or to extend
HW 2
Part A
a) Find the percentage change in the price-weighted average of these two stocks (Page 39
2.4)
Stock
Initial Price
Final Price
Shares
(million)
ABC
XYZ
Total
$25
$100
$30
$90
20
1
IV of
Outstandin
g stock
$500
$100
$600
FV of
outstanding
stock
Bond Prices
and Yields
Part 2
Chapter 10
Review of Bond Pricing
Find the bond price for a 10-yr 4%
semiannual bond with $100 par.
Discount rate is 3%.
Topics
1. Bond Yields
2. Default Risk
3. Yield Curve, Term Structure
Interest Rate Quotation
Annualize
Suppose a 30-yr 8% semiannual bond is trading at $127.676.
Calculate the YTM.
A. Use =rate()
P = 127.676
NPER
PMT (coupon pmt)
PV (price but negative)
FV (face value)
periodic rate
YTM (annualized rate)
B. Use =yield()
Settlement date
Maturity date
Coupon
Whatstrategyinvolveswritingacallonanassettogetherwithbuyingtheasset?
Coveredcall
Duration measures the interest rate risk of a bond.
True
The time value of an option increases over time
False
Ifyoushortaputoption,youholdtherighttobuyanassetataspecifiedpri
Suppose XYZ (a car manufacturer) has domestic sales revenue of $20,000. It imports
$10,000 parts. Domestic cost is $6,000. Under the current tax system, XYZs tax is
($20k - $10k - $6k) * 35% = $1,400. Lets assume, the border adjustment tax now
becomes in
Principles of Investment
Homework #9
Part A.
#1
6.40
#2
Operating Free Cash Flow
Intrinsic Value using projected FCF = $138.05
Current stock price = $107.48
Projected FCF ratio = 0.8
Value =
(Growth multiplier)*free cash flow (6 year avg) + 0.8*Total Equi
Homework #3
02/01/2016
1. Difference is that an IPO is a first time that a privately owned company sells stock to the general
public and a SEO is the issuance of a stock by a company that has already done an IPO.
3. Primary market is that market for new s
FIN 3120
Homework 3
Q1. List at least 5 benefits of investing in index funds such as SPY, VTI, FSTMX.
Index funds, at their best, offer a low-cost way for investors to track popular stock and
bond market indexes. They also usually- outperform the majority
Principles of Investments
Homework #6
#2
A callable Bond gives the issuer the option to retire or extend the bond at a call-date, while the
extendable/puttable bond gives the option to the bondholder.
#4
Semi-annual coupon = 1,000 x .06 x .5 = $30.
One mo
The last 4 annual returns of a stock were 20%, -30%, 40%, 30%. Theinvestorwantsto
calculatetheaveragereturnaccountingforthecompoundingeffect. Calculate the geometric
average returns.
Selected
Answer:
15%
Answers:
9.27
%
11.20
%
13.56
%
15%
Response
Feedba
Principles of Investment
Homework #5
Q5
The standard deviation has increased while the mean remained went unchanged.
E(r) = (0.3 x 44%) + (0.4 x 14%) + (0.3 x 16%) = 14%
(0.3 x 44 14) + (0.4 x 14 14) + (0.3 x -16 14) = 540
= 23.24%
Q7
A. 2007-2008 (110 10
Principles of Investment
Homework #7
#1
Theorem One: Bond Prices and Yields Move in Opposite Directions
Theorem Two: Long-Term Bonds Have More Interest Rate Risk than Short-Term Bonds
Theorem Three: Higher Coupon Bonds Have Less Interest Rate Risk
Theorem
1. Common stock, preferred stock and bonds are all known as securities. Common stock is an ownership
share in a publicly held corporation. Common shareholders have voting rights and sometimes pay
dividends. Preferred stock represents nonvoting shares in a
Question 1
0 out of 1 points
A portfolio manager sells short-tem treasury bonds and buys long-term treasury
bonds because of higher long term bond yields. This is an example of _
swap.
Selected
Answer:
a rate
anticipation
Answers:
a pure yield pick
up
a
Principles of Investment
Homework #4
Q1.
Low fees/low costs
Wider diversification in a single package
Reduce tax exposure/lower turnover
Control of exposure/select the asset class
Simple and non-actively managed
Q2.
Invest $5,000 but 6% front-end load, so
Principles of Investment
Homework #10
Part A.
#1
They both serve the same function in both allowing people to buy or sell a specific type of asset
ate a specific time at a given price. The difference are that futures contracts are exchange-traded
(standar
Principles of Investment
Homework #8
Part A.
#1
The differences between call options and warrants are that stock warrants are issued by the
companies themselves, and the shares being issues are new unlike stock option where its a
contract between two indi
Question 1
0 out of 1 points
A callable bond pays annual interest of $50, has a par value of $1,000, matures in 10 years but is callable
in 5 years at a price of $1,100, and has a value today of $1,060. Calculate the yield to call.
Selected Answer:
5.18%
3. What is the difference between asset allocation and security selection?
Asset allocation is spreading your money around the different types of investments to create
diversification while security selection is deciding into which exact investment to buy
Mutual Fund Annual Report
Assets at the beginning
HPR (%)
Total Assets before net inflows
Net inflows (from fund's perspective)
Assets at the end
1st quarter
2nd quarter
3rd quarter
$1,000,000
$1,200,000
$2,000,000
10%
25%
-20%
$1,100,000
$1,500,000
$1,60