SOME IMPORTANT POINTS FROM RECENT LECTURES ON
ACTIVE EQUITY MANAGEMENT
Active managers seek to improve Rates-of-Return by choosing particular stocks or sectors
or investment styles.
Rate-of-Return equals dividend yield plus capital gain/loss. Dividends pr
HOMEWORK SET III
A security pays $25 in 1 year and $100 in 2 years. Assume the cash flows are riskless
and the riskless interest (i.e., discount) rate is 3% per year. What is the securitys price?
Change the cash flows in I to $12.5 in six months and
Lecture 6 Risk and Return
Single Period Return
Holding Period Return:
Percentage gain during a period
P + D1 P0
q HPR: holding period return
q P0: beginning price
q P1: ending price
q D1: cash dividend
What is a Mutual Fund?
Financial intermediaries invest on behalf of
Why Mutual Fund?
Diversification and divisibility
Portfolio managers and security analysts
Equities and Indexes
Ownership shares in public companies
Shareholder can vote for company issues, e.g., executive
compensation, board of directors, auditing firm, etc
MARKETS & INTERMEDIARIES
Which of the following is a false statement?
a) Brokers are paid a fee for their agent services; dealers earn the bid-asked spread as
principals in transactions.
b) The more customized a security, the wider the bid-asked spread
LECTURE ON PASSIVE INVESTING / MUTUAL FUNDS / STOCK
EXCHANGE TRADED FUNDS
A passive investor does not want to select stocks, nor does she want to hire an investment
manager to select stocks on her behalf. Instead, she chooses to invest in the en
HOMEWORK SET I
We follow the progression of the Shoe Manufacturing Company as developed in the lectures.
At the beginning of year 2, equity capital is $1,100 due to retained earnings from year 1, just as in
class. Everything else is also unchanged. Exce
HOMEWORK SET II
I XYZ Company had the following income statement last year:
It was capitalized with 1,250,000 owners equity, 600,000 bank loans, for which it pays 6%. It
Stock Issue in the Primary Market
Why do companies issue stock?
How are stocks placed?
Where are the opportunities?
Stock Trading in the Secondary Market
Where are stocks traded?
How are stocks traded?
Rutgers Business School
Practical Information about the class
(see also the syllabus)
Overview of class
Outline of topics covered
u First topic of the class: The Investment Environment