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<strong>BUS 405 Week 1 Assignment Annualized Returns Chapter 3 Problem 18</strong>Annualized Returns.Complete problem 18 in Chapter 3 (shown below) and submit to the instructor. Show your work to find the annualized return for each of the listed share prices. Write a 100 word analysis of the process to calculate these annualized returns.Suppose you have $28,000 to invest. You’re considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $40 per share. You also notice that a call option with a $40 strike price and six months to maturity is available. The premium is $4.00. MMEE pays no dividends. What is your annualized return from these two investments if, in six months, MMEE is selling for $48 per share? What about $36 per share?<strong>BUS 405 Week 1 DQs</strong>Week 1 Discussion Question 1 Blume’s Formula, Allocation, and SelectionFrom Chapter 1, answer Concept Question 5: What is Blume’s formula? When would you want to use it in practice? Also, from Chapter 2, answer Concept Question 4: What is the difference between asset allocation and security selection?  Remember to complete all parts of the questions and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.Week 1 Discussion Question 2 - Money Market FundsFrom Chapter 4, complete Problem 4: The Aqua Liquid Assets Money Market Mutual Fund has a NAV of $1 per share. During the year, the assets held by this fund appreciated by 2.5 percent. If you had invested $50,000 in this fund at the start of the year, how many shares would you own at the end of the year? What will the NAV of this fund be at the end of the year? Why?  Remember to complete all parts of the question, show your work, and report the results of your analysis.<strong>BUS 405 Week 2 Assignment Abbott Laboratories Problem</strong>After reading the Value Line figures and information on Abbott Laboratories in the Questions and Problems section of Chapter 6 (just before Problem 27), complete Problems 27, 28, 29, 30, and 31 and submit to your instructor.Show your calculations and in your response to problem 31 write a 100 to 200 word defense of your position as to the value of Abbott Laboratories stock at its current price of $50 per share.What is the sustainable growth rate and required return for Abbott Laboratories? Using these values, calculate the 2010 share price of Abbott Laboratories Industries stock according to the constant dividend growth model.Using the P/E, P/CF, and P/S ratios, estimate the 2010 share price for Abbott Laboratories. Use the average stock price each year to calculate the price ratios.Assume the sustainable growth rate and required return you calculated in Problem 27 are valid. Use the clean surplus relationship to calculate the share price for Abbott Laboratories with the residual income model.Use the information from the previous problem and calculate the stock price with the clean surplus dividend. Do you get the same stock price as in the previous problem? Why or why not?Given your answers in the previous questions, do you feel Abbott Laboratories is overvalued or undervalued at its current price of around $50? At what price do you feel the stock should sell?<strong>BUS 405 Week 2 DQs</strong>Week 2 Discussion Question 1 - Primary and Secondary MarketsComplete Concept Question 1 from Chapter 5: If you were to visit your local Chevrolet retailer, there is both a primary and a secondary market in action. Explain. Is the Chevy retailer a dealer or a broker?  Remember to complete all parts of the question and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.Week 2 Discussion Question 2 - Contrarian InvestingComplete Concept Question 9 from Chapter 8: What does it mean to be a contrarian investor? How would a contrarian investor use technical analysis? Post your answers to the discussion board.  Remember to complete all parts of the question and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.<strong>BUS 405 Week 3 Assignment Bootstrapping Chapter 10 Problem 31</strong>Complete problem 31 of Chapter 10 (shown below), and submit to your instructor. Show your calculations and the algebraic manipulation of the price equation for the bond. In addition to solving the problem, write a 100 to 200 word essay on the term structure of fixed income securities<strong>BUS 405 Week 3 DQs</strong>Week 3 Discussion Question 1 - Forward Interest RatesComplete Problem 16 from the Questions and Problems section of Chapter 9: According to the pure expectations theory of interest rates, how much do you expect to pay for a one-year STRIPS on February 15, 2011? What is the corresponding implied forward rate? How does your answer compare to the current yield on a one-year STRIPS? What does this tell you about the relationship between implied forward rates, the shape of the zero coupon yield curve, and market expectations about future spot interest rates? Remember to complete all parts of the questions, and report the results of your analysis. Respond to at least two of your classmates’ postings outside of your own thread.Week 3 Discussion Question 2 - Bond Prices versus YieldsComplete Concept Question 9 of Chapter 10: (a) What is the relationship between the price of a bond and its YTM?  (b) Explain why some bonds sell at a premium to par value, and other bonds sell at a discount.  What do you know about the relationship between the coupon rate and the YTM for premium bonds?  What about discount bonds?  For bonds selling at par value?  (c) What is the relationship between the current yield and YTM for premium bonds?  For discount bonds?  For bonds selling at par value?  Remember to complete all parts of the questions, and report the results of your analysis.  Respond to at least two of your classmates’ postings outside of your own thread.<strong>BUS 405 Week 4 Assignment Performance Metrics</strong>Complete Problem 22 in the Questions and Problems section of Chapter 13 (shown below). When you pick the best choice for your portfolio, defend your decision in a 100 - 200 word essay. You have been given the following return information for two mutual funds (Papa and Mama), the market index, and the risk-free rate. Calculate the Sharpe ratio, Treynor ratio, Jensen’s alpha, information ratio, and R-squared for both funds and determine which is the best choice for your portfolio.<strong>BUS 405 Week 4 DQs</strong>Week 4 Discussion Question 1 Expected Returns and DeviationComplete Problems 1, 2, and 3 from the Questions and Problems section of Chapter 11 (shown below). Remember to complete all parts of the questions, and report the results of your analysis.  Respond to at least two of your classmates’ postings outside of your own thread.Week 4 Discussion Question 2 Portfolio WeightsComplete Problem 10 from the Questions and Problems section of Chapter 12: A stock has a beta of .9 and an expected return of 9 percent. A risk-free asset currently earns 4 percent.Week 5 Discussion Question 1 Hedging with FuturesComplete Concept Question 7 from Chapter 14: The town of South Park is planning a bond issue in six months and Kenny, the town treasurer, is worried that interest rates may rise, thereby reducing the value of the bond issue. Should Kenny buy or sell Treasury bond futures contracts to hedge the impending bond issue? Remember to complete all parts of the question and support your answers with examples from the text and other resources.<strong>BUS 405 Week 5 DQs</strong>Week 5 Discussion Question 2 Option StrategiesComplete Concept Question 12 from Chapter 15: Recall the options strategies of a protective put and covered call discussed in the text. Suppose you have sold short some shares of stock. Discuss analogous option strategies and how you would implement them. (Hint: They’re called protective calls and covered puts.)  Remember to complete all parts of the question and support your answers with examples from the text and other resources.<strong>BUS 405 Week 5 Final Project Construct A Well-diversified Portfolio</strong>The student will construct a well-diversified portfolio using an initial investment stake of $50,000 (the portfolio should use 95% of the fund, but they may not use more than $50,000). The student may include stocks, common or preferred; bonds, corporate or U.S. Treasury bonds; mutual funds; and futures contract or options. The student will use the closing prices from the first day of the class to determine the price of each issue. Only whole lots of any issues may be acquired, that is no less than 100 shares of common or preferred stock; no less than 5 corporate bonds or $10,000 for U.S. Treasury Bonds; no fewer than the minimum required investment for any mutual fund; and no fewer than 5 contracts for any option or futures position. The settlement date will be the first day of Week 3. The student does not have to use all of the above mentioned securities, but they must use more than one class. Transaction costs are ignored in the creation of the portfolio.<strong>BUS 405  Week 1 Chapter 1 - 4 Quiz</strong>Chapter 1: A Brief History of Risk and Return1. The total dollar return on a share of stock is defined as the:2. The dividend yield is defined as the annual dividend expressed as a percentage of the:3. The capital gains yield is equal to:4. When the total return on an investment is expressed on a per-year basis it is called the:5. The risk-free rate is:...100. We have studied three different "average return measures" - the arithmetic average return, the geometric average return and the dollar-weighted average return. Briefly  outline what information each metric provides.Chapter 2: The Investment Process1. Market timing is the:2. Asset allocation is the:3. Jesse is researching chemical companies in an effort to determine which company's stock he should purchase. This process is known as:4. A Roth IRA:5. A brokerage account in which purchases can be made using credit is referred to as which type of account?.....92. Recently, you sold 300 shares of stock for $14.60 a share. The sale was a short sale with an initial margin requirement of 70 percent. The maintenance margin is 35 percent. The stock is currently trading at $16.10 a share. What is your current short position in this stock?Chapter 3: Overview of Security Types1. Which one of the following is the best definition of a money market instrument?2. A fixed-income security is defined as:3. The annual interest payment divided by the current price of a bond is called the:4. A security originally sold by a business or government to raise money is called a(n):5. A financial asset that represents a claim on another financial asset is classified as a _____ asset....94. Briefly compare and contrast options and futures.Chapter 4: Mutual Funds1. An investment company:2. An investment company that will repurchase shares at any time is called a(n) _____ fund.3. An investment company that issues a fixed number of shares which can only be resold in the open stock market is called a(n) _____ fund.4. The value of a load mutual fund's assets less its liabilities, divided by the number of shares5. A fee that is charged at the time mutual fund shares are purchased by an investor is called a:...101. What are the primary differences between an ETF and an ETN?<strong>BUS 405  Week 2 Chapter 5 - 8 Quiz</strong>Chapter 5 The Stock Market1. High Color Detergent is issuing new shares of stock which will trade on NASDAQ. If Sue purchases 300 of these shares, the trade will occur in which one of the following markets?2. Wilson just placed an order with his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets?3. Hi-Tek Shoes is a private firm that has decided to issue shares of stock to the general public. This stock issue will be referred to as a(n):4. A firm that specializes in arranging financing for companies is called a(n):5. The process of purchasing newly issued shares from the issuer and reselling those shares to the general public is called:...106. Describe the primary advantage and disadvantage of a limit sell order.Chapter 6 Common Stock Valuation1. Which one of the following terms is used to identify the evaluation method that determines the value of a stock by reviewing a firm's financial statement in conjunction with other financial and economic information?2. The method of valuing a stock based on the present value of the future income derived from that stock is called:3. The model used to value a stock that pays a dividend which increases at a constant rate forever is referred to as which one of the following? Assume the growth rate is less than the discount rate.4. How is a sustainable dividend growth rate defined?5. The portion of net income that is held by a firm, for future growth, comprises which one of thefollowing balance sheet accounts?...104. The residual income model for valuing a stock suffers from some of the same estimating errors as the dividend growth model. Identify and explain these estimating errors.Chapter 7 Stock Price Behavior and Market Efficiency1. Which one of the following states that investors cannot consistently earn positive excess returns?2. Security A and Security B have similar risks. However, Security A has a higher rate of return than Security B. The return on Security A minus the return on Security B is referred to as which one of the following?3. Which one of the following terms is used to describe a stock price that moves over time creating no4. Which one of the following is a research method used to study the effects news has on stock prices?5. Which one of the following returns is computed as the observed return minus the expected return?...82. A trader was found guilty of violating insider trading laws. As part of his sentencing, he had to forfeit the excessive profits earned on the illegal trades. What does this conviction indicate about the current form of market efficiency?Chapter 8 Behavioral Finance and the Psychology of Investing1. What is the area of finance called that addresses issues such as how reasoning errors affect investment decisions?2. Which one of the following is the basis for prospect theory?3. Which one of the following defines frame dependence?4. Mental accounting is the process of associating a stock with its:5. Loss aversion is defined as:...84. Give some examples of how overconfidence affects investor behavior along with the results that might be expected based on that behavior.<strong>BUS 405 Week 3 Chapter 9 - 10 Quiz</strong>Chapter 9 Interest Rates1. Which one of the following is the interest rate that the largest commercial banks charge their most creditworthy corporate customers for short-term loans?2. Which one of the following terms applies to a rate that serves as an indicator of future trends?3. Which one of the following rates is the rate that banks charge each other for overnight loans of $1 million or more?4. Which one of the following rates is the rate a commercial bank must pay the Federal Reserve to borrow reserves overnight?5. Which one of the following rates is used by brokerage firms as the basis for determining margin loan rates?...81. A Treasury bill matures in 81 days and has a bond equivalent yield of 2.79 What is the effective annual rate?Chapter 10 Bond Prices and Yields1. Which one of the following is the correct definition of a coupon rate?2. What is the annual interest divided by the market price of a bond called?3. The yield to maturity is the:4. A premium bond is defined as a bond that:5. A discount bond:...54. A 6.5 percent coupon bond has a face value of $1,000 and a current yield of 6.61 percent. What is the current market price?<strong>BUS 405 Week 4 Chapter 11 - 13 Quiz</strong>Chapter 11 Diversification and Risky Asset Allocation1. Which one of the following returns is the average return you expect to earn in the future on a risky asset?2. What is the extra compensation paid to an investor who invests in a risky asset rather than in a riskfree asset called?3. A group of stocks and bonds held by an investor is called which one of the following?4. The value of an individual security divided by the portfolio value is referred to as the portfolio:5. Diversification is investing in a variety of assets with which one of the following as the primary goal?...84. Foreign securities are generally considered to be more risky than domestic securities. Given this assumption, explain how adding foreign securities into a domestic portfolio can affect the Markowitz efficient portfolios.Chapter 12 Return, Risk, and The Security Market Line1. Which one of the following is the type of risk that affects a large number of assets?2. Which one of the following is the type of risk that only affects either a single firm or just a small number of firms?3. According to the systematic risk principle, the reward for bearing risk is based on which one of the following types of risk?4. Which one of the following measures systematic risk?5. The security market line depicts the graphical relationship between which two of the following?I. expected returnII. surprise returnIII. systematic riskIV. unsystematic risk...47. Reed Plastics just announced the earnings per share for the quarter just ended were $.45 a share. Analysts were expecting $.51. What is the amount of the surprise portion of the announcement?Chapter 13 Performance Evaluation and Risk Management1. Which one of the following assesses the ability of a money manager to balance high returns with an acceptable level of risk?2. The unadjusted total percentage return on a security that has not been compared to any benchmark is referred to as which one of the following?3. The risk premium of a portfolio divided by the portfolio's standard deviation defines which one of the following performance measures?4. Which one of the following is computed by dividing a portfolio's risk premium by the portfolio beta?5. Which one of the following measures a portfolio's raw return against the expected return based on the Capital Asset Pricing Model?...68. A stock has a return of 16.9 percent, a standard deviation of 11.7 percent, and a beta of 1.57. The riskfree rate is 2.65 percent and the market risk premium is 8.45 percent. What is the Jensen-Treynor alpha of this stock?
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<strong>BUS 405 Week 1 Assignment Annualized Returns Chapter 3 Problem 18</strong>Annualized Returns.Complete problem 18 in Chapter 3 (shown below) and submit to the instructor. Show your work to find the annualized return for each of the listed share prices. Write a 100 word analysis of the process to calculate these annualized returns.Suppose you have $28,000 to invest. You’re considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $40 per share. You also notice that a call option with a $40 strike price and six months to maturity is available. The premium is $4.00. MMEE pays no dividends. What is your annualized return from these two investments if, in six months, MMEE is selling for $48 per share? What about $36 per share?<strong>BUS 405 Week 1 DQs</strong>Week 1 Discussion Question 1 Blume’s Formula, Allocation, and SelectionFrom Chapter 1, answer Concept Question 5: What is Blume’s formula? When would you want to use it in practice? Also, from Chapter 2, answer Concept Question 4: What is the difference between asset allocation and security selection?  Remember to complete all parts of the questions and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.Week 1 Discussion Question 2 - Money Market FundsFrom Chapter 4, complete Problem 4: The Aqua Liquid Assets Money Market Mutual Fund has a NAV of $1 per share. During the year, the assets held by this fund appreciated by 2.5 percent. If you had invested $50,000 in this fund at the start of the year, how many shares would you own at the end of the year? What will the NAV of this fund be at the end of the year? Why?  Remember to complete all parts of the question, show your work, and report the results of your analysis.<strong>BUS 405 Week 2 Assignment Abbott Laboratories Problem</strong>After reading the Value Line figures and information on Abbott Laboratories in the Questions and Problems section of Chapter 6 (just before Problem 27), complete Problems 27, 28, 29, 30, and 31 and submit to your instructor.Show your calculations and in your response to problem 31 write a 100 to 200 word defense of your position as to the value of Abbott Laboratories stock at its current price of $50 per share.What is the sustainable growth rate and required return for Abbott Laboratories? Using these values, calculate the 2010 share price of Abbott Laboratories Industries stock according to the constant dividend growth model.Using the P/E, P/CF, and P/S ratios, estimate the 2010 share price for Abbott Laboratories. Use the average stock price each year to calculate the price ratios.Assume the sustainable growth rate and required return you calculated in Problem 27 are valid. Use the clean surplus relationship to calculate the share price for Abbott Laboratories with the residual income model.Use the information from the previous problem and calculate the stock price with the clean surplus dividend. Do you get the same stock price as in the previous problem? Why or why not?Given your answers in the previous questions, do you feel Abbott Laboratories is overvalued or undervalued at its current price of around $50? At what price do you feel the stock should sell?<strong>BUS 405 Week 2 DQs</strong>Week 2 Discussion Question 1 - Primary and Secondary MarketsComplete Concept Question 1 from Chapter 5: If you were to visit your local Chevrolet retailer, there is both a primary and a secondary market in action. Explain. Is the Chevy retailer a dealer or a broker?  Remember to complete all parts of the question and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.Week 2 Discussion Question 2 - Contrarian InvestingComplete Concept Question 9 from Chapter 8: What does it mean to be a contrarian investor? How would a contrarian investor use technical analysis? Post your answers to the discussion board.  Remember to complete all parts of the question and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.<strong>BUS 405 Week 3 Assignment Bootstrapping Chapter 10 Problem 31</strong>Complete problem 31 of Chapter 10 (shown below), and submit to your instructor. Show your calculations and the algebraic manipulation of the price equation for the bond. In addition to solving the problem, write a 100 to 200 word essay on the term structure of fixed income securities<strong>BUS 405 Week 3 DQs</strong>Week 3 Discussion Question 1 - Forward Interest RatesComplete Problem 16 from the Questions and Problems section of Chapter 9: According to the pure expectations theory of interest rates, how much do you expect to pay for a one-year STRIPS on February 15, 2011? What is the corresponding implied forward rate? How does your answer compare to the current yield on a one-year STRIPS? What does this tell you about the relationship between implied forward rates, the shape of the zero coupon yield curve, and market expectations about future spot interest rates? Remember to complete all parts of the questions, and report the results of your analysis. Respond to at least two of your classmates’ postings outside of your own thread.Week 3 Discussion Question 2 - Bond Prices versus YieldsComplete Concept Question 9 of Chapter 10: (a) What is the relationship between the price of a bond and its YTM?  (b) Explain why some bonds sell at a premium to par value, and other bonds sell at a discount.  What do you know about the relationship between the coupon rate and the YTM for premium bonds?  What about discount bonds?  For bonds selling at par value?  (c) What is the relationship between the current yield and YTM for premium bonds?  For discount bonds?  For bonds selling at par value?  Remember to complete all parts of the questions, and report the results of your analysis.  Respond to at least two of your classmates’ postings outside of your own thread.<strong>BUS 405 Week 4 Assignment Performance Metrics</strong>Complete Problem 22 in the Questions and Problems section of Chapter 13 (shown below). When you pick the best choice for your portfolio, defend your decision in a 100 - 200 word essay. You have been given the following return information for two mutual funds (Papa and Mama), the market index, and the risk-free rate. Calculate the Sharpe ratio, Treynor ratio, Jensen’s alpha, information ratio, and R-squared for both funds and determine which is the best choice for your portfolio.<strong>BUS 405 Week 4 DQs</strong>Week 4 Discussion Question 1 Expected Returns and DeviationComplete Problems 1, 2, and 3 from the Questions and Problems section of Chapter 11 (shown below). Remember to complete all parts of the questions, and report the results of your analysis.  Respond to at least two of your classmates’ postings outside of your own thread.Week 4 Discussion Question 2 Portfolio WeightsComplete Problem 10 from the Questions and Problems section of Chapter 12: A stock has a beta of .9 and an expected return of 9 percent. A risk-free asset currently earns 4 percent.Week 5 Discussion Question 1 Hedging with FuturesComplete Concept Question 7 from Chapter 14: The town of South Park is planning a bond issue in six months and Kenny, the town treasurer, is worried that interest rates may rise, thereby reducing the value of the bond issue. Should Kenny buy or sell Treasury bond futures contracts to hedge the impending bond issue? Remember to complete all parts of the question and support your answers with examples from the text and other resources.<strong>BUS 405 Week 5 DQs</strong>Week 5 Discussion Question 2 Option StrategiesComplete Concept Question 12 from Chapter 15: Recall the options strategies of a protective put and covered call discussed in the text. Suppose you have sold short some shares of stock. Discuss analogous option strategies and how you would implement them. (Hint: They’re called protective calls and covered puts.)  Remember to complete all parts of the question and support your answers with examples from the text and other resources.<strong>BUS 405 Week 5 Final Project Construct A Well-diversified Portfolio</strong>The student will construct a well-diversified portfolio using an initial investment stake of $50,000 (the portfolio should use 95% of the fund, but they may not use more than $50,000). The student may include stocks, common or preferred; bonds, corporate or U.S. Treasury bonds; mutual funds; and futures contract or options. The student will use the closing prices from the first day of the class to determine the price of each issue. Only whole lots of any issues may be acquired, that is no less than 100 shares of common or preferred stock; no less than 5 corporate bonds or $10,000 for U.S. Treasury Bonds; no fewer than the minimum required investment for any mutual fund; and no fewer than 5 contracts for any option or futures position. The settlement date will be the first day of Week 3. The student does not have to use all of the above mentioned securities, but they must use more than one class. Transaction costs are ignored in the creation of the portfolio.<strong>BUS 405  Week 1 Chapter 1 - 4 Quiz</strong>Chapter 1: A Brief History of Risk and Return1. The total dollar return on a share of stock is defined as the:2. The dividend yield is defined as the annual dividend expressed as a percentage of the:3. The capital gains yield is equal to:4. When the total return on an investment is expressed on a per-year basis it is called the:5. The risk-free rate is:...100. We have studied three different "average return measures" - the arithmetic average return, the geometric average return and the dollar-weighted average return. Briefly  outline what information each metric provides.Chapter 2: The Investment Process1. Market timing is the:2. Asset allocation is the:3. Jesse is researching chemical companies in an effort to determine which company's stock he should purchase. This process is known as:4. A Roth IRA:5. A brokerage account in which purchases can be made using credit is referred to as which type of account?.....92. Recently, you sold 300 shares of stock for $14.60 a share. The sale was a short sale with an initial margin requirement of 70 percent. The maintenance margin is 35 percent. The stock is currently trading at $16.10 a share. What is your current short position in this stock?Chapter 3: Overview of Security Types1. Which one of the following is the best definition of a money market instrument?2. A fixed-income security is defined as:3. The annual interest payment divided by the current price of a bond is called the:4. A security originally sold by a business or government to raise money is called a(n):5. A financial asset that represents a claim on another financial asset is classified as a _____ asset....94. Briefly compare and contrast options and futures.Chapter 4: Mutual Funds1. An investment company:2. An investment company that will repurchase shares at any time is called a(n) _____ fund.3. An investment company that issues a fixed number of shares which can only be resold in the open stock market is called a(n) _____ fund.4. The value of a load mutual fund's assets less its liabilities, divided by the number of shares5. A fee that is charged at the time mutual fund shares are purchased by an investor is called a:...101. What are the primary differences between an ETF and an ETN?<strong>BUS 405  Week 2 Chapter 5 - 8 Quiz</strong>Chapter 5 The Stock Market1. High Color Detergent is issuing new shares of stock which will trade on NASDAQ. If Sue purchases 300 of these shares, the trade will occur in which one of the following markets?2. Wilson just placed an order with his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets?3. Hi-Tek Shoes is a private firm that has decided to issue shares of stock to the general public. This stock issue will be referred to as a(n):4. A firm that specializes in arranging financing for companies is called a(n):5. The process of purchasing newly issued shares from the issuer and reselling those shares to the general public is called:...106. Describe the primary advantage and disadvantage of a limit sell order.Chapter 6 Common Stock Valuation1. Which one of the following terms is used to identify the evaluation method that determines the value of a stock by reviewing a firm's financial statement in conjunction with other financial and economic information?2. The method of valuing a stock based on the present value of the future income derived from that stock is called:3. The model used to value a stock that pays a dividend which increases at a constant rate forever is referred to as which one of the following? Assume the growth rate is less than the discount rate.4. How is a sustainable dividend growth rate defined?5. The portion of net income that is held by a firm, for future growth, comprises which one of thefollowing balance sheet accounts?...104. The residual income model for valuing a stock suffers from some of the same estimating errors as the dividend growth model. Identify and explain these estimating errors.Chapter 7 Stock Price Behavior and Market Efficiency1. Which one of the following states that investors cannot consistently earn positive excess returns?2. Security A and Security B have similar risks. However, Security A has a higher rate of return than Security B. The return on Security A minus the return on Security B is referred to as which one of the following?3. Which one of the following terms is used to describe a stock price that moves over time creating no4. Which one of the following is a research method used to study the effects news has on stock prices?5. Which one of the following returns is computed as the observed return minus the expected return?...82. A trader was found guilty of violating insider trading laws. As part of his sentencing, he had to forfeit the excessive profits earned on the illegal trades. What does this conviction indicate about the current form of market efficiency?Chapter 8 Behavioral Finance and the Psychology of Investing1. What is the area of finance called that addresses issues such as how reasoning errors affect investment decisions?2. Which one of the following is the basis for prospect theory?3. Which one of the following defines frame dependence?4. Mental accounting is the process of associating a stock with its:5. Loss aversion is defined as:...84. Give some examples of how overconfidence affects investor behavior along with the results that might be expected based on that behavior.<strong>BUS 405 Week 3 Chapter 9 - 10 Quiz</strong>Chapter 9 Interest Rates1. Which one of the following is the interest rate that the largest commercial banks charge their most creditworthy corporate customers for short-term loans?2. Which one of the following terms applies to a rate that serves as an indicator of future trends?3. Which one of the following rates is the rate that banks charge each other for overnight loans of $1 million or more?4. Which one of the following rates is the rate a commercial bank must pay the Federal Reserve to borrow reserves overnight?5. Which one of the following rates is used by brokerage firms as the basis for determining margin loan rates?...81. A Treasury bill matures in 81 days and has a bond equivalent yield of 2.79 What is the effective annual rate?Chapter 10 Bond Prices and Yields1. Which one of the following is the correct definition of a coupon rate?2. What is the annual interest divided by the market price of a bond called?3. The yield to maturity is the:4. A premium bond is defined as a bond that:5. A discount bond:...54. A 6.5 percent coupon bond has a face value of $1,000 and a current yield of 6.61 percent. What is the current market price?<strong>BUS 405 Week 4 Chapter 11 - 13 Quiz</strong>Chapter 11 Diversification and Risky Asset Allocation1. Which one of the following returns is the average return you expect to earn in the future on a risky asset?2. What is the extra compensation paid to an investor who invests in a risky asset rather than in a riskfree asset called?3. A group of stocks and bonds held by an investor is called which one of the following?4. The value of an individual security divided by the portfolio value is referred to as the portfolio:5. Diversification is investing in a variety of assets with which one of the following as the primary goal?...84. Foreign securities are generally considered to be more risky than domestic securities. Given this assumption, explain how adding foreign securities into a domestic portfolio can affect the Markowitz efficient portfolios.Chapter 12 Return, Risk, and The Security Market Line1. Which one of the following is the type of risk that affects a large number of assets?2. Which one of the following is the type of risk that only affects either a single firm or just a small number of firms?3. According to the systematic risk principle, the reward for bearing risk is based on which one of the following types of risk?4. Which one of the following measures systematic risk?5. The security market line depicts the graphical relationship between which two of the following?I. expected returnII. surprise returnIII. systematic riskIV. unsystematic risk...47. Reed Plastics just announced the earnings per share for the quarter just ended were $.45 a share. Analysts were expecting $.51. What is the amount of the surprise portion of the announcement?Chapter 13 Performance Evaluation and Risk Management1. Which one of the following assesses the ability of a money manager to balance high returns with an acceptable level of risk?2. The unadjusted total percentage return on a security that has not been compared to any benchmark is referred to as which one of the following?3. The risk premium of a portfolio divided by the portfolio's standard deviation defines which one of the following performance measures?4. Which one of the following is computed by dividing a portfolio's risk premium by the portfolio beta?5. Which one of the following measures a portfolio's raw return against the expected return based on the Capital Asset Pricing Model?...68. A stock has a return of 16.9 percent, a standard deviation of 11.7 percent, and a beta of 1.57. The riskfree rate is 2.65 percent and the market risk premium is 8.45 percent. What is the Jensen-Treynor alpha of this stock?
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<strong>BUS 405 Week 1 Assignment Annualized Returns Chapter 3 Problem 18</strong>Annualized Returns.Complete problem 18 in Chapter 3 (shown below) and submit to the instructor. Show your work to find the annualized return for each of the listed share prices. Write a 100 word analysis of the process to calculate these annualized returns.Suppose you have $28,000 to invest. You’re considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $40 per share. You also notice that a call option with a $40 strike price and six months to maturity is available. The premium is $4.00. MMEE pays no dividends. What is your annualized return from these two investments if, in six months, MMEE is selling for $48 per share? What about $36 per share?<strong>BUS 405 Week 1 DQs</strong>Week 1 Discussion Question 1 Blume’s Formula, Allocation, and SelectionFrom Chapter 1, answer Concept Question 5: What is Blume’s formula? When would you want to use it in practice? Also, from Chapter 2, answer Concept Question 4: What is the difference between asset allocation and security selection?  Remember to complete all parts of the questions and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.Week 1 Discussion Question 2 - Money Market FundsFrom Chapter 4, complete Problem 4: The Aqua Liquid Assets Money Market Mutual Fund has a NAV of $1 per share. During the year, the assets held by this fund appreciated by 2.5 percent. If you had invested $50,000 in this fund at the start of the year, how many shares would you own at the end of the year? What will the NAV of this fund be at the end of the year? Why?  Remember to complete all parts of the question, show your work, and report the results of your analysis.<strong>BUS 405 Week 2 Assignment Abbott Laboratories Problem</strong>After reading the Value Line figures and information on Abbott Laboratories in the Questions and Problems section of Chapter 6 (just before Problem 27), complete Problems 27, 28, 29, 30, and 31 and submit to your instructor.Show your calculations and in your response to problem 31 write a 100 to 200 word defense of your position as to the value of Abbott Laboratories stock at its current price of $50 per share.What is the sustainable growth rate and required return for Abbott Laboratories? Using these values, calculate the 2010 share price of Abbott Laboratories Industries stock according to the constant dividend growth model.Using the P/E, P/CF, and P/S ratios, estimate the 2010 share price for Abbott Laboratories. Use the average stock price each year to calculate the price ratios.Assume the sustainable growth rate and required return you calculated in Problem 27 are valid. Use the clean surplus relationship to calculate the share price for Abbott Laboratories with the residual income model.Use the information from the previous problem and calculate the stock price with the clean surplus dividend. Do you get the same stock price as in the previous problem? Why or why not?Given your answers in the previous questions, do you feel Abbott Laboratories is overvalued or undervalued at its current price of around $50? At what price do you feel the stock should sell?<strong>BUS 405 Week 2 DQs</strong>Week 2 Discussion Question 1 - Primary and Secondary MarketsComplete Concept Question 1 from Chapter 5: If you were to visit your local Chevrolet retailer, there is both a primary and a secondary market in action. Explain. Is the Chevy retailer a dealer or a broker?  Remember to complete all parts of the question and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.Week 2 Discussion Question 2 - Contrarian InvestingComplete Concept Question 9 from Chapter 8: What does it mean to be a contrarian investor? How would a contrarian investor use technical analysis? Post your answers to the discussion board.  Remember to complete all parts of the question and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.<strong>BUS 405 Week 3 Assignment Bootstrapping Chapter 10 Problem 31</strong>Complete problem 31 of Chapter 10 (shown below), and submit to your instructor. Show your calculations and the algebraic manipulation of the price equation for the bond. In addition to solving the problem, write a 100 to 200 word essay on the term structure of fixed income securities<strong>BUS 405 Week 3 DQs</strong>Week 3 Discussion Question 1 - Forward Interest RatesComplete Problem 16 from the Questions and Problems section of Chapter 9: According to the pure expectations theory of interest rates, how much do you expect to pay for a one-year STRIPS on February 15, 2011? What is the corresponding implied forward rate? How does your answer compare to the current yield on a one-year STRIPS? What does this tell you about the relationship between implied forward rates, the shape of the zero coupon yield curve, and market expectations about future spot interest rates? Remember to complete all parts of the questions, and report the results of your analysis. Respond to at least two of your classmates’ postings outside of your own thread.Week 3 Discussion Question 2 - Bond Prices versus YieldsComplete Concept Question 9 of Chapter 10: (a) What is the relationship between the price of a bond and its YTM?  (b) Explain why some bonds sell at a premium to par value, and other bonds sell at a discount.  What do you know about the relationship between the coupon rate and the YTM for premium bonds?  What about discount bonds?  For bonds selling at par value?  (c) What is the relationship between the current yield and YTM for premium bonds?  For discount bonds?  For bonds selling at par value?  Remember to complete all parts of the questions, and report the results of your analysis.  Respond to at least two of your classmates’ postings outside of your own thread.<strong>BUS 405 Week 4 Assignment Performance Metrics</strong>Complete Problem 22 in the Questions and Problems section of Chapter 13 (shown below). When you pick the best choice for your portfolio, defend your decision in a 100 - 200 word essay. You have been given the following return information for two mutual funds (Papa and Mama), the market index, and the risk-free rate. Calculate the Sharpe ratio, Treynor ratio, Jensen’s alpha, information ratio, and R-squared for both funds and determine which is the best choice for your portfolio.<strong>BUS 405 Week 4 DQs</strong>Week 4 Discussion Question 1 Expected Returns and DeviationComplete Problems 1, 2, and 3 from the Questions and Problems section of Chapter 11 (shown below). Remember to complete all parts of the questions, and report the results of your analysis.  Respond to at least two of your classmates’ postings outside of your own thread.Week 4 Discussion Question 2 Portfolio WeightsComplete Problem 10 from the Questions and Problems section of Chapter 12: A stock has a beta of .9 and an expected return of 9 percent. A risk-free asset currently earns 4 percent.Week 5 Discussion Question 1 Hedging with FuturesComplete Concept Question 7 from Chapter 14: The town of South Park is planning a bond issue in six months and Kenny, the town treasurer, is worried that interest rates may rise, thereby reducing the value of the bond issue. Should Kenny buy or sell Treasury bond futures contracts to hedge the impending bond issue? Remember to complete all parts of the question and support your answers with examples from the text and other resources.<strong>BUS 405 Week 5 DQs</strong>Week 5 Discussion Question 2 Option StrategiesComplete Concept Question 12 from Chapter 15: Recall the options strategies of a protective put and covered call discussed in the text. Suppose you have sold short some shares of stock. Discuss analogous option strategies and how you would implement them. (Hint: They’re called protective calls and covered puts.)  Remember to complete all parts of the question and support your answers with examples from the text and other resources.<strong>BUS 405 Week 5 Final Project Construct A Well-diversified Portfolio</strong>The student will construct a well-diversified portfolio using an initial investment stake of $50,000 (the portfolio should use 95% of the fund, but they may not use more than $50,000). The student may include stocks, common or preferred; bonds, corporate or U.S. Treasury bonds; mutual funds; and futures contract or options. The student will use the closing prices from the first day of the class to determine the price of each issue. Only whole lots of any issues may be acquired, that is no less than 100 shares of common or preferred stock; no less than 5 corporate bonds or $10,000 for U.S. Treasury Bonds; no fewer than the minimum required investment for any mutual fund; and no fewer than 5 contracts for any option or futures position. The settlement date will be the first day of Week 3. The student does not have to use all of the above mentioned securities, but they must use more than one class. Transaction costs are ignored in the creation of the portfolio.<strong>BUS 405  Week 1 Chapter 1 - 4 Quiz</strong>Chapter 1: A Brief History of Risk and Return1. The total dollar return on a share of stock is defined as the:2. The dividend yield is defined as the annual dividend expressed as a percentage of the:3. The capital gains yield is equal to:4. When the total return on an investment is expressed on a per-year basis it is called the:5. The risk-free rate is:...100. We have studied three different "average return measures" - the arithmetic average return, the geometric average return and the dollar-weighted average return. Briefly  outline what information each metric provides.Chapter 2: The Investment Process1. Market timing is the:2. Asset allocation is the:3. Jesse is researching chemical companies in an effort to determine which company's stock he should purchase. This process is known as:4. A Roth IRA:5. A brokerage account in which purchases can be made using credit is referred to as which type of account?.....92. Recently, you sold 300 shares of stock for $14.60 a share. The sale was a short sale with an initial margin requirement of 70 percent. The maintenance margin is 35 percent. The stock is currently trading at $16.10 a share. What is your current short position in this stock?Chapter 3: Overview of Security Types1. Which one of the following is the best definition of a money market instrument?2. A fixed-income security is defined as:3. The annual interest payment divided by the current price of a bond is called the:4. A security originally sold by a business or government to raise money is called a(n):5. A financial asset that represents a claim on another financial asset is classified as a _____ asset....94. Briefly compare and contrast options and futures.Chapter 4: Mutual Funds1. An investment company:2. An investment company that will repurchase shares at any time is called a(n) _____ fund.3. An investment company that issues a fixed number of shares which can only be resold in the open stock market is called a(n) _____ fund.4. The value of a load mutual fund's assets less its liabilities, divided by the number of shares5. A fee that is charged at the time mutual fund shares are purchased by an investor is called a:...101. What are the primary differences between an ETF and an ETN?<strong>BUS 405  Week 2 Chapter 5 - 8 Quiz</strong>Chapter 5 The Stock Market1. High Color Detergent is issuing new shares of stock which will trade on NASDAQ. If Sue purchases 300 of these shares, the trade will occur in which one of the following markets?2. Wilson just placed an order with his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets?3. Hi-Tek Shoes is a private firm that has decided to issue shares of stock to the general public. This stock issue will be referred to as a(n):4. A firm that specializes in arranging financing for companies is called a(n):5. The process of purchasing newly issued shares from the issuer and reselling those shares to the general public is called:...106. Describe the primary advantage and disadvantage of a limit sell order.Chapter 6 Common Stock Valuation1. Which one of the following terms is used to identify the evaluation method that determines the value of a stock by reviewing a firm's financial statement in conjunction with other financial and economic information?2. The method of valuing a stock based on the present value of the future income derived from that stock is called:3. The model used to value a stock that pays a dividend which increases at a constant rate forever is referred to as which one of the following? Assume the growth rate is less than the discount rate.4. How is a sustainable dividend growth rate defined?5. The portion of net income that is held by a firm, for future growth, comprises which one of thefollowing balance sheet accounts?...104. The residual income model for valuing a stock suffers from some of the same estimating errors as the dividend growth model. Identify and explain these estimating errors.Chapter 7 Stock Price Behavior and Market Efficiency1. Which one of the following states that investors cannot consistently earn positive excess returns?2. Security A and Security B have similar risks. However, Security A has a higher rate of return than Security B. The return on Security A minus the return on Security B is referred to as which one of the following?3. Which one of the following terms is used to describe a stock price that moves over time creating no4. Which one of the following is a research method used to study the effects news has on stock prices?5. Which one of the following returns is computed as the observed return minus the expected return?...82. A trader was found guilty of violating insider trading laws. As part of his sentencing, he had to forfeit the excessive profits earned on the illegal trades. What does this conviction indicate about the current form of market efficiency?Chapter 8 Behavioral Finance and the Psychology of Investing1. What is the area of finance called that addresses issues such as how reasoning errors affect investment decisions?2. Which one of the following is the basis for prospect theory?3. Which one of the following defines frame dependence?4. Mental accounting is the process of associating a stock with its:5. Loss aversion is defined as:...84. Give some examples of how overconfidence affects investor behavior along with the results that might be expected based on that behavior.<strong>BUS 405 Week 3 Chapter 9 - 10 Quiz</strong>Chapter 9 Interest Rates1. Which one of the following is the interest rate that the largest commercial banks charge their most creditworthy corporate customers for short-term loans?2. Which one of the following terms applies to a rate that serves as an indicator of future trends?3. Which one of the following rates is the rate that banks charge each other for overnight loans of $1 million or more?4. Which one of the following rates is the rate a commercial bank must pay the Federal Reserve to borrow reserves overnight?5. Which one of the following rates is used by brokerage firms as the basis for determining margin loan rates?...81. A Treasury bill matures in 81 days and has a bond equivalent yield of 2.79 What is the effective annual rate?Chapter 10 Bond Prices and Yields1. Which one of the following is the correct definition of a coupon rate?2. What is the annual interest divided by the market price of a bond called?3. The yield to maturity is the:4. A premium bond is defined as a bond that:5. A discount bond:...54. A 6.5 percent coupon bond has a face value of $1,000 and a current yield of 6.61 percent. What is the current market price?<strong>BUS 405 Week 4 Chapter 11 - 13 Quiz</strong>Chapter 11 Diversification and Risky Asset Allocation1. Which one of the following returns is the average return you expect to earn in the future on a risky asset?2. What is the extra compensation paid to an investor who invests in a risky asset rather than in a riskfree asset called?3. A group of stocks and bonds held by an investor is called which one of the following?4. The value of an individual security divided by the portfolio value is referred to as the portfolio:5. Diversification is investing in a variety of assets with which one of the following as the primary goal?...84. Foreign securities are generally considered to be more risky than domestic securities. Given this assumption, explain how adding foreign securities into a domestic portfolio can affect the Markowitz efficient portfolios.Chapter 12 Return, Risk, and The Security Market Line1. Which one of the following is the type of risk that affects a large number of assets?2. Which one of the following is the type of risk that only affects either a single firm or just a small number of firms?3. According to the systematic risk principle, the reward for bearing risk is based on which one of the following types of risk?4. Which one of the following measures systematic risk?5. The security market line depicts the graphical relationship between which two of the following?I. expected returnII. surprise returnIII. systematic riskIV. unsystematic risk...47. Reed Plastics just announced the earnings per share for the quarter just ended were $.45 a share. Analysts were expecting $.51. What is the amount of the surprise portion of the announcement?Chapter 13 Performance Evaluation and Risk Management1. Which one of the following assesses the ability of a money manager to balance high returns with an acceptable level of risk?2. The unadjusted total percentage return on a security that has not been compared to any benchmark is referred to as which one of the following?3. The risk premium of a portfolio divided by the portfolio's standard deviation defines which one of the following performance measures?4. Which one of the following is computed by dividing a portfolio's risk premium by the portfolio beta?5. Which one of the following measures a portfolio's raw return against the expected return based on the Capital Asset Pricing Model?...68. A stock has a return of 16.9 percent, a standard deviation of 11.7 percent, and a beta of 1.57. The riskfree rate is 2.65 percent and the market risk premium is 8.45 percent. What is the Jensen-Treynor alpha of this stock?
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<strong>BUS 405 Week 1 Assignment Annualized Returns Chapter 3 Problem 18</strong>Annualized Returns.Complete problem 18 in Chapter 3 (shown below) and submit to the instructor. Show your work to find the annualized return for each of the listed share prices. Write a 100 word analysis of the process to calculate these annualized returns.Suppose you have $28,000 to invest. You’re considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $40 per share. You also notice that a call option with a $40 strike price and six months to maturity is available. The premium is $4.00. MMEE pays no dividends. What is your annualized return from these two investments if, in six months, MMEE is selling for $48 per share? What about $36 per share?<strong>BUS 405 Week 1 DQs</strong>Week 1 Discussion Question 1 Blume’s Formula, Allocation, and SelectionFrom Chapter 1, answer Concept Question 5: What is Blume’s formula? When would you want to use it in practice? Also, from Chapter 2, answer Concept Question 4: What is the difference between asset allocation and security selection?  Remember to complete all parts of the questions and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.Week 1 Discussion Question 2 - Money Market FundsFrom Chapter 4, complete Problem 4: The Aqua Liquid Assets Money Market Mutual Fund has a NAV of $1 per share. During the year, the assets held by this fund appreciated by 2.5 percent. If you had invested $50,000 in this fund at the start of the year, how many shares would you own at the end of the year? What will the NAV of this fund be at the end of the year? Why?  Remember to complete all parts of the question, show your work, and report the results of your analysis.<strong>BUS 405 Week 2 Assignment Abbott Laboratories Problem</strong>After reading the Value Line figures and information on Abbott Laboratories in the Questions and Problems section of Chapter 6 (just before Problem 27), complete Problems 27, 28, 29, 30, and 31 and submit to your instructor.Show your calculations and in your response to problem 31 write a 100 to 200 word defense of your position as to the value of Abbott Laboratories stock at its current price of $50 per share.What is the sustainable growth rate and required return for Abbott Laboratories? Using these values, calculate the 2010 share price of Abbott Laboratories Industries stock according to the constant dividend growth model.Using the P/E, P/CF, and P/S ratios, estimate the 2010 share price for Abbott Laboratories. Use the average stock price each year to calculate the price ratios.Assume the sustainable growth rate and required return you calculated in Problem 27 are valid. Use the clean surplus relationship to calculate the share price for Abbott Laboratories with the residual income model.Use the information from the previous problem and calculate the stock price with the clean surplus dividend. Do you get the same stock price as in the previous problem? Why or why not?Given your answers in the previous questions, do you feel Abbott Laboratories is overvalued or undervalued at its current price of around $50? At what price do you feel the stock should sell?<strong>BUS 405 Week 2 DQs</strong>Week 2 Discussion Question 1 - Primary and Secondary MarketsComplete Concept Question 1 from Chapter 5: If you were to visit your local Chevrolet retailer, there is both a primary and a secondary market in action. Explain. Is the Chevy retailer a dealer or a broker?  Remember to complete all parts of the question and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.Week 2 Discussion Question 2 - Contrarian InvestingComplete Concept Question 9 from Chapter 8: What does it mean to be a contrarian investor? How would a contrarian investor use technical analysis? Post your answers to the discussion board.  Remember to complete all parts of the question and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.<strong>BUS 405 Week 3 Assignment Bootstrapping Chapter 10 Problem 31</strong>Complete problem 31 of Chapter 10 (shown below), and submit to your instructor. Show your calculations and the algebraic manipulation of the price equation for the bond. In addition to solving the problem, write a 100 to 200 word essay on the term structure of fixed income securities<strong>BUS 405 Week 3 DQs</strong>Week 3 Discussion Question 1 - Forward Interest RatesComplete Problem 16 from the Questions and Problems section of Chapter 9: According to the pure expectations theory of interest rates, how much do you expect to pay for a one-year STRIPS on February 15, 2011? What is the corresponding implied forward rate? How does your answer compare to the current yield on a one-year STRIPS? What does this tell you about the relationship between implied forward rates, the shape of the zero coupon yield curve, and market expectations about future spot interest rates? Remember to complete all parts of the questions, and report the results of your analysis. Respond to at least two of your classmates’ postings outside of your own thread.Week 3 Discussion Question 2 - Bond Prices versus YieldsComplete Concept Question 9 of Chapter 10: (a) What is the relationship between the price of a bond and its YTM?  (b) Explain why some bonds sell at a premium to par value, and other bonds sell at a discount.  What do you know about the relationship between the coupon rate and the YTM for premium bonds?  What about discount bonds?  For bonds selling at par value?  (c) What is the relationship between the current yield and YTM for premium bonds?  For discount bonds?  For bonds selling at par value?  Remember to complete all parts of the questions, and report the results of your analysis.  Respond to at least two of your classmates’ postings outside of your own thread.<strong>BUS 405 Week 4 Assignment Performance Metrics</strong>Complete Problem 22 in the Questions and Problems section of Chapter 13 (shown below). When you pick the best choice for your portfolio, defend your decision in a 100 - 200 word essay. You have been given the following return information for two mutual funds (Papa and Mama), the market index, and the risk-free rate. Calculate the Sharpe ratio, Treynor ratio, Jensen’s alpha, information ratio, and R-squared for both funds and determine which is the best choice for your portfolio.<strong>BUS 405 Week 4 DQs</strong>Week 4 Discussion Question 1 Expected Returns and DeviationComplete Problems 1, 2, and 3 from the Questions and Problems section of Chapter 11 (shown below). Remember to complete all parts of the questions, and report the results of your analysis.  Respond to at least two of your classmates’ postings outside of your own thread.Week 4 Discussion Question 2 Portfolio WeightsComplete Problem 10 from the Questions and Problems section of Chapter 12: A stock has a beta of .9 and an expected return of 9 percent. A risk-free asset currently earns 4 percent.Week 5 Discussion Question 1 Hedging with FuturesComplete Concept Question 7 from Chapter 14: The town of South Park is planning a bond issue in six months and Kenny, the town treasurer, is worried that interest rates may rise, thereby reducing the value of the bond issue. Should Kenny buy or sell Treasury bond futures contracts to hedge the impending bond issue? Remember to complete all parts of the question and support your answers with examples from the text and other resources.<strong>BUS 405 Week 5 DQs</strong>Week 5 Discussion Question 2 Option StrategiesComplete Concept Question 12 from Chapter 15: Recall the options strategies of a protective put and covered call discussed in the text. Suppose you have sold short some shares of stock. Discuss analogous option strategies and how you would implement them. (Hint: They’re called protective calls and covered puts.)  Remember to complete all parts of the question and support your answers with examples from the text and other resources.<strong>BUS 405 Week 5 Final Project Construct A Well-diversified Portfolio</strong>The student will construct a well-diversified portfolio using an initial investment stake of $50,000 (the portfolio should use 95% of the fund, but they may not use more than $50,000). The student may include stocks, common or preferred; bonds, corporate or U.S. Treasury bonds; mutual funds; and futures contract or options. The student will use the closing prices from the first day of the class to determine the price of each issue. Only whole lots of any issues may be acquired, that is no less than 100 shares of common or preferred stock; no less than 5 corporate bonds or $10,000 for U.S. Treasury Bonds; no fewer than the minimum required investment for any mutual fund; and no fewer than 5 contracts for any option or futures position. The settlement date will be the first day of Week 3. The student does not have to use all of the above mentioned securities, but they must use more than one class. Transaction costs are ignored in the creation of the portfolio.<strong>BUS 405  Week 1 Chapter 1 - 4 Quiz</strong>Chapter 1: A Brief History of Risk and Return1. The total dollar return on a share of stock is defined as the:2. The dividend yield is defined as the annual dividend expressed as a percentage of the:3. The capital gains yield is equal to:4. When the total return on an investment is expressed on a per-year basis it is called the:5. The risk-free rate is:...100. We have studied three different "average return measures" - the arithmetic average return, the geometric average return and the dollar-weighted average return. Briefly  outline what information each metric provides.Chapter 2: The Investment Process1. Market timing is the:2. Asset allocation is the:3. Jesse is researching chemical companies in an effort to determine which company's stock he should purchase. This process is known as:4. A Roth IRA:5. A brokerage account in which purchases can be made using credit is referred to as which type of account?.....92. Recently, you sold 300 shares of stock for $14.60 a share. The sale was a short sale with an initial margin requirement of 70 percent. The maintenance margin is 35 percent. The stock is currently trading at $16.10 a share. What is your current short position in this stock?Chapter 3: Overview of Security Types1. Which one of the following is the best definition of a money market instrument?2. A fixed-income security is defined as:3. The annual interest payment divided by the current price of a bond is called the:4. A security originally sold by a business or government to raise money is called a(n):5. A financial asset that represents a claim on another financial asset is classified as a _____ asset....94. Briefly compare and contrast options and futures.Chapter 4: Mutual Funds1. An investment company:2. An investment company that will repurchase shares at any time is called a(n) _____ fund.3. An investment company that issues a fixed number of shares which can only be resold in the open stock market is called a(n) _____ fund.4. The value of a load mutual fund's assets less its liabilities, divided by the number of shares5. A fee that is charged at the time mutual fund shares are purchased by an investor is called a:...101. What are the primary differences between an ETF and an ETN?<strong>BUS 405  Week 2 Chapter 5 - 8 Quiz</strong>Chapter 5 The Stock Market1. High Color Detergent is issuing new shares of stock which will trade on NASDAQ. If Sue purchases 300 of these shares, the trade will occur in which one of the following markets?2. Wilson just placed an order with his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets?3. Hi-Tek Shoes is a private firm that has decided to issue shares of stock to the general public. This stock issue will be referred to as a(n):4. A firm that specializes in arranging financing for companies is called a(n):5. The process of purchasing newly issued shares from the issuer and reselling those shares to the general public is called:...106. Describe the primary advantage and disadvantage of a limit sell order.Chapter 6 Common Stock Valuation1. Which one of the following terms is used to identify the evaluation method that determines the value of a stock by reviewing a firm's financial statement in conjunction with other financial and economic information?2. The method of valuing a stock based on the present value of the future income derived from that stock is called:3. The model used to value a stock that pays a dividend which increases at a constant rate forever is referred to as which one of the following? Assume the growth rate is less than the discount rate.4. How is a sustainable dividend growth rate defined?5. The portion of net income that is held by a firm, for future growth, comprises which one of thefollowing balance sheet accounts?...104. The residual income model for valuing a stock suffers from some of the same estimating errors as the dividend growth model. Identify and explain these estimating errors.Chapter 7 Stock Price Behavior and Market Efficiency1. Which one of the following states that investors cannot consistently earn positive excess returns?2. Security A and Security B have similar risks. However, Security A has a higher rate of return than Security B. The return on Security A minus the return on Security B is referred to as which one of the following?3. Which one of the following terms is used to describe a stock price that moves over time creating no4. Which one of the following is a research method used to study the effects news has on stock prices?5. Which one of the following returns is computed as the observed return minus the expected return?...82. A trader was found guilty of violating insider trading laws. As part of his sentencing, he had to forfeit the excessive profits earned on the illegal trades. What does this conviction indicate about the current form of market efficiency?Chapter 8 Behavioral Finance and the Psychology of Investing1. What is the area of finance called that addresses issues such as how reasoning errors affect investment decisions?2. Which one of the following is the basis for prospect theory?3. Which one of the following defines frame dependence?4. Mental accounting is the process of associating a stock with its:5. Loss aversion is defined as:...84. Give some examples of how overconfidence affects investor behavior along with the results that might be expected based on that behavior.<strong>BUS 405 Week 3 Chapter 9 - 10 Quiz</strong>Chapter 9 Interest Rates1. Which one of the following is the interest rate that the largest commercial banks charge their most creditworthy corporate customers for short-term loans?2. Which one of the following terms applies to a rate that serves as an indicator of future trends?3. Which one of the following rates is the rate that banks charge each other for overnight loans of $1 million or more?4. Which one of the following rates is the rate a commercial bank must pay the Federal Reserve to borrow reserves overnight?5. Which one of the following rates is used by brokerage firms as the basis for determining margin loan rates?...81. A Treasury bill matures in 81 days and has a bond equivalent yield of 2.79 What is the effective annual rate?Chapter 10 Bond Prices and Yields1. Which one of the following is the correct definition of a coupon rate?2. What is the annual interest divided by the market price of a bond called?3. The yield to maturity is the:4. A premium bond is defined as a bond that:5. A discount bond:...54. A 6.5 percent coupon bond has a face value of $1,000 and a current yield of 6.61 percent. What is the current market price?<strong>BUS 405 Week 4 Chapter 11 - 13 Quiz</strong>Chapter 11 Diversification and Risky Asset Allocation1. Which one of the following returns is the average return you expect to earn in the future on a risky asset?2. What is the extra compensation paid to an investor who invests in a risky asset rather than in a riskfree asset called?3. A group of stocks and bonds held by an investor is called which one of the following?4. The value of an individual security divided by the portfolio value is referred to as the portfolio:5. Diversification is investing in a variety of assets with which one of the following as the primary goal?...84. Foreign securities are generally considered to be more risky than domestic securities. Given this assumption, explain how adding foreign securities into a domestic portfolio can affect the Markowitz efficient portfolios.Chapter 12 Return, Risk, and The Security Market Line1. Which one of the following is the type of risk that affects a large number of assets?2. Which one of the following is the type of risk that only affects either a single firm or just a small number of firms?3. According to the systematic risk principle, the reward for bearing risk is based on which one of the following types of risk?4. Which one of the following measures systematic risk?5. The security market line depicts the graphical relationship between which two of the following?I. expected returnII. surprise returnIII. systematic riskIV. unsystematic risk...47. Reed Plastics just announced the earnings per share for the quarter just ended were $.45 a share. Analysts were expecting $.51. What is the amount of the surprise portion of the announcement?Chapter 13 Performance Evaluation and Risk Management1. Which one of the following assesses the ability of a money manager to balance high returns with an acceptable level of risk?2. The unadjusted total percentage return on a security that has not been compared to any benchmark is referred to as which one of the following?3. The risk premium of a portfolio divided by the portfolio's standard deviation defines which one of the following performance measures?4. Which one of the following is computed by dividing a portfolio's risk premium by the portfolio beta?5. Which one of the following measures a portfolio's raw return against the expected return based on the Capital Asset Pricing Model?...68. A stock has a return of 16.9 percent, a standard deviation of 11.7 percent, and a beta of 1.57. The riskfree rate is 2.65 percent and the market risk premium is 8.45 percent. What is the Jensen-Treynor alpha of this stock?
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<strong>BUS 405 Week 1 Assignment Annualized Returns Chapter 3 Problem 18</strong>Annualized Returns.Complete problem 18 in Chapter 3 (shown below) and submit to the instructor. Show your work to find the annualized return for each of the listed share prices. Write a 100 word analysis of the process to calculate these annualized returns.Suppose you have $28,000 to invest. You’re considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $40 per share. You also notice that a call option with a $40 strike price and six months to maturity is available. The premium is $4.00. MMEE pays no dividends. What is your annualized return from these two investments if, in six months, MMEE is selling for $48 per share? What about $36 per share?<strong>BUS 405 Week 1 DQs</strong>Week 1 Discussion Question 1 Blume’s Formula, Allocation, and SelectionFrom Chapter 1, answer Concept Question 5: What is Blume’s formula? When would you want to use it in practice? Also, from Chapter 2, answer Concept Question 4: What is the difference between asset allocation and security selection?  Remember to complete all parts of the questions and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.Week 1 Discussion Question 2 - Money Market FundsFrom Chapter 4, complete Problem 4: The Aqua Liquid Assets Money Market Mutual Fund has a NAV of $1 per share. During the year, the assets held by this fund appreciated by 2.5 percent. If you had invested $50,000 in this fund at the start of the year, how many shares would you own at the end of the year? What will the NAV of this fund be at the end of the year? Why?  Remember to complete all parts of the question, show your work, and report the results of your analysis.<strong>BUS 405 Week 2 Assignment Abbott Laboratories Problem</strong>After reading the Value Line figures and information on Abbott Laboratories in the Questions and Problems section of Chapter 6 (just before Problem 27), complete Problems 27, 28, 29, 30, and 31 and submit to your instructor.Show your calculations and in your response to problem 31 write a 100 to 200 word defense of your position as to the value of Abbott Laboratories stock at its current price of $50 per share.What is the sustainable growth rate and required return for Abbott Laboratories? Using these values, calculate the 2010 share price of Abbott Laboratories Industries stock according to the constant dividend growth model.Using the P/E, P/CF, and P/S ratios, estimate the 2010 share price for Abbott Laboratories. Use the average stock price each year to calculate the price ratios.Assume the sustainable growth rate and required return you calculated in Problem 27 are valid. Use the clean surplus relationship to calculate the share price for Abbott Laboratories with the residual income model.Use the information from the previous problem and calculate the stock price with the clean surplus dividend. Do you get the same stock price as in the previous problem? Why or why not?Given your answers in the previous questions, do you feel Abbott Laboratories is overvalued or undervalued at its current price of around $50? At what price do you feel the stock should sell?<strong>BUS 405 Week 2 DQs</strong>Week 2 Discussion Question 1 - Primary and Secondary MarketsComplete Concept Question 1 from Chapter 5: If you were to visit your local Chevrolet retailer, there is both a primary and a secondary market in action. Explain. Is the Chevy retailer a dealer or a broker?  Remember to complete all parts of the question and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.Week 2 Discussion Question 2 - Contrarian InvestingComplete Concept Question 9 from Chapter 8: What does it mean to be a contrarian investor? How would a contrarian investor use technical analysis? Post your answers to the discussion board.  Remember to complete all parts of the question and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.<strong>BUS 405 Week 3 Assignment Bootstrapping Chapter 10 Problem 31</strong>Complete problem 31 of Chapter 10 (shown below), and submit to your instructor. Show your calculations and the algebraic manipulation of the price equation for the bond. In addition to solving the problem, write a 100 to 200 word essay on the term structure of fixed income securities<strong>BUS 405 Week 3 DQs</strong>Week 3 Discussion Question 1 - Forward Interest RatesComplete Problem 16 from the Questions and Problems section of Chapter 9: According to the pure expectations theory of interest rates, how much do you expect to pay for a one-year STRIPS on February 15, 2011? What is the corresponding implied forward rate? How does your answer compare to the current yield on a one-year STRIPS? What does this tell you about the relationship between implied forward rates, the shape of the zero coupon yield curve, and market expectations about future spot interest rates? Remember to complete all parts of the questions, and report the results of your analysis. Respond to at least two of your classmates’ postings outside of your own thread.Week 3 Discussion Question 2 - Bond Prices versus YieldsComplete Concept Question 9 of Chapter 10: (a) What is the relationship between the price of a bond and its YTM?  (b) Explain why some bonds sell at a premium to par value, and other bonds sell at a discount.  What do you know about the relationship between the coupon rate and the YTM for premium bonds?  What about discount bonds?  For bonds selling at par value?  (c) What is the relationship between the current yield and YTM for premium bonds?  For discount bonds?  For bonds selling at par value?  Remember to complete all parts of the questions, and report the results of your analysis.  Respond to at least two of your classmates’ postings outside of your own thread.<strong>BUS 405 Week 4 Assignment Performance Metrics</strong>Complete Problem 22 in the Questions and Problems section of Chapter 13 (shown below). When you pick the best choice for your portfolio, defend your decision in a 100 - 200 word essay. You have been given the following return information for two mutual funds (Papa and Mama), the market index, and the risk-free rate. Calculate the Sharpe ratio, Treynor ratio, Jensen’s alpha, information ratio, and R-squared for both funds and determine which is the best choice for your portfolio.<strong>BUS 405 Week 4 DQs</strong>Week 4 Discussion Question 1 Expected Returns and DeviationComplete Problems 1, 2, and 3 from the Questions and Problems section of Chapter 11 (shown below). Remember to complete all parts of the questions, and report the results of your analysis.  Respond to at least two of your classmates’ postings outside of your own thread.Week 4 Discussion Question 2 Portfolio WeightsComplete Problem 10 from the Questions and Problems section of Chapter 12: A stock has a beta of .9 and an expected return of 9 percent. A risk-free asset currently earns 4 percent.Week 5 Discussion Question 1 Hedging with FuturesComplete Concept Question 7 from Chapter 14: The town of South Park is planning a bond issue in six months and Kenny, the town treasurer, is worried that interest rates may rise, thereby reducing the value of the bond issue. Should Kenny buy or sell Treasury bond futures contracts to hedge the impending bond issue? Remember to complete all parts of the question and support your answers with examples from the text and other resources.<strong>BUS 405 Week 5 DQs</strong>Week 5 Discussion Question 2 Option StrategiesComplete Concept Question 12 from Chapter 15: Recall the options strategies of a protective put and covered call discussed in the text. Suppose you have sold short some shares of stock. Discuss analogous option strategies and how you would implement them. (Hint: They’re called protective calls and covered puts.)  Remember to complete all parts of the question and support your answers with examples from the text and other resources.<strong>BUS 405 Week 5 Final Project Construct A Well-diversified Portfolio</strong>The student will construct a well-diversified portfolio using an initial investment stake of $50,000 (the portfolio should use 95% of the fund, but they may not use more than $50,000). The student may include stocks, common or preferred; bonds, corporate or U.S. Treasury bonds; mutual funds; and futures contract or options. The student will use the closing prices from the first day of the class to determine the price of each issue. Only whole lots of any issues may be acquired, that is no less than 100 shares of common or preferred stock; no less than 5 corporate bonds or $10,000 for U.S. Treasury Bonds; no fewer than the minimum required investment for any mutual fund; and no fewer than 5 contracts for any option or futures position. The settlement date will be the first day of Week 3. The student does not have to use all of the above mentioned securities, but they must use more than one class. Transaction costs are ignored in the creation of the portfolio.<strong>BUS 405  Week 1 Chapter 1 - 4 Quiz</strong>Chapter 1: A Brief History of Risk and Return1. The total dollar return on a share of stock is defined as the:2. The dividend yield is defined as the annual dividend expressed as a percentage of the:3. The capital gains yield is equal to:4. When the total return on an investment is expressed on a per-year basis it is called the:5. The risk-free rate is:...100. We have studied three different "average return measures" - the arithmetic average return, the geometric average return and the dollar-weighted average return. Briefly  outline what information each metric provides.Chapter 2: The Investment Process1. Market timing is the:2. Asset allocation is the:3. Jesse is researching chemical companies in an effort to determine which company's stock he should purchase. This process is known as:4. A Roth IRA:5. A brokerage account in which purchases can be made using credit is referred to as which type of account?.....92. Recently, you sold 300 shares of stock for $14.60 a share. The sale was a short sale with an initial margin requirement of 70 percent. The maintenance margin is 35 percent. The stock is currently trading at $16.10 a share. What is your current short position in this stock?Chapter 3: Overview of Security Types1. Which one of the following is the best definition of a money market instrument?2. A fixed-income security is defined as:3. The annual interest payment divided by the current price of a bond is called the:4. A security originally sold by a business or government to raise money is called a(n):5. A financial asset that represents a claim on another financial asset is classified as a _____ asset....94. Briefly compare and contrast options and futures.Chapter 4: Mutual Funds1. An investment company:2. An investment company that will repurchase shares at any time is called a(n) _____ fund.3. An investment company that issues a fixed number of shares which can only be resold in the open stock market is called a(n) _____ fund.4. The value of a load mutual fund's assets less its liabilities, divided by the number of shares5. A fee that is charged at the time mutual fund shares are purchased by an investor is called a:...101. What are the primary differences between an ETF and an ETN?<strong>BUS 405  Week 2 Chapter 5 - 8 Quiz</strong>Chapter 5 The Stock Market1. High Color Detergent is issuing new shares of stock which will trade on NASDAQ. If Sue purchases 300 of these shares, the trade will occur in which one of the following markets?2. Wilson just placed an order with his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets?3. Hi-Tek Shoes is a private firm that has decided to issue shares of stock to the general public. This stock issue will be referred to as a(n):4. A firm that specializes in arranging financing for companies is called a(n):5. The process of purchasing newly issued shares from the issuer and reselling those shares to the general public is called:...106. Describe the primary advantage and disadvantage of a limit sell order.Chapter 6 Common Stock Valuation1. Which one of the following terms is used to identify the evaluation method that determines the value of a stock by reviewing a firm's financial statement in conjunction with other financial and economic information?2. The method of valuing a stock based on the present value of the future income derived from that stock is called:3. The model used to value a stock that pays a dividend which increases at a constant rate forever is referred to as which one of the following? Assume the growth rate is less than the discount rate.4. How is a sustainable dividend growth rate defined?5. The portion of net income that is held by a firm, for future growth, comprises which one of thefollowing balance sheet accounts?...104. The residual income model for valuing a stock suffers from some of the same estimating errors as the dividend growth model. Identify and explain these estimating errors.Chapter 7 Stock Price Behavior and Market Efficiency1. Which one of the following states that investors cannot consistently earn positive excess returns?2. Security A and Security B have similar risks. However, Security A has a higher rate of return than Security B. The return on Security A minus the return on Security B is referred to as which one of the following?3. Which one of the following terms is used to describe a stock price that moves over time creating no4. Which one of the following is a research method used to study the effects news has on stock prices?5. Which one of the following returns is computed as the observed return minus the expected return?...82. A trader was found guilty of violating insider trading laws. As part of his sentencing, he had to forfeit the excessive profits earned on the illegal trades. What does this conviction indicate about the current form of market efficiency?Chapter 8 Behavioral Finance and the Psychology of Investing1. What is the area of finance called that addresses issues such as how reasoning errors affect investment decisions?2. Which one of the following is the basis for prospect theory?3. Which one of the following defines frame dependence?4. Mental accounting is the process of associating a stock with its:5. Loss aversion is defined as:...84. Give some examples of how overconfidence affects investor behavior along with the results that might be expected based on that behavior.<strong>BUS 405 Week 3 Chapter 9 - 10 Quiz</strong>Chapter 9 Interest Rates1. Which one of the following is the interest rate that the largest commercial banks charge their most creditworthy corporate customers for short-term loans?2. Which one of the following terms applies to a rate that serves as an indicator of future trends?3. Which one of the following rates is the rate that banks charge each other for overnight loans of $1 million or more?4. Which one of the following rates is the rate a commercial bank must pay the Federal Reserve to borrow reserves overnight?5. Which one of the following rates is used by brokerage firms as the basis for determining margin loan rates?...81. A Treasury bill matures in 81 days and has a bond equivalent yield of 2.79 What is the effective annual rate?Chapter 10 Bond Prices and Yields1. Which one of the following is the correct definition of a coupon rate?2. What is the annual interest divided by the market price of a bond called?3. The yield to maturity is the:4. A premium bond is defined as a bond that:5. A discount bond:...54. A 6.5 percent coupon bond has a face value of $1,000 and a current yield of 6.61 percent. What is the current market price?<strong>BUS 405 Week 4 Chapter 11 - 13 Quiz</strong>Chapter 11 Diversification and Risky Asset Allocation1. Which one of the following returns is the average return you expect to earn in the future on a risky asset?2. What is the extra compensation paid to an investor who invests in a risky asset rather than in a riskfree asset called?3. A group of stocks and bonds held by an investor is called which one of the following?4. The value of an individual security divided by the portfolio value is referred to as the portfolio:5. Diversification is investing in a variety of assets with which one of the following as the primary goal?...84. Foreign securities are generally considered to be more risky than domestic securities. Given this assumption, explain how adding foreign securities into a domestic portfolio can affect the Markowitz efficient portfolios.Chapter 12 Return, Risk, and The Security Market Line1. Which one of the following is the type of risk that affects a large number of assets?2. Which one of the following is the type of risk that only affects either a single firm or just a small number of firms?3. According to the systematic risk principle, the reward for bearing risk is based on which one of the following types of risk?4. Which one of the following measures systematic risk?5. The security market line depicts the graphical relationship between which two of the following?I. expected returnII. surprise returnIII. systematic riskIV. unsystematic risk...47. Reed Plastics just announced the earnings per share for the quarter just ended were $.45 a share. Analysts were expecting $.51. What is the amount of the surprise portion of the announcement?Chapter 13 Performance Evaluation and Risk Management1. Which one of the following assesses the ability of a money manager to balance high returns with an acceptable level of risk?2. The unadjusted total percentage return on a security that has not been compared to any benchmark is referred to as which one of the following?3. The risk premium of a portfolio divided by the portfolio's standard deviation defines which one of the following performance measures?4. Which one of the following is computed by dividing a portfolio's risk premium by the portfolio beta?5. Which one of the following measures a portfolio's raw return against the expected return based on the Capital Asset Pricing Model?...68. A stock has a return of 16.9 percent, a standard deviation of 11.7 percent, and a beta of 1.57. The riskfree rate is 2.65 percent and the market risk premium is 8.45 percent. What is the Jensen-Treynor alpha of this stock?
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<strong>BUS 405 Week 1 Assignment Annualized Returns Chapter 3 Problem 18</strong>Annualized Returns.Complete problem 18 in Chapter 3 (shown below) and submit to the instructor. Show your work to find the annualized return for each of the listed share prices. Write a 100 word analysis of the process to calculate these annualized returns.Suppose you have $28,000 to invest. You’re considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $40 per share. You also notice that a call option with a $40 strike price and six months to maturity is available. The premium is $4.00. MMEE pays no dividends. What is your annualized return from these two investments if, in six months, MMEE is selling for $48 per share? What about $36 per share?<strong>BUS 405 Week 1 DQs</strong>Week 1 Discussion Question 1 Blume’s Formula, Allocation, and SelectionFrom Chapter 1, answer Concept Question 5: What is Blume’s formula? When would you want to use it in practice? Also, from Chapter 2, answer Concept Question 4: What is the difference between asset allocation and security selection?  Remember to complete all parts of the questions and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.Week 1 Discussion Question 2 - Money Market FundsFrom Chapter 4, complete Problem 4: The Aqua Liquid Assets Money Market Mutual Fund has a NAV of $1 per share. During the year, the assets held by this fund appreciated by 2.5 percent. If you had invested $50,000 in this fund at the start of the year, how many shares would you own at the end of the year? What will the NAV of this fund be at the end of the year? Why?  Remember to complete all parts of the question, show your work, and report the results of your analysis.<strong>BUS 405 Week 2 Assignment Abbott Laboratories Problem</strong>After reading the Value Line figures and information on Abbott Laboratories in the Questions and Problems section of Chapter 6 (just before Problem 27), complete Problems 27, 28, 29, 30, and 31 and submit to your instructor.Show your calculations and in your response to problem 31 write a 100 to 200 word defense of your position as to the value of Abbott Laboratories stock at its current price of $50 per share.What is the sustainable growth rate and required return for Abbott Laboratories? Using these values, calculate the 2010 share price of Abbott Laboratories Industries stock according to the constant dividend growth model.Using the P/E, P/CF, and P/S ratios, estimate the 2010 share price for Abbott Laboratories. Use the average stock price each year to calculate the price ratios.Assume the sustainable growth rate and required return you calculated in Problem 27 are valid. Use the clean surplus relationship to calculate the share price for Abbott Laboratories with the residual income model.Use the information from the previous problem and calculate the stock price with the clean surplus dividend. Do you get the same stock price as in the previous problem? Why or why not?Given your answers in the previous questions, do you feel Abbott Laboratories is overvalued or undervalued at its current price of around $50? At what price do you feel the stock should sell?<strong>BUS 405 Week 2 DQs</strong>Week 2 Discussion Question 1 - Primary and Secondary MarketsComplete Concept Question 1 from Chapter 5: If you were to visit your local Chevrolet retailer, there is both a primary and a secondary market in action. Explain. Is the Chevy retailer a dealer or a broker?  Remember to complete all parts of the question and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.Week 2 Discussion Question 2 - Contrarian InvestingComplete Concept Question 9 from Chapter 8: What does it mean to be a contrarian investor? How would a contrarian investor use technical analysis? Post your answers to the discussion board.  Remember to complete all parts of the question and support your answers with examples from the text and other resources.  Respond to at least two of your classmates’ postings outside of your own thread.<strong>BUS 405 Week 3 Assignment Bootstrapping Chapter 10 Problem 31</strong>Complete problem 31 of Chapter 10 (shown below), and submit to your instructor. Show your calculations and the algebraic manipulation of the price equation for the bond. In addition to solving the problem, write a 100 to 200 word essay on the term structure of fixed income securities<strong>BUS 405 Week 3 DQs</strong>Week 3 Discussion Question 1 - Forward Interest RatesComplete Problem 16 from the Questions and Problems section of Chapter 9: According to the pure expectations theory of interest rates, how much do you expect to pay for a one-year STRIPS on February 15, 2011? What is the corresponding implied forward rate? How does your answer compare to the current yield on a one-year STRIPS? What does this tell you about the relationship between implied forward rates, the shape of the zero coupon yield curve, and market expectations about future spot interest rates? Remember to complete all parts of the questions, and report the results of your analysis. Respond to at least two of your classmates’ postings outside of your own thread.Week 3 Discussion Question 2 - Bond Prices versus YieldsComplete Concept Question 9 of Chapter 10: (a) What is the relationship between the price of a bond and its YTM?  (b) Explain why some bonds sell at a premium to par value, and other bonds sell at a discount.  What do you know about the relationship between the coupon rate and the YTM for premium bonds?  What about discount bonds?  For bonds selling at par value?  (c) What is the relationship between the current yield and YTM for premium bonds?  For discount bonds?  For bonds selling at par value?  Remember to complete all parts of the questions, and report the results of your analysis.  Respond to at least two of your classmates’ postings outside of your own thread.<strong>BUS 405 Week 4 Assignment Performance Metrics</strong>Complete Problem 22 in the Questions and Problems section of Chapter 13 (shown below). When you pick the best choice for your portfolio, defend your decision in a 100 - 200 word essay. You have been given the following return information for two mutual funds (Papa and Mama), the market index, and the risk-free rate. Calculate the Sharpe ratio, Treynor ratio, Jensen’s alpha, information ratio, and R-squared for both funds and determine which is the best choice for your portfolio.<strong>BUS 405 Week 4 DQs</strong>Week 4 Discussion Question 1 Expected Returns and DeviationComplete Problems 1, 2, and 3 from the Questions and Problems section of Chapter 11 (shown below). Remember to complete all parts of the questions, and report the results of your analysis.  Respond to at least two of your classmates’ postings outside of your own thread.Week 4 Discussion Question 2 Portfolio WeightsComplete Problem 10 from the Questions and Problems section of Chapter 12: A stock has a beta of .9 and an expected return of 9 percent. A risk-free asset currently earns 4 percent.Week 5 Discussion Question 1 Hedging with FuturesComplete Concept Question 7 from Chapter 14: The town of South Park is planning a bond issue in six months and Kenny, the town treasurer, is worried that interest rates may rise, thereby reducing the value of the bond issue. Should Kenny buy or sell Treasury bond futures contracts to hedge the impending bond issue? Remember to complete all parts of the question and support your answers with examples from the text and other resources.<strong>BUS 405 Week 5 DQs</strong>Week 5 Discussion Question 2 Option StrategiesComplete Concept Question 12 from Chapter 15: Recall the options strategies of a protective put and covered call discussed in the text. Suppose you have sold short some shares of stock. Discuss analogous option strategies and how you would implement them. (Hint: They’re called protective calls and covered puts.)  Remember to complete all parts of the question and support your answers with examples from the text and other resources.<strong>BUS 405 Week 5 Final Project Construct A Well-diversified Portfolio</strong>The student will construct a well-diversified portfolio using an initial investment stake of $50,000 (the portfolio should use 95% of the fund, but they may not use more than $50,000). The student may include stocks, common or preferred; bonds, corporate or U.S. Treasury bonds; mutual funds; and futures contract or options. The student will use the closing prices from the first day of the class to determine the price of each issue. Only whole lots of any issues may be acquired, that is no less than 100 shares of common or preferred stock; no less than 5 corporate bonds or $10,000 for U.S. Treasury Bonds; no fewer than the minimum required investment for any mutual fund; and no fewer than 5 contracts for any option or futures position. The settlement date will be the first day of Week 3. The student does not have to use all of the above mentioned securities, but they must use more than one class. Transaction costs are ignored in the creation of the portfolio.<strong>BUS 405  Week 1 Chapter 1 - 4 Quiz</strong>Chapter 1: A Brief History of Risk and Return1. The total dollar return on a share of stock is defined as the:2. The dividend yield is defined as the annual dividend expressed as a percentage of the:3. The capital gains yield is equal to:4. When the total return on an investment is expressed on a per-year basis it is called the:5. The risk-free rate is:...100. We have studied three different "average return measures" - the arithmetic average return, the geometric average return and the dollar-weighted average return. Briefly  outline what information each metric provides.Chapter 2: The Investment Process1. Market timing is the:2. Asset allocation is the:3. Jesse is researching chemical companies in an effort to determine which company's stock he should purchase. This process is known as:4. A Roth IRA:5. A brokerage account in which purchases can be made using credit is referred to as which type of account?.....92. Recently, you sold 300 shares of stock for $14.60 a share. The sale was a short sale with an initial margin requirement of 70 percent. The maintenance margin is 35 percent. The stock is currently trading at $16.10 a share. What is your current short position in this stock?Chapter 3: Overview of Security Types1. Which one of the following is the best definition of a money market instrument?2. A fixed-income security is defined as:3. The annual interest payment divided by the current price of a bond is called the:4. A security originally sold by a business or government to raise money is called a(n):5. A financial asset that represents a claim on another financial asset is classified as a _____ asset....94. Briefly compare and contrast options and futures.Chapter 4: Mutual Funds1. An investment company:2. An investment company that will repurchase shares at any time is called a(n) _____ fund.3. An investment company that issues a fixed number of shares which can only be resold in the open stock market is called a(n) _____ fund.4. The value of a load mutual fund's assets less its liabilities, divided by the number of shares5. A fee that is charged at the time mutual fund shares are purchased by an investor is called a:...101. What are the primary differences between an ETF and an ETN?<strong>BUS 405  Week 2 Chapter 5 - 8 Quiz</strong>Chapter 5 The Stock Market1. High Color Detergent is issuing new shares of stock which will trade on NASDAQ. If Sue purchases 300 of these shares, the trade will occur in which one of the following markets?2. Wilson just placed an order with his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets?3. Hi-Tek Shoes is a private firm that has decided to issue shares of stock to the general public. This stock issue will be referred to as a(n):4. A firm that specializes in arranging financing for companies is called a(n):5. The process of purchasing newly issued shares from the issuer and reselling those shares to the general public is called:...106. Describe the primary advantage and disadvantage of a limit sell order.Chapter 6 Common Stock Valuation1. Which one of the following terms is used to identify the evaluation method that determines the value of a stock by reviewing a firm's financial statement in conjunction with other financial and economic information?2. The method of valuing a stock based on the present value of the future income derived from that stock is called:3. The model used to value a stock that pays a dividend which increases at a constant rate forever is referred to as which one of the following? Assume the growth rate is less than the discount rate.4. How is a sustainable dividend growth rate defined?5. The portion of net income that is held by a firm, for future growth, comprises which one of thefollowing balance sheet accounts?...104. The residual income model for valuing a stock suffers from some of the same estimating errors as the dividend growth model. Identify and explain these estimating errors.Chapter 7 Stock Price Behavior and Market Efficiency1. Which one of the following states that investors cannot consistently earn positive excess returns?2. Security A and Security B have similar risks. However, Security A has a higher rate of return than Security B. The return on Security A minus the return on Security B is referred to as which one of the following?3. Which one of the following terms is used to describe a stock price that moves over time creating no4. Which one of the following is a research method used to study the effects news has on stock prices?5. Which one of the following returns is computed as the observed return minus the expected return?...82. A trader was found guilty of violating insider trading laws. As part of his sentencing, he had to forfeit the excessive profits earned on the illegal trades. What does this conviction indicate about the current form of market efficiency?Chapter 8 Behavioral Finance and the Psychology of Investing1. What is the area of finance called that addresses issues such as how reasoning errors affect investment decisions?2. Which one of the following is the basis for prospect theory?3. Which one of the following defines frame dependence?4. Mental accounting is the process of associating a stock with its:5. Loss aversion is defined as:...84. Give some examples of how overconfidence affects investor behavior along with the results that might be expected based on that behavior.<strong>BUS 405 Week 3 Chapter 9 - 10 Quiz</strong>Chapter 9 Interest Rates1. Which one of the following is the interest rate that the largest commercial banks charge their most creditworthy corporate customers for short-term loans?2. Which one of the following terms applies to a rate that serves as an indicator of future trends?3. Which one of the following rates is the rate that banks charge each other for overnight loans of $1 million or more?4. Which one of the following rates is the rate a commercial bank must pay the Federal Reserve to borrow reserves overnight?5. Which one of the following rates is used by brokerage firms as the basis for determining margin loan rates?...81. A Treasury bill matures in 81 days and has a bond equivalent yield of 2.79 What is the effective annual rate?Chapter 10 Bond Prices and Yields1. Which one of the following is the correct definition of a coupon rate?2. What is the annual interest divided by the market price of a bond called?3. The yield to maturity is the:4. A premium bond is defined as a bond that:5. A discount bond:...54. A 6.5 percent coupon bond has a face value of $1,000 and a current yield of 6.61 percent. What is the current market price?<strong>BUS 405 Week 4 Chapter 11 - 13 Quiz</strong>Chapter 11 Diversification and Risky Asset Allocation1. Which one of the following returns is the average return you expect to earn in the future on a risky asset?2. What is the extra compensation paid to an investor who invests in a risky asset rather than in a riskfree asset called?3. A group of stocks and bonds held by an investor is called which one of the following?4. The value of an individual security divided by the portfolio value is referred to as the portfolio:5. Diversification is investing in a variety of assets with which one of the following as the primary goal?...84. Foreign securities are generally considered to be more risky than domestic securities. Given this assumption, explain how adding foreign securities into a domestic portfolio can affect the Markowitz efficient portfolios.Chapter 12 Return, Risk, and The Security Market Line1. Which one of the following is the type of risk that affects a large number of assets?2. Which one of the following is the type of risk that only affects either a single firm or just a small number of firms?3. According to the systematic risk principle, the reward for bearing risk is based on which one of the following types of risk?4. Which one of the following measures systematic risk?5. The security market line depicts the graphical relationship between which two of the following?I. expected returnII. surprise returnIII. systematic riskIV. unsystematic risk...47. Reed Plastics just announced the earnings per share for the quarter just ended were $.45 a share. Analysts were expecting $.51. What is the amount of the surprise portion of the announcement?Chapter 13 Performance Evaluation and Risk Management1. Which one of the following assesses the ability of a money manager to balance high returns with an acceptable level of risk?2. The unadjusted total percentage return on a security that has not been compared to any benchmark is referred to as which one of the following?3. The risk premium of a portfolio divided by the portfolio's standard deviation defines which one of the following performance measures?4. Which one of the following is computed by dividing a portfolio's risk premium by the portfolio beta?5. Which one of the following measures a portfolio's raw return against the expected return based on the Capital Asset Pricing Model?...68. A stock has a return of 16.9 percent, a standard deviation of 11.7 percent, and a beta of 1.57. The riskfree rate is 2.65 percent and the market risk premium is 8.45 percent. What is the Jensen-Treynor alpha of this stock?
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