Investments Workbook E-Book

Michael G. Mcmillian

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: The CFA Institute Series
• Sprache: Englisch

Seitenzahl: 197

Veröffentlichungsjahr: 2011

Beschreibung

Companion workbook to the CFA Institute's Investments: Principles of Portfolio and Equity Analysis Workbook In a world of specialization, no other profession likely requires such broad, yet in-depth knowledge than that of financial analyst. Investments: Principles of Portfolio and Equity Analysis provides the broad-based knowledge professionals and students of the markets need to manage money and maximize return. This companion Workbook, also edited by experts from the CFA Institute, allows busy professionals to gain a stronger understanding of core investment topics. The Workbook * Includes learning outcomes, summaries, and problems and solutions sections for each chapter in the main book * Blends theory and practice * Provides access to the highest quality information on investment analysis and portfolio management With Investments: Analysis and Portfolio Management Workbook, busy professionals can reinforce what they've learned in reading Investments, while doing so at their own pace.

Leseprobe

Contents

Part I: Learning Outcomes, Summary Overview, and Problems

Chapter 1: Market Organization and Structure

Learning Outcomes

Summary Overview

Problems

Chapter 2: Security Market Indices

Learning Outcomes

Summary Overview

Problems

Chapter 3: Market Efficiency

Learning Outcomes

Summary Overview

Problems

Chapter 4: Portfolio Management: An Overview

Learning Outcomes

Summary Overview

Problems

Chapter 5: Portfolio Risk and Return: Part I

Learning Outcomes

Summary Overview

Problems

Chapter 6: Portfolio Risk and Return: Part II

Learning Outcomes

Summary Overview

Problems

Chapter 7: Basics of Portfolio Planning and Construction

Learning Outcomes

Summary Overview

Problems

Chapter 8: Overview of Equity Securities

Learning Outcomes

Summary Overview

Problems

Chapter 9: Introduction to Industry and Company Analysis

Learning Outcomes

Summary Overview

Problems

Chapter 10: Equity Valuation: Concepts and Basic Tools

Learning Outcomes

Summary Overview

Problems

Chapter 11: Equity Market Valuation

Learning Outcomes

Summary Overview

Problems

Chapter 12: Technical Analysis

Learning Outcomes

Summary Overview

Problems

Part II: Solutions

Chapter 1: Market Organization and Structure

Solutions

Chapter 2: Security Market Indices

Solutions

Chapter 3: Market Efficiency

Solutions

Chapter 4: Portfolio Management: An Overview

Solutions

Chapter 5: Portfolio Risk and Return: Part I

Solutions

Chapter 6: Portfolio Risk and Return: Part II

Solutions

Chapter 7: Basics of Portfolio Planning and Construction

Solutions

Chapter 8: Overview of Equity Securities

Solutions

Chapter 9: Introduction to Industry and Company Analysis

Solutions

Chapter 10: Equity Valuation: Concepts and Basic Tools

Solutions

Chapter 11: Equity Market Valuation

Solutions

Chapter 12: Technical Analysis

Solutions

About the CFA Program

CFA Institute is the premier association for investment professionals around the world, with over 101,000 members in 134 countries. Since 1963 the organization has developed and administered the renowned Chartered Financial Analyst® Program. With a rich history of leading the investment profession, CFA Institute has set the highest standards in ethics, education, and professional excellence within the global investment community, and is the foremost authority on investment profession conduct and practice.

Each book in the CFA Institute Investment Series is geared toward industry practitioners along with graduate-level finance students and covers the most important topics in the industry. The authors of these cutting-edge books are themselves industry professionals and academics and bring their wealth of knowledge and expertise to this series.

Copyright © 2011 by CFA Instiute. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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ISBN 978-0-470-91582-0 (paper); ISBN 978-1-118-00117-2 (ebk);

ISBN 978-1-118-00118-9 (ebk); ISBN 978-1-118-00119-6 (ebk)

PART I

LEARNING OUTCOMES, SUMMARY OVERVIEW, AND PROBLEMS

CHAPTER 1

MARKET ORGANIZATION AND STRUCTURE

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

Explain and illustrate the main functions of the financial system.Describe classifications of assets and markets.Describe the major types of securities, currencies, contracts, commodities, and real assets that trade in organized markets, including their distinguishing characteristics and major subtypes.Describe the types of financial intermediaries and the services that they provide.Compare and contrast the positions an investor can take in an asset.Calculate and interpret the leverage ratio, the rate of return on a margin transaction, and the security price at which the investor would receive a margin call.Compare and contrast execution, validity, and clearing instructions.Compare and contrast market orders with limit orders.Describe the primary and secondary markets and explain how secondary markets support primary markets.Describe how securities, contracts, and currencies are traded in quote-driven markets, order-driven markets, and brokered markets.Describe the characteristics of a well-functioning financial system.Describe the objectives of market regulation.

SUMMARY OVERVIEW

The financial system consists of mechanisms that allow strangers to contract with each other to move money through time, to hedge risks, and to exchange assets that they value less for those that they value more.Investors move money from the present to the future when they save. They expect a normal rate of return for bearing risk through time. Borrowers move money from the future to the present to fund current projects and expenditures. Hedgers trade to reduce their exposure to risks they prefer not to take. Information-motivated traders are active investment managers who try to indentify under- and overvalued instruments.Securities are first sold in primary markets by their issuers. They then trade in secondary markets.People invest in pooled investment vehicles to benefit from the investment management services of their managers.Forward contracts allow buyers and sellers to arrange for future sales at predetermined prices. Futures contracts are forward contracts guaranteed by clearinghouses. The guarantee ensures that strangers are willing to trade with each other and that traders can offset their positions by trading with anybody. These features of futures contract markets make them highly attractive to hedgers and information-motivated traders.Many financial intermediaries connect buyers to sellers in a given instrument, acting directly as brokers and exchanges or indirectly as dealers and arbitrageurs.Financial intermediaries create instruments when they conduct arbitrage, securitize assets, borrow to lend, manage investment funds, or pool insurance contracts. These activities all transform cash flows and risks from one form to another. Their services allow buyers and sellers to connect with each other through instruments that meet their specific needs.Financial markets work best when strangers can contract with each other without worrying about whether their counterparts are able and willing to honor their contract. Clearinghouses, variation margins, maintenance margins, and settlement guarantees made by creditworthy brokers on behalf of their clients help manage credit risk and ultimately allow strangers to contract with each other.Information-motivated traders short sell when they expect that prices will fall. Hedgers short sell to reduce the risks of a long position in a related contract or commodity.Margin loans allow people to buy more securities than their equity would otherwise permit them to buy. The larger positions expose them to more risk so that gains and losses for a given amount of equity will be larger. The leverage ratio is the value of a position divided by the value of the equity supporting it. The returns to the equity in a position are equal to the leverage ratio times the returns to the unleveraged position.To protect against credit losses, brokers demand maintenance margin payments from their customers who have borrowed cash or securities when adverse price changes cause their customer’s equity to drop below the maintenance margin ratio. Brokers close positions for customers who do not satisfy these margin calls.Orders are instructions to trade. They always specify instrument, side (buy or sell), and quantity. They usually also provide several other instructions.Market orders tend to fill quickly but often at inferior prices. Limit orders generally fill at better prices if they fill, but they may not fill. Traders choose order submission strategies on the basis of how quickly they want to trade, the prices they are willing to accept, and the consequences of failing to trade.Stop instructions are attached to other orders to delay efforts to fill them until the stop condition is satisfied. Although stop orders are often used to stop losses, they are not always effective.Issuers sell their securities using underwritten public offerings, best efforts public offerings, private placements, shelf registrations, dividend reinvestment programs, and rights offerings. Investment banks have a conflict of interests when setting the initial offering price in an IPO.Well-functioning secondary markets are essential to raising capital in the primary markets because investors value the ability to sell their securities if they no longer want to hold them or if they need to disinvest to raise cash. If they cannot trade their securities in a liquid market, they will not pay as much for them.Matching buyers and sellers in call markets is easy because the traders (or their orders) come together at the same time and place.Dealers provide liquidity in quote-driven markets. Public traders as well as dealers provide liquidity in order-driven markets.Order-driven markets arrange trades by ranking orders using precedence rules. The rules generally ensure that traders who provide the best prices, display the most size, and arrive early trade first. Continuous order-driven markets price orders using the discriminatory pricing rule. Under this rule, standing limit orders determine trade prices.Brokers help people trade unique instruments or positions for which finding a buyer or a seller is difficult.Transaction costs are lower in transparent markets than in opaque markets because traders can more easily determine market value and more easily manage their trading in transparent markets.A well-functioning financial system allows people to trade instruments that best solve their wealth and risk management problems with low transaction costs. Complete and liquid markets characterize a well-functioning financial system. Complete markets are markets in which the instruments needed to solve investment and risk management problems are available to trade. Liquid markets are markets in which traders can trade when they want to trade at low cost.The financial system is operationally efficient when its markets are liquid. Liquid markets lower the costs of raising capital.A well-functioning financial system promotes wealth by ensuring that capital allocation decisions are well made. A well-functioning financial system also promotes wealth by allowing people to share the risks associated with valuable products that would otherwise not be undertaken.Prices are informationally efficient when they reflect all available information about fundamental values. Information-motivated traders make prices informationally efficient. Prices will be most informative in liquid markets because information-motivated traders will not invest in information and research if establishing positions based on their analyses is too costly.Regulators generally seek to promote fair and orderly markets in which traders can trade at prices that accurately reflect fundamental values without incurring excessive transaction costs. Governmental agencies and self-regulating organizations of practitioners provide regulatory services that attempt to make markets safer and more efficient.Mandated financial disclosure programs for the issuers of publicly traded securities ensure that information necessary to estimate security values is available to financial analysts on a consistent basis.

PROBLEMS

1. Akihiko Takabe has designed a sophisticated forecasting model, which predicts the movements in the overall stock market, in the hope of earning a return in excess of a fair return for the risk involved. He uses the predictions of the model to decide whether to buy, hold, or sell the shares of an index fund that aims to replicate the movements of the stock market. Takabe would best be characterized as a(n):

A. Hedger.

B. Investor.

C. Information-motivated trader.

2. James Beach is young and has substantial wealth. A significant proportion of his stock portfolio consists of emerging market stocks that offer relatively high expected returns at the cost of relatively high risk. Beach believes that investment in emerging market stocks is appropriate for him given his ability and willingness to take risk. Which of the following labels most appropriately describes Beach?

A. Hedger.

B. Investor.

C. Information-motivated trader.

3. Lisa Smith owns a manufacturing company in the United States. Her company has sold goods to a customer in Brazil and will be paid in Brazilian real (BRL) in three months. Smith is concerned about the possibility of the BRL depreciating more than expected against the U.S. dollar (USD). Therefore, she is planning to sell three-month futures contracts on the BRL. The seller of such contracts generally gains when the BRL depreciates against the USD. If Smith were to sell these future contracts, she would most appropriately be described as a(n):

A. Hedger.

B. Investor.

C. Information-motivated trader.

4. Which of the following is not a function of the financial system?

A. To regulate arbitrageurs’ profits (excess returns).

B. To help the economy achieve allocational efficiency.

C. To facilitate borrowing by businesses to fund current operations.

5. An investor primarily invests in stocks of publicly traded companies. The investor wants to increase the diversification of his portfolio. A friend has recommended investing in real estate properties. The purchase of real estate would best be characterized as a transaction in the:

A. Derivative investment market.

B. Traditional investment market.

C. Alternative investment market.

6. A hedge fund holds its excess cash in 90-day commercial paper and negotiable certificates of deposit. The cash management policy of the hedge fund is best described as using:

A. Capital market instruments.

B. Money market instruments.

C. Intermediate-term debt instruments.

7. An oil and gas exploration and production company announces that it is offering 30 million shares to the public at $45.50 each. This transaction is most likely a sale in the:

A. Futures market.

B. Primary market.

C. Secondary market.

8. Consider a mutual fund that invests primarily in fixed-income securities that have been determined to be appropriate given the fund’s investment goal. Which of the following is least likely to be a part of this fund?

A. Warrants.

B. Commercial paper.

C. Repurchase agreements.

9. A friend has asked you to explain the differences between open-end and closed-end funds. Which of the following will you most likely include in your explanation?

A. Closed-end funds are unavailable to new investors.

B. When investors sell the shares of an open-end fund, they can receive a discount or a premium to the fund’s net asset value.

C. When selling shares, investors in an open-end fund sell the shares back to the fund whereas investors in a closed-end fund sell the shares to others in the secondary market.

10. The usefulness of a forward contract is limited by some problems. Which of the following is most likely one of those problems?

A. Once you have entered into a forward contract, it is difficult to exit from the contract.

B. Entering into a forward contract requires the long party to deposit an initial amount with the short party.

C. If the price of the underlying asset moves adversely from the perspective of the long party, periodic payments must be made to the short party.

11. Tony Harris is planning to start trading in commodities. He has heard about the use of futures contracts on commodities and is learning more about them. Which of the following is Harris least likely to find associated with a futures contract?

A. Existence of counterparty risk.

B. Standardized contractual terms.

C. Payment of an initial margin to enter into a contract.

12. A German company that exports machinery is expecting to receive $10 million in three months. The firm converts all its foreign currency receipts into euros. The chief financial officer of the company wishes to lock in a minimum fixed rate for converting the $10 million to euro but also wants to keep the flexibility to use the future spot rate if it is favorable. What hedging transaction is most likely to achieve this objective?

A. Selling dollars forward.

B. Buying put options on the dollar.

C. Selling futures contracts on dollars.

13. A book publisher requires substantial quantities of paper. The publisher and a paper producer have entered into an agreement for the publisher to buy and the producer to supply a given quantity of paper four months later at a price agreed upon today. This agreement is a:

A. Futures contract.

B. Forward contract.

C. Commodity swap.

14. The Standard & Poor’s Depositary Receipts (SPDRs) is an investment that tracks the S&P 500 stock market index. Purchases and sales of SPDRs during an average trading day are best described as:

A. Primary market transactions in a pooled investment.

B. Secondary market transactions in a pooled investment.

C. Secondary market transactions in an actively managed investment.

15. The Standard & Poor’s Depositary Receipts (SPDRs) is an exchange-traded fund in the United States that is designed to track the S&P 500 stock market index. The current price of a share of SPDRs is $113. A trader has just bought call options on shares of SPDRs for a premium of $3 per share. The call options expire in five months and have an exercise price of $120 per share. On the expiration date, the trader will exercise the call options (ignore any transaction costs) if and only if the shares of SPDRs are trading:

A. Below $120 per share.

B. Above $120 per share.

C. Above $123 per share.

16. Which of the following statements about exchange-traded funds is most correct?

A. Exchange-traded funds are not backed by any assets.

B. The investment companies that create exchange-traded funds are financial intermediaries.

C. The transaction costs of trading shares of exchange-traded funds are substantially greater than the combined costs of trading the underlying assets of the fund.

17. Jason Schmidt works for a hedge fund and he specializes in finding profit opportunities that are the result of inefficiencies in the market for convertible bonds—bonds that can be converted into a predetermined amount of a company’s common stock. Schmidt tries to find convertibles that are priced inefficiently relative to the underlying stock. The trading strategy involves the simultaneous purchase of the convertible bond and the short sale of the underlying common stock. The above process could best be described as:

A. Hedging.

B. Arbitrage.

C. Securitization.

18. Pierre-Louis Robert just purchased a call option on shares of the Michelin Group. A few days ago he wrote a put option on Michelin shares. The call and put options have the same exercise price, expiration date, and number of shares underlying. Considering both positions, Robert’s exposure to the risk of the stock of the Michelin Group is:

A. Long.

B. Short.

C. Neutral.

19. An online brokerage firm has set the minimum margin requirement at 55 percent. What is the maximum leverage ratio associated with a position financed by this minimum margin requirement?

A. 1.55.

B. 1.82.

C. 2.22.

20. A trader has purchased 200 shares of a non-dividend-paying firm on margin at a price of $50 per share. The leverage ratio is 2.5. Six months later, the trader sells these shares at $60 per share. Ignoring the interest paid on the borrowed amount and the transaction costs, what was the return to the trader during the six-month period?

A. 20 percent.

B. 33.33 percent.

C. 50 percent.

21. Jason Williams purchased 500 shares of a company at $32 per share. The stock was bought on 75 percent margin. One month later, Williams had to pay interest on the amount borrowed at a rate of 2 percent per month. At that time, Williams received a dividend of $0.50 per share. Immediately after that he sold the shares at $28 per share. He paid commissions of $10 on the purchase and $10 on the sale of the stock. What was the rate of return on this investment for the one-month period?

A. −12.5 percent.

B. −15.4 percent.

C. −50.1 percent.

22. Caroline Rogers believes the price of Gamma Corp. stock will go down in the near future. She has decided to sell short 200 shares of Gamma Corp. at the current market price of €47. The initial margin requirement is 40 percent. Which of the following is an appropriate statement regarding the margin requirement that Rogers is subject to on this short sale?

A. She will need to contribute €3,760 as margin.

B. She will need to contribute €5,640 as margin.

C. She will only need to leave the proceeds from the short sale as deposit and does not need to contribute any additional funds.

23. The current price of a stock is $25 per share. You have $10,000 to invest. You borrow an additional $10,000 from your broker and invest $20,000 in the stock. If the maintenance margin is 30 percent, at what price will a margin call first occur?

A. $9.62.

B. $17.86.

C. $19.71.

24. You have placed a sell market-on-open order—a market order that would automatically be submitted at the market’s open tomorrow and would fill at the market price. Your instruction, to sell the shares at the market open, is a(n):

A. Execution instruction.

B. Validity instruction.

C. Clearing instruction.

25. A market has the following limit orders standing on its book for a particular stock. The bid and ask sizes are number of shares in hundreds.

Bid SizeLimit PriceOffer Size5€9.7312€9.814€9.846€9.95€10.025€10.1012€10.148

What is the market?

A. 9.73 bid, offered at 10.14.

B. 9.81 bid, offered at 10.10.

C. 9.95 bid, offered at 10.02.

26. Consider the following limit order book for a stock. The bid and ask sizes are number of shares in hundreds.

Bid SizeLimit PriceOffer Size3¥122.808¥123.004¥123.35¥123.807¥124.106¥124.507

A new buy limit order is placed for 300 shares at ¥123.40. This limit order is said to:

A. Take the market.

B. Make the market.

C. Make a new market.

27. Currently, the market in a stock is “$54.62 bid, offered at $54.71.” A new sell limit order is placed at $54.62. This limit order is said to:

A. Take the market.

B. Make the market.

C. Make a new market.

28. Jim White has sold short 100 shares of Super Stores at a price of $42 per share. He has also simultaneously placed a “good-till-cancelled, stop 50, limit 55 buy” order. Assume that if the stop condition specified by White is satisfied and the order becomes valid, it will get executed. Excluding transaction costs, what is the maximum possible loss that White can have?

A. $800.

B. $1,300.

C. Unlimited.

29. You own shares of a company that are currently trading at $30 a share. Your technical analysis of the shares indicates a support level of $27.50. That is, if the price of the shares is going down, it is more likely to stay above this level rather than fall below it. If the price does fall below this level, however, you believe that the price may continue to decline. You have no immediate intent to sell the shares but are concerned about the possibility of a huge loss if the share price declines below the support level. Which of the following types of orders could you place to most appropriately address your concern?

A. Short sell order.

B. Good-till-cancelled stop sell order.

C. Good-till-cancelled stop buy order.

30. In an underwritten offering, the risk that the entire issue may not be sold to the public at the stipulated offering price is borne by the:

A. Issuer.

B. Investment bank.

C. Buyers of the part of the issue that is sold.