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1.Use the table for the question(s) below. Consider the following expected returns, volatilities, and correlations: Stock Expected Standard Correlation Correlation Correlation Return Deviation with Boeing with Google with Amazon 15% 6% 1.0 -0.5 0.1 Boeing Google 40% 24% -0.5 1.0 0.7 Amazon 30% 14% 0.1 0.7 1.0 The expected return of a portfolio that consists of a long position of $9000 in Amazon, a long position of $2000 in Google, and a short position of $3000 in Boeing is closest to: O 15.6% 19.1% 0 28.3% 33.2% O 38.1%
2.Use the information for the question(s) below. Suppose you've just purchased Von Bora Corporation stock. The stock is expected to pay a dividend of $2 per share at the end of this year and a $3.5 per share at the end of the second year. You expect Von Bora's stock price to be $20 at the end of two years. Von Bora's equity cost of capital is 13%. Suppose you plan to hold Von Bora stock for one year. The price one would expect to be able to sell a share of Von Bora stock a year from today is closest to: $15.7 O $20.8 O $23.2 O $20.2 $17.7
3.1.Which of the following orders instructs the broker to sell at or below a specified price?
Select one:
a. Limit-sell order
b. Stop-loss
c. Limit-buy order
d. Stop-buy order
e. Market order
2.Hedge funds may invest or engage in
Select one:
a. distressed firms.
b. convertible bonds.
c. currency speculation.
d. merger arbitrage.
e. All of the options are correct.
3.The smallest component of the fixed-income market is _______ debt.
Select one:
a. Treasury
b. other asset-backed
c. corporate
d. tax-exempt
e. mortgage-backed
4.A mutual fund had year-end assets of $700,000,000 and liabilities of $7,000,000. There were 40,150,000 shares in the fund at year end. What was the mutual fund's net asset value?
Select one:
a. $9.63
b. $57.71
c. $16.42
d. $17.87
e. $17.26
5.The trading of stock that was previously issued takes place
Select one:
a. in the secondary market.
b. in the primary market.
c. usually with the assistance of an investment banker.
d. in the secondary and primary markets.
6.You sold short 150 shares of common stock at $27 per share. The initial margin is 45%. Your initial investment was
Select one:
a. $4,800.60.
b. $12,000.25.
c. $2,250.75.
d. $1,822.50.
Expert Solution
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2.Considering the fact that we want to sell the stock in 1 year we will discount back the expected cashflows to the first year.The cost of capital is 13% which acts as the discount rate.
Since we plan to sell the stock within one year from today the price we can expect is $20.8
3.
1. Which of the following orders instructs the broker to sell at or below a specified price?
b. Stop-loss
A stop order, also referred to as a stop-loss order is an order to buy or sell a stock once the price of the stock reaches the specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order.
2.Hedge funds may invest or engage in
e. All of the options are correct.
Hedge funds can pursue a varying degree of strategies including macro, equity, relative value, distressed securities, and activism. A macro hedge fund invests in stocks, bonds, and currencies hoping to profit from changes in macroeconomic variables such as global interest rates and countries’ economic policies. An equity hedge fund may be global or country-specific, investing in attractive stocks while hedging against downturns in equity markets by shorting overvalued stocks or stock indices. A relative-value hedge fund takes advantage of price or spreads inefficiencies. Other hedge fund strategies include aggressive growth, income, emerging markets, value, and short selling.
3. The smallest component of the fixed-income market is _______ debt.
b. other asset-backed
An asset-backed security (ABS) is an investment security—a bond or note—which is collateralized by a pool of assets, such as loans, leases, credit card debt, royalties, or receivables.
4.A mutual fund had year-end assets of $700,000,000 and liabilities of $70,000,000. There were 40,150,000 shares in the fund at year end. What was the mutual fund's net asset value?
e. $17.26
Net Asset Value= Total Assets-Total Liabilities/No.of units
=(700000000-7000000)/40150000
=$17.26
5. The trading of stock that was previously issued takes place
a. in the secondary market.
The secondary market is where securities are traded after the company has sold its offering on the primary market. It is also referred to as the stock market. The New York Stock Exchange (NYSE), London Stock Exchange, and Nasdaq are secondary markets.
Small investors have a much better chance of trading securities on the secondary market since they are excluded from IPOs. Anyone can purchase securities on the secondary market as long as they are willing to pay the asking price per share.
A broker typically purchases the securities on behalf of an investor in the secondary market. Unlike the primary market, where prices are set before an IPO takes place, prices on the secondary market fluctuate with demand. Investors will also have to pay a commission to the broker for carrying out the trade.
The volume of securities traded varies from day to day, as supply and demand for the security fluctuates. This also has a big effect on the security's price.
Because the initial offering is complete, the issuing company is no longer a party to any sale between two investors, except in the case of a company stock buyback.
6. You sold short 150 shares of common stock at $27 per share. The initial margin is 45%. Your initial investment was
d. $1,822.50.
Initial investment= Total investment*Initial margin
=150*27*45%
=$1822.50
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