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FIN 550 Week 1 Discussion

“Investment Performance and Decisions” Please respond to the following:

From the e-Activity, predict the performance of the DOW for the next two years. Provide support for your prediction.

Analyze the factors that influence investment decisions at different stages in an investor’s life cycle, and make a recommendation at which stage the average investor should consider financial investments. Provide support for your recommendation.

FIN 550 Week 1 Homework

Chapter 1: Problems 5(a-d), 7, 9, and 12

Chapter 2: Problems 4(a-b), 5(a-b), and 6(a-b)

•Chapter 1: Problems 5(a-d), 7, 9, and 12

5. During the past five years, you owned two stocks that had the following annual rates of

return:

Year Stock T Stock B

1 0.19 0.08

2 0.08 0.03

3 −0.12 −0.09

4 −0.03 0.02

5 0.15 0.04

a. Compute the arithmetic mean annual rate of return for each stock. Which stock is

most desirable by this measure?

b. Compute the standard deviation of the annual rate of return for each stock. (Use

Chapter 1 Appendix if necessary.) By this measure, which is the preferable stock?

c. Compute the coefficient of variation for each stock. (Use the Chapter 1 Appendix if

necessary.) By this relative measure of risk, which stock is preferable?

d. Compute the geometric mean rate of return for each stock. Discuss the difference

between the arithmetic mean return and the geometric mean return for each stock.

Discuss the differences in the mean returns relative to the standard deviation of the

return for each stock.

7. A stockbroker calls you and suggests that you invest in the Lauren Computer Company.

After analyzing the firm’s annual report and other material, you believe that the distribution

of expected rates of return is as follows:

LAUREN COMPUTER CO.

Possible Rate of Return Probability

−0.60 0.05

−0.30 0.20

−0.10 0.10

0.20 0.30

0.40 0.20

0.80 0.15

Compute the expected return [E(Ri)] on Lauren Computer stock.

9– During the past year, you had a portfolio that contained U.S. government T-bills, longterm

government bonds, and common stocks. The rates of return on each of them were

as follows:

U.S. government T-bills 5.50%

U.S. government long-term bonds 7.50

U.S. common stocks 11.60

During the year, the consumer price index, which measures the rate of inflation, went

from 160 to 172 (1982 – 1984 = 100). Compute the rate of inflation during this year.

Compute the real rates of return on each of the investments in your portfolio based on

the inflation rate.

12. Assume that the consensus required rate of return on common stocks is 14 percent. In

addition, you read in Fortune that the expected rate of inflation is 5 percent and the

estimated long-term real growth rate of the economy is 3 percent. What interest rate would you expect on U.S. government T-bills? What is the approximate risk premium for

common stocks implied by these data?

•Chapter 1: Problems 5(a-d), 7, 9, and 12

•Chapter 2: Problems 4(a-b), 5(a-b), and 6(a-b)

4. a. Someone in the 36 percent tax bracket can earn 9 percent annually on her investments

in a tax-exempt IRA account. What will be the value of a one-time $10,000 investment

in 5 years? 10 years? 20 years?

b. Suppose the preceding 9 percent return is taxable rather than tax-deferred and the taxes

are paid annually. What will be the after-tax value of her $10,000 investment after 5, 10,

and 20 years?

5. a. Someone in the 15 percent tax bracket can earn 10 percent on his investments in a taxexempt

IRA account. What will be the value of a $10,000 investment in 5 years? 10

years? 20 years?

b. Suppose the preceding 10 percent return is taxable rather than tax-deferred. What will

be the after-tax value of his $10,000 investment after 5, 10, and 20 years?

6. Assume that the rate of inflation during all these periods was 3 percent a year. Compute

the real value of the two tax-deferred portfolios in problems 4a and 5a.

FIN 550 Week 2 Discussion

“Globalization and Efficient Markets” Please respond to the following:

From the e-Activity, analyze how national exchanges around the world are linked and suggest which exchange most significantly impacts the U.S. markets. Explain your rationale.

Analyze the most significant driver in an efficient market and whether or not you would characterize the U.S. markets as efficient. Provide support for your position.

FIN 550 Week 2 Homework

Chapter 4: Problems 4, 5, 6, and 7

Chapter 6: Problems 1, 2, 3, and 4

Chapter 4: Problems 4, 5, 6, and 7

4. You decide to sell short 100 shares of Charlotte Horse Farms when it is selling at its yearly

high of $56. Your broker tells you that your margin requirement is 45 percent and that the

commission on the purchase is $155. While you are short the stock, Charlotte pays a $2.50

per share dividend. At the end of one year, you buy 100 shares of Charlotte at $45 to close

out your position and are charged a commission of $145 and 8 percent interest on the

money borrowed. What is your rate of return on the investment?

120 Part 1: The Investment Background

Property of Cengage Learning

5. You own 200 shares of Shamrock Enterprises that you bought at $25 a share. The stock is

now selling for $45 a share.

a. You put in a stop loss order at $40. Discuss your reasoning for this action.

b. If the stock eventually declines in price to $30 a share, what would be your rate of return

with and without the stop loss order?

6. Two years ago, you bought 300 shares of Kayleigh Milk Co. for $30 a share with a margin

of 60 percent. Currently, the Kayleigh stock is selling for $45 a share. Assuming no dividends

and ignoring commissions, compute (a) the annualized rate of return on this investment

if you had paid cash, and (b) your rate of return with the margin purchase.

7. The stock of the Madison Travel Co. is selling for $28 a share. You put in a limit buy order

at $24 for one month. During the month the stock price declines to $20, then jumps

to $36. Ignoring commissions, what would have been your rate of return on this investment?

What would be your rate of return if you had put in a market order? What if

your limit order was at $18?

•Chapter 6: Problems 1, 2, 3, and 4

1. Compute the abnormal rates of return for the following stocks during period t (ignore differential

systematic risk): Stock Rit Rmt

B 11.5% 4.0%

F 10.0 8.5

T 14.0 9.6

C 12.0 15.3

E 15.9 12.4

Rit = return for stock i during period t

Rmt = return for the aggregate market during period t

2. Compute the abnormal rates of return for the five stocks in Problem 1 assuming the following

systematic risk measures (betas):

Stock βi

B 0.95

F 1.25

T 1.45

C 0.70

E −0.30

3. Compare the abnormal returns in Problems 1 and 2 and discuss the reason for the difference

in each case.

Chapter 6: Efficient Capital Markets 179

4. Look up the daily trading volume for the following stocks during a recent five-day period:

• Merck

• Caterpillar

• Intel

• McDonald’s

• General Electric

Randomly select five stocks from the NYSE, and examine their daily trading volume for

the same five days.

a. What are the average volumes for the two samples?

b. Would you expect this difference to have an impact on the efficiency of the markets for

the two samples? Why or why not?

FIN 550 Week 3 Discussion

“Portfolio Management” Please respond to the following:

Assess the factors that contribute to someone being risk adverse and how risk aversion may be diminished for investors.

Explain how a given investor chooses an optimal portfolio and the most significant driver that determines if a diversified or single asset will be used.

FIN 550 Week 3 Homework

Chapter 3: Problems 3, 4, and 5

Chapter 7: Problems 3(a-d), 7(a-e), and 8

Chapter 3

3. Using published sources (for example, The Wall Street Journal, Barron’s, Federal Reserve Bulletin), look up the exchange rate for U. S. dollars with Japanese yen for each of the past 10 years (you can use an average for the year or a specific time period each year). Based on these exchange rates, compute and discuss the yearly exchange rate effect on an investment in Japanese stocks by a U. S. investor. Discuss the impact of this exchange rate effect on the risk of Japanese stocks for a U. S. investor.

4. The following information is available concerning the historical risk and return relationships in the U. S. capital markets:

U.S. CAPITAL MARKETS TOTAL ANNUAL RETURNS, 1990– 2011

Investment Category	Arithmetic Mean	Geometric Mean	Standard Deviation of Return^a
Common Stocks	10.28%	8.81%	16.9%
Treasury Bills	3.54	3.49	3.2
Long-term government bonds	5.10	4.91	6.4
Long-term corporate bonds	5.95	5.65	9.6
Real estate	9.49	9.44	4.5

^aBased on arithmetic mean.

a. Explain why the geometric and arithmetic mean returns are not equal and whether one or the other may be more useful for investment decision-making.

b. For the time period indicated, rank these investments on a relative basis using the coefficient of variation from most to least desirable. Explain your rationale.

c. Assume the arithmetic mean returns in these series are normally distributed. Calculate the range of returns that an investor would have expected to achieve 95 percent of the time from holding common stocks.

5. You are given the following long- run annual rates of return for alternative investment instruments:

U.S. Government T-bills	3.50%
Large-cap common stock	11.75
Long-term corporate bonds	5.50
Long-term government bonds	4.90
Small-capitalization common stock	13.10

The annual rate of inflation during this period was 3 percent. Compute the real rate of return on these investment alternatives.

Chapter 7

3. The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six- month period.

Month	Madison Cookies	Sophie Electric
1	-0.04	0.07
2	0.06	-0.02
3	-0.07	-0.10
4	0.12	0.15
5	-0.02	-0.06
6	0.05	0.02

Compute the following.

a. Average monthly rate of return Ri for each stock

b. Standard deviation of returns for each stock

c. Covariance between the rates of return

d. The correlation coefficient between the rates of return. What level of correlation did you expect? How did your expectations compare with the computed correlation? Would these two stocks be good choices for diversification? Why or why not?

7. The following are monthly percentage price changes for four market indexes.

Month	DJIA	S&P 500	Russell 2000	Nikkei
1	0.03	0.02	0.04	0.04
2	0.07	0.06	0.10	-0.02
3	-0.02	-0.01	-0.04	0.07
4	0.01	0.03	0.03	0.02
5	0.05	0.04	0.11	0.02
6	-0.06	-0.04	-0.08	0.06

Compute the following.

a. Average monthly rate of return for each index

b. Standard deviation for each index

c. Covariance between the rates of return for the following indexes:

d. The correlation coefficients for the same four combinations

e. Using the answers from parts (a), (b), and (d), calculate the expected return and standard deviation of a portfolio consisting of equal parts of (1) the S&P and the Russell 2000 and (2) the S&P and the Nikkei. Discuss the two portfolios.

8. The standard deviation of Shamrock Corp. stock is 19 percent. The standard deviation of Cara Co. stock is 14 percent. The covariance between these two stocks is 100. What is the correlation between Shamrock and Cara stock?

FIN 550 Week 4 Discussion

“Asset Analysis / Risk and Return” Please respond to the following:

Recommend an alternative to the CAPM for analyzing capital assets. Provide support for your recommendation.

Assess the effectiveness of using multifactor models to help investors understand the relative risk exposures in their portfolios relative to benchmark portfolios. Make a recommendation on how investor understanding may be improved. Support your rationale

FIN 550 Week 4 Homework

If you are using the Blackboard Mobile Learn IOS App, please click “View in Browser.”

Click the link above to submit your assignment.

Students, please view the “Submit a Clickable Rubric Assignment” in the Student Center.
Instructors, training on how to grade is within the Instructor Center.

Chapter 8: Problems 6(a-c), 8(a-c), and 10(a-c)

Chapter 9: Problems 3(a-d), 5(a-b), and 7(a-d)

FIN 550 Week 4 Assignment 1 Portfolio Management

Students, please view the “Submit a Clickable Rubric Assignment” in the Student Center.
Instructors, training on how to grade is within the Instructor Center.

Assignment 1: Portfolio Management

Due Week 4 and worth 200 points

Write a five to seven (5-7) page paper in which you:

Analyze the relationship between risk and rate of return, and suggest how you would formulate a portfolio that will minimize risk and maximize rate of return.

Formulate an argument for investment diversification in an investor portfolio.

Address how stocks, bonds, real estate, metals, and global funds may be used in a diversified portfolio. Provide evidence in support of your argument.

Evaluate the concept of the efficient frontier and how you will use it to determine an asset portfolio for a specified investor.

Consider the economic outlook for the next year in order to recommend the ideal portfolio to maximize the rate of return for the short term and long term. Explain the key differences between the short and long term.

Use four (4) external resources to support your work. Note: Wikipedia and other Websites do not qualify as academic resources.

Your assignment must follow these formatting requirements:

Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

Evaluate portfolio performance and develop recommendations to improve a firm’s investment performance.

Use technology and information resources to research issues in corporate investment analysis.

Write clearly and concisely about corporate investment analysis using proper writing mechanics.

Click here to view the grading rubric for this assignment.

FIN 550 Week 5 Discussion

“Business Risk and Analysis / Investment Valuation” Please respond to the following:

Determine whether a steel company or a retail food chain would have a greater business risk. Provide support for your rationale.

Discuss why you would not expect all industries to have a similar relationship trend to the economy. Provide an example of two industries that have a different relationship to the economy and explain the difference.

FIN 550 Week 5 Homework

Click the link above to submit your assignment.

Students, please view the “Submit a Clickable Rubric Assignment” in the Student Center.
Instructors, training on how to grade is within the Instructor Center.

Chapter 10: Problems 4(a-b), and 5(a-b)

Chapter 11: Problems 6, 8, and 10

FIN 550 Week 6 Discussion

“Stock Markets and the Economy / Industry Analysis” Please respond to the following:

Assess the impact on the U.S. stock market when the Federal Reserve increases the money supply, and whether or not you believe the impact is predictable.

Describe an industry that you believe is in stage 2 of the industry life cycle. Provide evidence that supports your analysis.

FIN 550 Week 6 Homework

If you are using the Blackboard Mobile Learn IOS App, please click “View in Browser.”

Click the link above to submit your assignment.

Students, please view the “Submit a Clickable Rubric Assignment” in the Student Center.
Instructors, training on how to grade is within the Instructor Center.

Chapter 12: Problems 4(a-d), 7(a-b), 8(a-b)

Chapter 13: Problems 4, 5, 7(a-c)

FIN 550 Week 7 Discussion

“Growth Companies” Please respond to the following:

From the e-Activity and based on the growth company selected, assess why it is a growth stock and if that status is sustainable.

Evaluate whether or not P/E is an effective indicator of a growth stock. Suggest an alternative.

FIN 550 Week 7 Homework

Click the link above to submit your assignment.

Students, please view the “Submit a Clickable Rubric Assignment” in the Student Center.
Instructors, training on how to grade is within the Instructor Center.

Chapter 14: Problems 6, 7(a-c), 8(-a-b), 10(a-c), 11(a-b), and 12(a-b)

FIN 550 Week 8 Discussion

“Derivative Markets” Please respond to the following:

Analyze the complexities of the derivative markets and how the reporting of derivatives may be deceiving to investors.

Make a suggestion for improving the methods for valuing derivatives so that the reporting becomes more transparent for investors.

FIN 550 Week 8 Homework

Click the link above to submit your assignment.

Students, please view the “Submit a Clickable Rubric Assignment” in the Student Center.
Instructors, training on how to grade is within the Instructor Center.

Chapter 20: Problems 3(a-c), 5(a-c), 8(a-c), 9(a-d), and 10(a-d)

FIN 550 Week 9 Discussion

“Hedging” Please respond to the following:

Create a scenario where an investor would benefit from using forward and future contracts to hedge an existing risk exposure.

Explain how an increase in interest rates may impact the scenario you created.

FIN 550 Week 9 Homework

Click the link above to submit your assignment.

Students, please view the “Submit a Clickable Rubric Assignment” in the Student Center.
Instructors, training on how to grade is within the Instructor Center.

Chapter 21: Problems 3(a-e), 4(a-c), 6(a-c), 9(a-b), 10(a-c), and 11(a-c)

FIN 550 Week 9 Assignment 2 High-risk Investments

Assignment 2: High-risk Investments

Due Week 9 and worth 300 points

For this assignment, use the Internet to research high-risk investment brokerage firms that have been indicted or convicted of ethical violations to provide insight and understanding of this market segment.

Write a six to eight (6-8) page paper in which you:

Explain why investors may be attracted to high-risk investments such as exchange-traded derivatives, global funds, and other complex investment vehicles.

Analyze the risk associated with exchange-traded derivatives, such as futures and options, and what brokers might do to minimize the risk to investors.

Discuss the challenges related to regulating a complex global financial firm and make suggestions for regulatory improvements.

Analyze the ethical violations of the company you researched.

Discuss the consequences that you believe to be appropriate for the senior management of the firm you researched and the implications for brokers trading in high-risk investments.

Create a scenario where you believe the use of high-risk investments would be beneficial for the investor. Provide support for your rationale.

Use four (4) external resources to support your work. Note: Wikipedia and other Websites do not qualify as academic resources.

Your assignment must follow these formatting requirements:

Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; references must follow APA or school-specific format. Check with your professor for any additional instructions.

Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required page length.

The specific course learning outcomes associated with this assignment are:

Analyze the derivatives market and determine the use of derivatives to efficiently manage investment risks in an investment portfolio.

Use technology and information resources to research issues in corporate investment analysis.

Write clearly and concisely about corporate investment analysis using proper writing mechanics.

Click here to view the grading rubric for this assignment.

FIN 550 Week 10 Discussion

“Options” Please respond to the following:

Create a scenario where an investor would benefit from using option contracts to minimize risk.

Evaluate how models used for valuing stock options can be adapted to other underlying assets such as stock indexes.

FIN 550 Week 10 Homework

Click the link above to submit your assignment.

Students, please view the “Submit a Clickable Rubric Assignment” in the Student Center.
Instructors, training on how to grade is within the Instructor Center.

Chapter 22: Problems 3(a-d), 5(a-d), 7(a-c), 10(a-b), and 12

Chapter 24: Problems 3(a-d), 6(a-c), 8(a-c), and 10(a-c)

FIN 550 Week 11 Discussion

“Transfer It / Sum It Up” Please respond to the following:

The textbook identified many different approaches to corporate investment analysis. Sum up one analysis tool, application, and concept.

In 140 characters or less (like a Twitter Tweet) describe the concept that will stick with you the most from class.

FIN 550 Week 11 Final Exam part 1 and 2

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FIN 550 Entire Course Strayer Latest

FIN 550 Entire Course Strayer Latest

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