Please provide details for the given questions.
Problem 1. Explain how puts and calls can be used to:
- reduce risk
- increase portfolio yields (returns)
- speculate
Problem 2. A friend has come to you for help. They understand that business cycles affect financial markets, but are unsure about how they are connected. Provide a brief explanation of how expansion, peaks, recessions or contractions, troughs, and recoveries affect investment strategies.
Problem 3. List a minimum of four fundamental factors to be considered when trying to forecast stock prices.
Problem 4. List two advantages of buying a put on a stock instead of selling it (the stock) short.
Problem 5. If you expect interest rates to decrease, what would you be likely to do if you held primarily cash and common stock in your portfolio? Why?
Problem 6. Jane invests $20,000, and five years later has accumulated $32,210. At the same time, her friend Joe invests $20,000 but withdraws $2,000 per year over the same five-year period (those withdrawals are made at the end of each year). Each has been bragging that they earned a 10% return on their investment. Explain how this can be true, given that Jane earned $12,210 in interest compared to Joe’s $10,000.