Question 1. Explain the differences between a market order and a limit order for securities.
Question 2. You have identified a stock through the process of stock screening. Define stock screening. List several sources you might access to find information about the stock you identified.
Question 3. Name four different types of expenses that investors incur associated with their investing activities.
Question 4. List five advantages of marketable securities over investments in real assets.
Question 5. Alma Hatch, a securities analyst, has been studying the stock of XYZ Inc. She has estimated that the stock will have the following possible returns and the probabilities associated with those returns:
Return Probability
-0.15 0.10
-0.05 0.20
0.05 0.35
0.15 0.25
0.25 0.10
a. Compute the expected return on XYZ stock.
b. Compute the standard deviation of returns on XYZ.
c. Would you expect the return on the riskless security to be less than, equal to, or greater than the return you computed in part a?
Question 6. Explain the product life cycle and its use in industry analysis.
Question 7. A company has an 8 percent, 10-year bond outstanding with a yield to maturity of 7 percent. The bond is callable at its next interest payment date. If the bond were not callable, its yield would be 6 percent. Evaluate whether an investor should expect this bond to be called.
Question 8. Explain how stock splits and stock dividends affect the prices and valuation of stocks.
Question 9. Define the three approaches to securities analysis and give an example of using each one.
Question 10. Using the information provided below, evaluate the position of Gramco Inc. compared to its industry with respect to its management of inventory, credit rating, and management of accounts receivable. Identify the ratios you use for each of the comparisons.
|
Ratio
|
Gramco Inc.
|
Industry
|
|
Current ratio
|
2.3
|
2.2
|
|
Receivables turnover
|
6.4
|
6.8
|
|
Inventory turnover
|
5.2
|
7.5
|
|
Total asset turnover
|
3.1
|
4.9
|
|
Net profit margin
|
.032
|
.031
|
|
Leverage
|
1.5
|
1.4
|
|
Interest coverage
|
3.7
|
3.3
|
|
Institutional ownership
|
.15
|
.31
|
Question 11. Define the principle of diminishing marginal utility of wealth. Explain how the principle leads to the conclusion that investors are risk averse.
Question 12. Identify factors that investors should consider when making the asset allocation decision.
Question 13. Explain how portfolio risk falls when securities in the portfolio have uncorrelated returns.
Question 14. Distinguish among risk-seeking, risk-indifferent, and risk-averse individuals.
Question 15. Describe the four phases of the portfolio management process.
Question 16. Define the three forms of market efficiency.
Question 17. Define the Sharpe, Treynor, and alpha measures of investment portfolio performance.
Question 18. Identify the three principal approaches to portfolio monitoring and revision.
Question 19. Differentiate between an open-end and a closed-end investment company.
Question 20. Identify the advantages that investment companies offer individual investors.
Question 21. Define the two main types of pension plan.
Question 22. Outline the types of expenses paid by investment companies.