Question: How would you describe the behavior of

> The Reverend Mark Thomas is the minister of a church in the San Diego area. He is married, has one young child, and earns a “modest income.” Because religious organizations are not notorious for their generous retirement programs, the reverend has decide

> What is a futures contract? Briefly explain how it is used as an investment vehicle.

> Name five variables that can affect the price of options, and briefly explain how each affects prices. How important are intrinsic value and time value to in-the-money options? To out-of-the-money options?

> What is an asset allocation fund and how does it differ from other types of mutual funds? How does a target date fund work?

> Briefly describe each of the following types of mutual funds: a. Aggressive-growth funds b. Equity-income funds c. Growth-and-income funds d. Bond funds e. Sector funds f. Socially responsible funds

> Describe a back-end load, a low load, and a hidden load. How can you tell what kinds of fees and charges a fund has?

> What is the difference between a load fund and a no-load fund? What are the advantages of each type? What is a 12(b)-1 fund? Can such a fund operate as a no-load fund?

> Define each of the following: a. Open-end investment companies b. Closed-end investment companies c. Exchange-traded funds d. Real estate investment trusts e. Hedge funds

> Briefly describe how a mutual fund is organized. Who are the key players in a typical mutual fund organization?

> What are the advantages and disadvantages of mutual fund ownership?

> Discuss the various types of risk to which mutual fund shareholders are exposed. What is the major risk exposure of mutual funds? Are all funds subject to the same level of risk? Explain.

> Identify three potential sources of return to mutual fund investors and briefly discuss how each could affect total return to shareholders. Explain how the discount or premium of a closed-end fund can also be treated as a return to investors.

> Several months ago, Deb Forrester received a substantial sum of money from the estate of her late aunt. Deb initially placed the money in a savings account because she was not sure what to do with it. Since then, however, she has taken a course in invest

> How do you find the intrinsic value of a call? Of a put? Does an out-of-the-money option have intrinsic value?

> What role, if any, do an investor’s personal characteristics play in determining portfolio policy? Explain.

> What is a stock spin-off? In very general terms, explain how a stock spin-off works. Are these spin-offs of any value to investors? Explain.

> What is the major/dominant type of closed-end fund? How do CEFs differ from open-end funds?

> How important is the general behavior of the market in affecting the price performance of mutual funds? Explain. Does the future behavior of the market matter in the selection process? Explain.

> Briefly describe some of the investor services provided by mutual funds. What are automatic reinvestment plans, and how do they differ from automatic investment plans?

> What are fund families? What advantages do fund families offer investors? Are there any disadvantages?

> What is a mutual fund? Discuss the mutual fund concept, including the importance of diversification and professional management.

> Why is the reinvestment of interest income so important to bond investors?

> Briefly describe the term bond equivalent yield. Is there any difference between promised yield and bond equivalent yield? Explain.

> What’s the difference between current yield and yield to maturity? Between promised yield and realized yield? How does YTC differ from YTM?

> Why are bonds generally priced using semiannual compounding? Does it make much difference if you use annual compounding?

> Briefly explain how you would make money on (a) a call option and (b) a put option. Do you have to exercise the option to capture the profit?

> Explain how market yield affects the price of a bond. Could you price a bond without knowing its market yield? Explain.

> What is a stock split? How does a stock split affect the market value of a share of stock? Do you think it would make any difference (in price behavior) if the company also changed the dividend rate on the stock? Explain.

> Brett Daly is an active stock trader and an avid market technician. He got into technical analysis about 10 years ago, and although he now uses the Internet for much of his analytical work, he still enjoys running some of the numbers and doing some of th

> How might you, as a bond investor, use information about the term structure of interest rates and yield curves when making investment decisions?

> What is the term structure of interest rates and how is it related to the yield curve? What information is required to plot a yield curve? Describe an upward-sloping yield curve and explain what it has to say about the behavior of interest rates. Do the

> Explain why interest rates are important to both conservative and aggressive bond investors. What causes interest rates to move, and how can you monitor such movements?

> Why is interest sensitivity important to bond speculators? Does the need for interest sensitivity explain why active bond traders tend to use high-grade issues? Explain.

> What strategy would you expect an aggressive bond investor (someone who’s looking for capital gains) to employ?

> Briefly describe a bond ladder and note how and why an investor would use this investment strategy. What is a tax swap and why would it be used?

> Describe the process of bond portfolio immunization, and explain why an investor would want to immunize a portfolio. Would you consider portfolio immunization a passive investment strategy comparable to, say, a buy-and-hold approach? Explain.

> Why do call and put options have expiration dates? Is there a market for options that have passed their expiration dates?

> What does the term duration mean to bond investors and how does the duration of a bond differ from its maturity? What is modified duration, and how is it used? What is effective duration, and how does it differ from modified duration?

> Is there a single market rate of interest applicable to all segments of the bond market, or is there a series of market yields? Explain and note the investment implications of such a market environment.

> What are some of the advantages and disadvantages of owning common stock? What are the major types of risks to which stockholders are exposed?

> From the perspective of an individual investor, what good are bond ratings? Do bond ratings indicate the amount of market risk embedded in a bond? Explain.

> Marc Dodier is a recent university graduate and a security analyst with the Kansas City brokerage firm of Lippman, Brickbats, and Shaft. Marc has been following one of the hottest issues on Wall Street, C&I Medical Supplies, a company that has turned in

> What are bond ratings, and how can they affect investor returns? What are split ratings?

> Bonds are said to be quoted “as a percent of par.” What does that mean? What is one point worth in the bond market?

> What is the difference between a premium bond and a discount bond? What three attributes are most important in determining an issue’s price volatility?

> What is the difference between a call feature and a sinking-fund provision? Briefly describe the three types of call features. Can a bond be freely callable but nonrefundable?

> Can issue characteristics (such as coupon and call features) affect the yield and price behavior of bonds? Explain.

> What is a strike price? How does it differ from the market price of the stock?

> Identify and briefly describe the five types of risk to which bonds are exposed. What is the most important source of risk for bonds in general? Explain.

> What is the difference between conversion parity and conversion value? How would you describe the payback period on a convertible? What is the investment value of a convertible, and what does it reveal?

> How important are dividends as a source of return to common stock? What about capital gains? Which is more important to total return? Which causes wider swings in total return?

> Explain why it is necessary to examine both the bond and stock properties of a convertible debenture when determining its investment appeal.

> Identify the equity kicker of a convertible security and explain how it affects the value and price behavior of convertibles.

> Chris Norton is a young Hollywood writer who is well on his way to television superstardom. After writing several successful television specials, he was recently named the head writer for one of TV’s top-rated sitcoms. Chris fully realizes that his busin

> What is a convertible debenture? How does a convertible bond differ from a convertible preferred?

> What’s the difference between dollar-denominated and non-dollar-denominated (foreign-pay) bonds? Briefly describe the two major types of U.S.-pay bonds. Can currency exchange rates affect the total return of U.S.-pay bonds? Of foreign-pay bonds? Explain.

> Describe an asset-backed security (ABS) and identify some forms of collateral used with these issues. Briefly note how an ABS differs from an MBS. What is the central idea behind securitization?

> What are the four stages of an industry’s growth cycle? Which of these stages offers the biggest payoff to investors? Which stage is most influenced by forces in the economy?

> What are the special tax features of (a) Treasury securities, (b) agency issues, and (c) municipal bonds?

> Briefly define each of the following and note how they might be used by fixed-income investors: (a) zero-coupon bonds, (b) CMOs, (c) junk bonds, and (d) Yankee bonds.

> Briefly describe each of the following types of bonds: (a) Treasury bonds, (b) agency issues, (c) municipal securities, and (d) corporate bonds. Note some of the major advantages and disadvantages of each.

> With all the securities available in the United States, why would a U.S. investor want to buy foreign stocks? Describe the two ways in which a U.S. investor can buy stocks in a foreign company. As a U.S. investor, which approach would you prefer? Explain

> Why do most income stocks offer only limited capital gains potential? Does this mean the outlook for continued profitability is also limited? Explain.

> Define and briefly discuss the investment merits of each of the following. a. Blue chips b. Income stocks c. Mid-cap stocks d. American depositary receipts e. IPOs f. Tech stocks

> What are dividend reinvestment plans, and what benefits do they offer to investors? Are there any disadvantages?

> What is the difference between a cash dividend and a stock dividend? Which would be more valuable to you? How does a stock dividend compare to a stock split? Is a 200% stock dividend the same as a two-for-one stock split? Explain.

> Why is the ex-dividend date important to stockholders? If a stock is sold on the ex-dividend date, who receives the dividend—the buyer or the seller? Explain.

> Briefly explain how the dividend decision is made. What corporate and market factors are important in deciding whether, and in what amount, to pay dividends?

> What is a stock option? What is the difference between a stock option and a derivative security? Describe a derivative security and give several examples.

> What is a common stock? What is meant by the statement that holders of common stock are the residual owners of the firm?

> What range of values does beta typically exhibit? Are positive or negative betas more common? Explain.

> Explain what is meant by beta. What type of risk does beta measure? What is the market return? How is the interpretation of beta related to the market return?

> What appeal do bonds hold for investors? Give several reasons why bonds make attractive investment outlets.

> Briefly describe the behavior of the U.S. stock market over the last half of the 20th century and the early part of the 21st century.

> Walt Davies and Shane O’Brien are district managers for Lee, Inc. Over the years, as they moved through the firm’s sales organization, they became (and still remain) close friends. Walt, who is 33 years old, currently lives in Princeton, New Jersey. Shan

> Briefly define and give examples of each of the following components of total risk. Which type of risk matters, and why? a. Diversifiable risk b. Undiversifiable risk

> What benefit, if any, does international diversification offer the individual investor? Compare and contrast the methods of achieving international diversification by investing abroad versus investing domestically.

> Discuss how the correlation between asset returns affects the risk and return behavior of the resulting portfolio. Describe the potential range of risk and return when the correlation between two assets is (a) perfectly positive, (b) uncorrelated, and (c

> What is diversification? How does the diversification of risk affect the risk of the portfolio compared to the risk of the individual assets it contains?

> What are the main investment attractions of call and put options? What are the risks?

> What is correlation, and why is it important with respect to portfolio returns? Describe the characteristics of returns that are (a) positively correlated, (b) negatively correlated, and (c) uncorrelated. Differentiate between perfect positive correlatio

> How do you calculate the return and standard deviation of a portfolio? Compare the calculation of a portfolio’s standard deviation to that for a single asset.

> Explain how you can reconcile the traditional and modern portfolio approaches.

> Define beta. How can you find the beta of a portfolio when you know the beta for each of the assets included within it?

> Define and differentiate among the diversifiable, undiversifiable, and total risk of a portfolio. Which is considered the relevant risk? How is it measured?

> Briefly describe each of the following and explain how it is used in technical analysis: a. Breadth of the market b. Short interest c. Odd-lot trading

> What is the efficient frontier? How is it related to the attainable set of all possible portfolios? How can it be used with an investor’s utility function to find the optimal portfolio?

> Over the past 10 years, Molly O’Rourke has slowly built a diversified portfolio of common stock. Currently her portfolio includes 20 different common stock issues and has a total market value of $82,500. Molly is at present considering

> What is modern portfolio theory (MPT)? What is the feasible or attainable set of all possible portfolios? How is it derived for a given group of investments?

> Describe traditional portfolio management. Give three reasons why traditional portfolio managers like to invest in well-established companies.

> What are listed options, and how do they differ from conventional options?

> What is the capital asset pricing model (CAPM)? What role does beta play in the model? What is the risk premium? How is the security market line (SML) related to the CAPM?

> What is an efficient portfolio, and what role should such a portfolio play in investing?

> What is a mixed stream of returns? Describe the procedure used to find the present value of such a stream.

> What is an annuity? How can calculation of the future value of an annuity be simplified? What about the present value of an annuity?

> Describe, compare, and contrast the concepts of future value and present value. Explain the role of the discount rate in calculating present value.

> Define, discuss, and contrast the following terms. a. Interest b. Simple interest c. Compound interest d. True rate of interest (or return)

> Describe the confidence index, and note the feature that makes it unique.

> What is the time value of money? Explain why an investor should be able to earn a positive return.

> Define risk. Explain what we mean by the risk-return tradeoff. What happens to the required return as risk increases? Explain.