Several discussion meetings have provided the following information about one of your firm’s new advisory clients, a charitable endowment fund recently created by means of a one-time $10 million gift: Objectives Return requirement. Planning is based on a minimum total return of 8% per year, including an initial current income component of $500,000 (5% on beginning capital). Realizing this current income target is the endowment fund’s primary return goal. (See “unique needs” below.) Constraints Time horizon. Perpetuity, except for requirement to make an $8,500,000 cash distribution on June 30, 2023. (See “unique needs.”) Liquidity needs. None of a day-to-day nature until 2023. Income is distributed annually after yearend. (See “unique needs.”) Tax considerations. None; this endowment fund is exempt from taxes. Legal and regulatory considerations. Minimal, but the prudent investor rule applies to all investment actions. Unique needs, circumstances, and preferences. The endowment fund must pay out to another tax-exempt entity the sum of $8,500,000 in cash on June 30, 2023. The assets remaining after this distribution will be retained by the fund in perpetuity. The endowment fund has adopted a “spending rule” requiring a first-year current income payout of $500,000; thereafter, the annual payout is to rise by 3% in real terms. Until 2023, annual income in excess of that required by the spending rule is to be reinvested. After 2023, the spending rate will be reset at 5% of the thenexisting capital. Based on this information, do the following: a. Formulate an appropriate investment policy statement for the endowment fund. b. Identify and briefly explain three major ways in which your firm’s initial asset allocation decisions for the endowment fund will be affected by the client’s circumstances.
> In hindsight, what might have been done to resolve the conflict before it escalated so far?
> What did the two union leaders do to resolve their conflict?
> Why would strengths-based development increase employee engagement?
> Although the team scores in this exercise usually are higher than the average individual scores, under what conditions might individual averages exceed group scores?
> Are there differences in the average individual scores and the team scores? What are the reasons for the differences, if any?
> If you were a manager, how might you interact with employees differently if you were using strengths-based development rather than deficit-based development?
> Describe a situation in which you experienced escalation of commitment to an ineffective course of action. What did you do about it? Do you wish you had handled it differently? Why or why not?
> Recall a situation in which you made attributions and describe them using the framework supplied in Figure 4.5.
> Develop a framework whereby an instructor could use goal setting in running a class such as this one.
> Think of a person you know who seems to have positive affectivity. Think of another who has more negative affectivity. How constant are they in their expressions of mood and attitude?
> Which form of a flexible work schedule might you prefer? How do you think you would like telecommuting?
> What type of conflict(s) existed between the two leaders? Explain your answer.
> The chapter identifies four basic managerial functions. Based on your own experiences and observations, provide an example of each function.
> Identify examples from your own experience that support, and others that refute, Maslow’s hierarchy of needs theory?
> Do you think it is better to focus on assessing and developing employees’ weaknesses or to focus on their strengths? Why?
> What might you do in the next year to increase your global mindset? Identify and discuss three specific behaviors, activities, or other things that increase your global mindset.
> How do you think that having a higher global mindset will help you to be a better manager and leader? How can this characteristic help you succeed in your career?
> Do you think that your score accurately reflects your global mindset? Why or why not? What, if anything, is missing from the assessment?
> Did you notice differences in the types of information that you had available to make the raise decisions? How did you use the different sources of information?
> Is there a clear difference between the highest and lowest performer? Why or why not?
> What might you do in the next year to make your work locus of control consistent with your answer to question 3?
> What do you think is the ideal locus of control in a work setting and why?
> In what ways did your assignment of raises reflect different views of motivation?
> The ABC Corporation has a profit margin on sales below the industry average, yet its ROA is above the industry average. What does this imply about its asset turnover?
> The Crusty Pie Co., which specializes in apple turnovers, has a return on sales higher than the industry average, yet its ROA is the same as the industry average. How can you explain this?
> Use the following cash flow data for Rocket Transport to find Rocket’s: a. Net cash provided by or used in investing activities. b. Net cash provided by or used in financing activities. c. Net increase or decrease in cash for the ye
> Here are data on two firms: a. Which firm has the higher economic value added? b. Which has higher economic value added per dollar of invested capital?
> An analyst gathers the following information about Meyer, Inc.: Meyer has 1,000 shares of 8% cumulative preferred stock outstanding, with a par value of $100 and liquidation value of $110. Meyer has 20,000 shares of common stock outstanding, with a par v
> A firm has a tax burden ratio of 0.75, a leverage ratio of 1.25, an interest burden of 0.6, and a return on sales of 10%. The firm generates $2.40 in sales per dollar of assets. What is the firm’s ROE?
> . A firm has an ROE of 3%, a debt/equity ratio of 0.5, and a tax rate of 20%, and pays an interest rate of 6% on its debt. What is its operating ROA?
> Use the DuPont system and the following data to find return on equity. Leverage ratio 2.2 Total asset turnover 2.0 Net profit margin 5.5% Dividend payout ratio 31.8%
> Hatfield Industries is a large manufacturing conglomerate based in the United States with annual sales in excess of $300 million. Hatfield is currently under investigation by the Securities and Exchange Commission (SEC) for accounting irregularities and
> Hatfield Industries is a large manufacturing conglomerate based in the United States with annual sales in excess of $300 million. Hatfield is currently under investigation by the Securities and Exchange Commission (SEC) for accounting irregularities and
> You are the manager for the bond portfolio of a pension fund. The policies of the fund allow for the use of active strategies in managing the bond portfolio. It appears that the economic cycle is beginning to mature, inflation is expected to accelerate,
> Use the following financial statements of Heifer Sports Inc. in Table 14.14 to find Heifer’s: a. Inventory turnover ratio. b. Debt/equity ratio. c. Cash flow from operating activities. d. Average collection period. e. Asset turnove
> The market capitalization rate for Admiral Motors Company is 8%. Its expected ROE is 10% and its expected EPS is $5. If the firm’s plowback ratio is 60%, what will be its P/E ratio?
> A firm has current assets that could be sold for their book value of $10 million. The book value of its fixed assets is $60 million, but they could be sold for $90 million today. The firm has total debt with a book value of $40 million, but interest rate
> Tri-coat Paints has a current market value of $41 per share with earnings of $3.64. What is the present value of its growth opportunities (PVGO) if the required return is 9%?
> A firm pays a current dividend of $1, which is expected to grow at a rate of 5% indefinitely. If the current value of the firm’s shares is $35, what is the required return applicable to the investment based on the constant-growth dividend discount model
> Mrs. Mary Atkins, age 66, has been your firm’s client for five years, since the death of her husband, Dr. Charles Atkins. Dr. Atkins had built a successful newspaper business that he sold two years before his death to Merit Enterprises, a publishing and
> You are a portfolio manager and senior executive vice president of Advisory Securities Selection, Inc. Your firm has been invited to meet with the trustees of the Wood Museum Endowment Funds. Wood Museum is a privately endowed charitable institution that
> Which of the following statements reflects the importance of the asset allocation decision to the investment process? The asset allocation decision: a. Helps the investor decide on realistic investment goals. b. Identifies the specific securities to in
> Under the provisions of a typical corporate defined benefit pension plan, the employer is responsible for: a. Paying benefits to retired employees. b. Investing in conservative fixed-income assets. c. Counseling employees in the selection of asset cla
> The investment policy statement of an institution must be concerned with all of the following except: a. Its obligations to its clients. b. The level of the market. c. Legal regulations. d. Taxation.
> The ability to immunize a bond portfolio is very desirable for bond portfolio managers in some instances. a. Discuss the components of interest rate risk—that is, assuming a change in interest rates over time, explain the two risks faced by the holder o
> A clearly written investment policy statement is critical for: a. Mutual funds. b. Individuals. c. Pension funds. d. All investors.
> The aspect least likely to be included in the investment policy statement is: a. Identifying an investor’s objectives, constraints, and preferences. b. Organizing the management process itself. c. Implementing strategies regarding the choice of assets
> Your client says, “With the unrealized gains in my portfolio, I have almost saved enough money for my daughter to go to college in eight years, but educational costs keep going up.” Based on this statement alone, which one of the following appears to be
> You have been named as investment adviser to a foundation established by Dr. Walter Jones with an original contribution consisting entirely of the common stock of Jomedco, Inc. Founded by Dr. Jones, Jomedco manufactures and markets medical devices invent
> You are P. J. Walter, CFA, a managing partner of a prestigious investment counseling firm that specializes in individual rather than institutional accounts. The firm has developed a national reputation for its ability to blend modern portfolio theory and
> After much research on the developing economy and capital markets of the country of Otunia, your firm, GAC, has decided to include an investment in the Otunia stock market in its Emerging Markets Commingled Fund. However, GAC has not yet decided whether
> The Windsor Foundation, a U.S.-based, not-for-profit charitable organization, has a diversified investment portfolio of $100 million. Windsor’s board of directors is considering an initial investment in emerging market equities. Robert Houston, treasurer
> A global manager plans to invest $1 million in U.S. government cash equivalents for the next 90 days. However, she is also authorized to use non-U.S. government cash equivalents, as long as the currency risk is hedged to U.S. dollars using forward curren
> You are a U.S. investor considering purchase of one of the following securities. Assume that the currency risk of the Canadian government bond will be hedged, and the six-month discount on Canadian dollar forward contracts is −0.75% ver
> Sandra Kapple presents Maria VanHusen with a description, given in the following exhibit, of the bond portfolio held by the Star Hospital Pension Plan. All securities in the bond portfolio are noncallable U.S. Treasury securities. a. Calculate the modifi
> John Irish, CFA, is an independent investment adviser who is assisting Alfred Darwin, the head of the Investment Committee of General Technology Corporation, to establish a new pension fund. Darwin asks Irish about international equities and whether the
> An investor in the common stock of companies in a foreign country may wish to hedge against the of the investor’s home currency and can do so by the foreign currency in the forward market a. depreciation; selling. b. appreciation; purchasing. c
> The correlation coefficient between the returns on a broad index of U.S. stocks and the returns on indexes of the stocks of other industrialized countries is mostly , while the correlation coefficient between the returns on highly diversified portfol
> You are a U.S. investor who purchased British securities for £2,000 one year ago when the British pound cost U.S.$1.50. What is your total return (denomiated in U.S. dollars) if the value of the securities is now £2,400 and the pound is worth $1.45? No d
> A two-year investment of $2,000 results in a cash flow of $150 at the end of the first year and another cash flow of $150 at the end of the second year, in addition to the return of the original investment. What is the dollar-weighted (internal) rate of
> A portfolio of stocks generates a −9% return in 2020, a 23% return in 2021, and a 17% return in 2022. What is the annualized return (geometric mean) for the entire period?
> Assume you invested in an asset for two years. The first year you earned a 15% return, and the second year you earned a negative 10% return. What was your annual geometric return?
> An analyst wants to evaluate portfolio X, consisting entirely of U.S. common stocks, using both the Treynor and Sharpe measures of portfolio performance. The following table provides the average annual rate of return for portfolio X, the market portfolio
> The administrator of a large pension fund wants to evaluate the performance of four portfolio managers. Each portfolio manager invests only in U.S. common stocks. Assume that during the most recent five-year period, the average annual total rate of retur
> The administrator of a large pension fund wants to evaluate the performance of four portfolio managers. Each portfolio manager invests only in U.S. common stocks. Assume that during the most recent five-year period, the average annual total rate of retur
> a. Janet Meer is a fixed-income portfolio manager. Noting that the current shape of the yield curve is flat, she considers the purchase of a newly issued, option-free corporate bond priced at par; the bond is described in Table 11.9. Calculate the durati
> The Retired Fund is an open-ended mutual fund composed of $500 million in U.S. bonds and U.S. Treasury bills. This fund has had a portfolio duration (including T-bills) of between three and nine years. Retired has shown first quartile performance over th
> Carl Karl, a portfolio manager for the Alpine Trust Company, has been responsible since 2024 for the City of Alpine’s Employee Retirement Plan, a municipal pension fund. Alpine is a growing community, and city services and employee payr
> James Chan is reviewing the performance of the global equity managers of the Jarvis University endowment fund. Williamson Capital is currently the endowment fund’s only large-capitalization global equity manager. Performance data for Wi
> Trustees of the Pallor Corp. pension plan ask consultant Donald Millip to comment on the following statements. What should his response be? a. Median manager benchmarks are statistically unbiased measures of performance over long periods of time. b. Me
> During the annual review of Acme’s pension plan, several trustees questioned their investment consultant about various aspects of performance measurement and risk assessment. a. Comment on the appropriateness of using each of the following benchmarks fo
> A pension fund portfolio begins with $500,000 and earns 15% the first year and 10% the second year. At the beginning of the second year, the sponsor contributed another $500,000. What were the time-weighted and dollar weighted rates of return?
> In measuring the performance of a portfolio, the time-weighted rate of return may be preferred to the dollar-weighted rate of return because: a. When the rate of return varies, the time-weighted return is higher. b. The dollar-weighted return assumes a
> You and a prospective client are considering the measurement of investment performance, particularly with respect to international portfolios for the past five years. The data you discussed are presented in the following table a. Assume that the data fo
> Maria VanHusen, CFA, suggests that forward contracts on fixed-income securities can be used to protect the value of the Star Hospital Pension Plan’s bond portfolio against the possibility of rising interest rates. VanHusen prepares the following example
> Janice Delsing, a U.S.-based portfolio manager, manages an $800 million portfolio ($600 million in stocks and $200 million in bonds). In reaction to anticipated short-term market events, Delsing wishes to adjust the allocation to 50% stocks and 50% bonds
> Noah Kramer, a fixed-income portfolio manager based in the country of Sevista, is considering the purchase of a Sevista government bond. Kramer decides to evaluate two strategies for implementing his investment in Sevista bonds. Table 11.6 gives the deta
> Several Investment Committee members have asked about interest rate swap agreements and how they are used in the management of domestic fixed-income portfolios. a. Define an interest rate swap, and briefly describe the obligation of each party involved.
> Joan Tam, CFA, believes she has identified an arbitrage opportunity for a commodity as indicated by the information given in the following exhibit: a. Describe the transactions necessary to take advantage of this specific arbitrage opportunity. b. Calcu
> Futures contracts and options contracts can be used to modify risk. Identify the fundamental distinction between a futures contract and an option contract, and briefly explain the difference in the manner that futures and options modify portfolio risk.
> In each of the following cases, discuss how you, as a portfolio manager, could use financial futures to protect a portfolio. a. You own a large position in a relatively illiquid bond that you want to sell. b. You have a large gain on one of your long T
> A silver futures contract requires the seller to deliver 5,000 ounces of silver. Jerry Harris sells one July silver futures contract at a price of $28 per ounce, posting a $6,000 initial margin. If the required maintenance margin is $2,500, what is the f
> In futures trading, the minimum level to which an equity position may fall before requiring additional margin is most accurately termed the: a. Initial margin. b. Variation margin. c. Cash flow margin. d. Maintenance margin.
> The open interest on a futures contract is the total number of outstanding: a. Contracts. b. Unhedged positions. c. Clearinghouse positions. d. Long and short positions.
> A stock index is currently trading at 50. Paul Tripp, CFA, wants to value two-year index options using the binomial model. In any year, the stock will either increase in value by 20% or fall in value by 20%. The annual risk-free interest rate is 6%. No d
> The table below contains information for an XRAY, Inc. call option. XRAY common stock is currently selling for $41.20. a. Is the option in the money? [Set as multiple choice with radio buttons; answer options Yes / No] b. What is the profit on this posit
> a. You have just purchased the options listed below. Based on the information given, indicate whether the option is in the money, out of the money, or at the money, whether you would exercise the option if it were expiring today, what the dollar profit w
> Suppose that you purchased a conventional call option on growth in Non-Farm Payrolls (NFP) with an exercise price of 200,000 jobs. The NFP conventional contract pays out $100 for every job created in excess of the exercise price. a.What is the value of t
> Several months ago you purchased a call option on a crude oil futures contract with an exercise price of $6,300. Today is the expiration date, and the futures price is $6,350. a.Will you exercise the option? [Set as multiple choice with radio buttons;
> Michael Weber, CFA, is analyzing several aspects of option valuation, including the determinants of the value of an option, the characteristics of various models used to value options, and the potential for divergence of calculated option values from obs
> One month ago you purchased a put option on the S&P500 Index with an exercise price of $910. Today is the expiration date, and the index is at $900.96. a.Will you exercise the option? [Set as multiple choice with radio buttons; answer options Yes / No
> You want to buy a stock that is currently selling for $60. You forecast that in one year, the stock’s price will be either $110 or $20, with equal probabilities. There is a one-year call option on the stock available with an exercise price of $80. You ar
> a. Calculate the intrinsic value for each of the following call options.(Round your answers to 2 decimal places.) b.Now assume that the effective annual interest rate is 7.06%, which corresponds to a monthly interest rate of .57%. Calculate the present v
> Calculate the elasticity of a call option with a premium of $6.00 and a strike price of $73.00. The call has a hedge ratio of .7, and the underlying stock’s price is currently $71.00. (Round your answer to 2 decimal places.) Elasticity of the call
> Use the Black-Scholes model to find the value for a European put option that has an exercise price of $62 and four months to expiration. The underlying stock is selling for $64 currently and pays an annual dividend of $1.92. The standard deviation of the
> You observe a premium of $7.14 for a call option on Birdwell Enterprises common stock, which is currently selling for $48.00. The strike price on the call option is $50.00. The option has four months to maturity. The stock pays no dividends. The current
> Use the Black-Scholes formula to find the value of a call option based on the following inputs.(Round your final answer to 2 decimal places. Do not round intermediate calculations.) Call value
> Use the information below to prepare a statement of cash flows for Windswept Woodworks, Inc. for year 2. Net income is given. (Use a minus sign to indicate negative values. Round each entry to 2 decimal places.) / / / / / / / / / / / / / / / / / /
> Based on the informationin the table below, prepare an income statement for Windswept Woodworks, Inc. for year 2. Assume that the company pays a flat tax rate of 21% on its taxable income.(Round each entry to 2 decimal places.) Windswept Woodworks, Inc.
> Based on the information in the table below, prepare comparative balance sheets for Windswept Woodworks, Inc. for years 1 and 2.(Round your answers to the nearest whole number.) Windswept Woodworks, Inc.Input Data (millions of dollars) / / / / / / /
