Suzanne Finance Assingment Help With Solution

Posted on April 14, 2017

Suzanne Finance Assingment Help With Solution

 
1) The fixed-weightings approach to asset allocation
A) is based on an allocation of an equal percentage of the portfolio to each separate asset category.
B) requires periodic rebalancing of the portfolio to maintain the desired weights.
C) is based on periodic adjustments to category weights in response to market changes.
D) uses stock-index futures and bond futures in a market timing strategy.
 
2) Fred and Martha are in their seventies and retired. Which one of the following sets of portfolio statistics might best suit their situation if their primary investment goal is current income with limited risk?
A) beta of 0.83 and a dividend yield of 6.3%
B) beta of 0.86, and a dividend yield of 4.6%
C) beta of 1.6 and a dividend yield of 6.4%
D) beta of 1.1 and a dividend yield of 5.4%
 
3) Lipper indexes are to assess the performance of
I. equity funds.
II. bond funds.
III. money market funds.
IV. Real Estate Investment Trusts (REITs).
A) I and II only
B) I and III only
C) I, II and III only
D) I, II, III and IV
 
4) To compute the holding period return on a bond investment, the investor should divide the purchase price of the bond into
A) any increase or decrease in the bond’s price.
B) the annual coupon payment.
C) the bond’s yield to maturity.
D) coupon payments received plus or minus any change in the bond’s price.
 
5) Six months ago, Suzanne purchased a stock for $28 a share. Today she sold the stock at a price of $32 a share. During the time she owned the stock, she received a total of $1.30 in dividends per share. What is her holding period return?
A) 16.6%
B) 18.9%
C) 33.2%
D) 37.8%
 
6) An investor in the 25% marginal tax bracket purchased a bond for $983, received $85 in interest, and then sold the bond for $955 after holding it for six months. The tax rate for capital gains with holding periods in excess of one year is 15%. What are the pre-tax and post-tax holding period returns?
A) 5.8%; 4.3%
B) 6.0%; 4.5%
C) 5.8%; 4.5%
D) 6.0%; 4.3%
 
7) Which of the following are reasons to consider selling an investment that is currently in a portfolio?
I. The investment has met the original objective.
II. Better investment opportunities currently exist.
III. The outlook for the investment has improved.
IV. The investment has not met expectations and no change is expected.
A) I, II and IV only
B) I, III and IV only
C) I, II and III only
D) I, II, III and IV
 
8) The Sharpe’s measure for Jane Smith’s investment portfolio is 0.40, while the Sharpe’s measure for the market is 0.30. This information suggests that Smith’s portfolio
A) exhibits superior performance because its risk premium per unit of risk is above that of the market.
B) exhibits poor performance because its risk premium per unit of risk is below that of the market.
C) is inadequately diversified, and more securities should be added to the portfolio in order to bring it in line with the market.
D) is overly diversified, and some securities should be sold to bring the portfolio in line with the market.
 
8)Treynor’s measure of portfolio performance focuses on
A) nondiversifiable risk.
B) diversifiable risk.
C) total risk.
D) the standard deviation of the portfolio.
 
9) Which one of the following statements is correct concerning dollar cost averaging plans?
A) Dollar cost averaging is an active trading strategy.
B) Dollar cost averaging is a short-term trading strategy.
C) The goal of dollar cost averaging is current dividend income.
D) The goal of dollar cost averaging is long-term capital appreciation.
 
10) The formula plan which requires the greatest management attention and is also the most aggressive is called the ________ plan.
A) dollar cost averaging
B) constant dollar
C) constant ratio
D) variable ratio
 
11) Which of the following are characteristics of stop-loss orders?
I. the risk of whipsawing
II. the ability to limit downside losses
III. the guaranteed execution within the order period
IV. the conversion to a market order
A) I and II only
B) III and IV only
C) I, II and IV only
D) II, III and IV only
 
12) One important tax rule concerning capital losses is that
A) capital losses are always fully deductible.
B) a maximum of $3,000 of losses in excess of capital gains can be written off against ordinary income in any one year.
C) a maximum of $10,000 of losses in excess of capital gains can be written off against other income in any one year.
D) capital losses are never deductible.
 
13) Which of the following are generally considered to be good investment guidelines?
I. Sell any security that has become riskier than anticipated.
II. Hold all securities until they produce the highest profit attainable.
III. Sell securities only if the profit can be offset with a tax loss.
IV. Sell any security that no longer meets the needs of the investor.
A) I and IV only
B) I and III only
C) I, II and IV only
D) I, II, III and IV
 
14) Which of the following statements concerning options are correct?
I. Options are derivative securities.
II. The value of an option is dependent upon the value of the underlying security.
III. The seller of the option retains the option premium whether or not the option is exercised.
IV. Options can provide leverage benefits.
A) II and III only
B) I, II and III only
C) I, II and IV only
D) I, II, III and IV
 
15) Writers of option contracts
A) have a limited liability specified in the contract.
B) hope to exercise the option on favorable terms.
C) earn a commission no matter what subsequently happens to the contract.
D) earn a profit when the option expires without being exercised.
 
16) LEAPS are a special type of option
A) that must be exercised within six months.
B) that can only be exercised on the expiration date.
C) that cannot be exercised for at least a year after it is is purchased.
D) that may have an expiration date as long as three years.
 
17) Warrants
A) provide substantially less capital appreciation potential than the underlying stock.
B) tend to be quite costly.
C) have a stipulated price and an expiration date.
D) are not traded in the secondary markets because of their low unit costs.
 
18) The option premium is
A) the market price of the option.
B) the amount by which the stock price is expected to move before the option expires.
C) the fee charged by the options exchanges for executing transactions.
D) the difference between the strike price and the underlying price of the security.
 
19) The two provisions which investors should carefully consider when evaluating stock options are the
A) strike price and the exchange ratio.
B) time until expiration and the strike price.
C) leverage ratio and the time to maturity.
D) premium and the discount.
 
20) Rex bought a put on Alpha stock with a strike price of $35 when the market price of Alpha stock was $33 a share. Alpha is currently selling at $34 a share. Which of the following statements are true given this information?
I. Rex’s option is worth at least $100 today.
II. Rex’s option is worthless today.
III. Rex’s option has more value today than when he bought it.
IV. Rex’s option has less value today than when he bought it.
A) I and III only
B) I and IV only
C) II and III only
D) II and IV only

 

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21) Which of the following affect the value of puts and calls written on shares of common stock?
I. price volatility of the underlying stock
II. current market price of the underlying stock
III. length of time until the option expiration date
IV. current market interest rate
A) I and II only
B) I, II and III only
C) II, III and IV only
D) I, II, III and IV
 
22) Jason purchased a six-month put on ABC stock at a cost of $100. The strike price was $15. At what market price does Jason just break-even on this investment? Ignore transaction costs and taxes.
A) $15
B) $16
C) $14
D) cannot be determined from the information provided
 
23) Which of the following variables are part of the Black-Scholes option pricing model?
I. the market price of the underlying stock
II. the volatility of the underlying security
III. the strike price of the option
IV. the risk-free rate of interest
V. the beta of the underlying security
VI. the time remaining before the option expires
A) I, II, IV and VI only
B) I, II and III only
C) I, II, III, IV and VI only
D) I, II, III, IV, V and VI
 
24) Roselle paid $250 to buy one put option with a strike price of $35. What is the maximum profit Roselle can earn on her option contract?
A) $100
B) $350
C) $3,250
D) Her profit potential is unlimited.
 
25) In January, JB stock was selling for $50 per share. When the calls and the puts with a strike price of $45 expired on March 20, JB was selling at $46. Which investors made a profit?
I. the writer of the call
II. the buyer of the call
III. the writer of the put
IV. the buyer of the put
A) II and III
B) I and III
C) only III
D) II and IV
 
26) Bob’s DJIA Index option had a strike price of 125. When he exercised the option, the Dow was at 13,050.
A) Bob received $5,500 from the writer of the contract.
B) Bob paid $550 to the writer of the contract.
C) Bob received $550 from the writer of the contract.
D) Bob received $55,000 from the writer of the contract.
 
27) If the Canadian dollar became stronger relative to the U.S. dollar, the price of
A) a call option on the Canadian dollar will increase.
B) a put option on the Canadian dollar will increase.
C) a call option on the Canadian dollar will decrease.
D) both the call and the put options on the Canadian dollar will decrease.
 
28) Which of the following features are shared by futures contracts and options?
I. They have specified expiration dates.
II. Their value is derived from changes in the value of some other asset
III. unprofitable futures or options can simply be allowed expire unexercised.
IV. futures and options specify a specific price at which the underlying asset can be bought or sold.
A) I and III only
B) I and IV only
C) II and III only
D) I, and II only
 
29) With futures contracts, the price at which the commodity must be delivered is
A) set when the futures contract is sold.
B) set when the contract expires.
C) is equivalent to the strike price for an options contract.
D) changes frequently during the life of the contract.
 
30) Fred purchased a futures contract on live hogs through Broker A. After purchasing the contract, Fred moved his investments to Broker B. During the transition, the contract on the hogs was forgotten. When the delivery date for the futures contract arrived,
A) the pigs were not delivered because Fred did not ask for them.
B) the futures contract was not exercised.
C) Fred took delivery of live hogs.
D) Broker A had to pay for the hogs so that they would not be delivered to Fred.
 
31) Eric has just purchased a heating oil contract at $2.05 per gallon. The contract size is 21,000 gallons. Initial margin is $6,075; maintenance margin is $4,500. If the price of heating oil is $2.15 when the contract expires, Eric’s profit or loss is ________.
A) $(2,100) loss
B) $2,100 profit
C) $(3,975) loss
D) $(2,400) loss
 
32) The purchaser of a futures contract
A) is required to obtain a margin loan equal in amount to the cost of the contract minus the cash down payment.
B) is generally required to make a cash deposit of 10 to 20% of the contract price at the time the contract is entered.
C) does not have to worry about margin calls since margin loans are not required.
D) is affected by the daily procedure known as mark-to-the-market.
 
33) A wheat futures contract is quoted in cents per bushel with a contract unit of 5,000 bushels. If the contract is quoted at a settle price of 529, then the value of one wheat futures contract is
A) $529.
B) $2,645.
C) $26,450.
D) $9,451.80.
 
34) A corn futures contract closed yesterday at a price of $3.90 a bushel. The maximum daily price range is $0.70 and the daily price limit is $0.35. Therefore, the
A) highest closing price for today is $4.25 a bushel.
B) most the price can fluctuate today is $0.35 a bushel.
C) minimum change in the price today is $0.35 a bushel.
D) lowest closing price for today is $3.55 a bushel.
 
35) The return on a futures contract is calculated as
A) (purchase price – selling price)/purchase price.
B) (selling price – purchase price)/purchase price.
C) (purchase price – selling price)/margin deposit.
D) (selling price – purchase price)/margin deposit.
 
36) George purchased a futures contract at 349. The contract is on 2500 units, requires a 10% margin deposit and is priced in cents per unit. George sold the contract at 278. What is George’s return on invested capital?
A) -255.4%
B) -203.4%
C) -155.4%
D) -103.4%
 
37) Which one of the following statements is correct if a speculator short sells a commodity or financial futures contract?
A) The speculator expects to profit from a decline in the price of the contract.
B) The speculator stands to make an unlimited amount of profit since there is no limit to how high the price of the underlying commodity or financial instrument can rise.
C) The speculator is hoping to gain some of the benefit derived from the volatile price while limiting his/her exposure to loss.
D) The speculator may be hedging if the underlying commodity is not in the speculator’s possession.
 
38) Assume the initial margin on a Swiss franc futures contract is $2,000. If an individual purchases a contract at $0.78 per franc and the contract involves 125,000 Swiss francs, what return on invested capital will the investor receive if the price per franc moves to $0.80?
A) 3%
B) 50%
C) 100%
D) 125%
 
39) The value of an interest-rate futures contract will go up when
A) interest rates go up.
B) interest rates go down.
C) gold prices rise.
D) gold prices fall.
 
40) To hedge a bond portfolio, an investor should use
A) a foreign-currency future.
B) a stock-index future.
C) a certificate of deposit.
D) an interest rate future.

 

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