This P3- Price History Report Narrative Homework Assignment Guidance is designed to provide additional information for your P3- Price History Report Narrative Homework Assignment. Your P3 Homework Assignment is divided into two parts (1) Purchasing five bonds for a total of $100,000 and (2) providing a price history narrative report about your individual Portfolio.
Part 1 Purchasing Five Bonds: This section of the homework assignment is similar to your P2- Initial Portfolio Homework Assignment. A good outline for your P3A- Bond Purchase Homework Assignment is to start with a one paragraph summary of your P1- Investment Selection Policy Statement. Conclude your summary by stating that you used these guidelines when purchasing five bonds, then describe the bonds you simulated purchasing. (Note: Assume a $1,000 par value for all bonds. Do not purchase bond funds)
If you made exceptions to your P1- Investment Selection Policy, in a second paragraph (and before your description of the bonds you simulated purchasing) mention where and why you did not follow your P1- Investment Selection guidelines. The next section of the paper will describe the bonds you purchased.
Provide information about the initial simulated purchase price of your bonds. (Do not use CBOE for your simulated bond purchase. CBOE has equities, ETFs, options and futures.) The following are several good online resources for bonds:
Investinginbonds.com (www.investinginbonds.com) sponsored by the Bond Market Association, features online educational information on a wide range of bonds and other fixed-income securities. This Web site can help you educate yourself about investing in bonds and even has a yield calculator that you can use to compare your returns to other types of investments.
Bondsonline.com (www.bondsonline.com) includes news, quotes and trading for the individual and institutional bond investor.
Learnbonds.com (https://learnbonds.com/category/bond-investment-guides) provides beginner, intermediate, and advanced learning guides for bond buyers.
I suggest using an Excel spreadsheet to record your initial simulated bond purchases and to track the daily prices of your individual Portfolio (this will give you a head start on P4- Excel Spreadsheet Investment Analysis of Investment Returns). Don't forget to deduct transaction costs. There is a spreadsheet tracker you can use in Content, Week 3.
Part 2 Price History Report Narrative: You now have ten securities in your Portfolio. Has the value of your initial portfolio increased or decreased? Has the market outlook for your investments changed? Have any of the organizations your investments represent been in the news? Did you receive a dividend? Include any pertinent facts that can impact the value of your individual Portfolio
If your P3- Price History Narrative Homework Assignment does not follow this outline but includes all the elements listed, you are heading in the right direction.
Please keep in mind that the information you provide in P3- Price History Report Narrative will be used for your Portfolio Management Project Written Report and Portfolio Management Project Presentation.
THE SITUATION: You are a Research Analyst working for a top portfolio management firm, "UMUC Portfolio Management" (in no way affiliated with the University of Maryland University College). A high-net-worth client has approached your firm with the objective of finding an analyst qualified to manage their large portfolio. Your firm has selected several of its analysts to develop test portfolios in order identify the best person to manage the portfolio of this rich client. You have been selected by your firm to develop a 5-week trial portfolio to present to the client (and class). Because of the importance of this client (and their potentially large investment) your fee for demonstrating superior portfolio selection and management skill will be substantial.
The analyst with the best report will become the portfolio manager for this high-net-worth client's portfolio (valued at over $100 million). Your portfolio management report and presentation will be submitted directly to your firm's high-net-worth client with the approval of your firm's Board of Directors. The success of your recommendations will determine the success of your firm in landing this large investor. (It is expected that your portfolio recommendations will not be the same as those reached by other analysts). You should do a market wide financial evaluation to determine the current situation, best investment course, appropriate asset allocation for this important client.
USE THE P4-INVESTMENT RETURNS ANALYSISSPREADSHEET ASSIGNMENT FOLDER FOR ALL WEEK FOUR DELIVERABLES
STEP ONE: Update securities prices daily. Prepare an Excel Spreadsheet Investment analysis of Investment Returns. Submit the Investment Returns Analysis to the P4-Investment Returns Analysis Assignment Folder.
STEP TWO:You have been given an additional $100,000 to purchase a Portfolio of five (5) Option Contracts at Beginning of Week 4 (Note: Recommend Using CBOE.com for Option Information.)
Please keep in mind that you do not have the luxury of trading or selling and/or buying securities during your portfolio holding period.
• After you determine your initial portfolio you must buy the portfolio using the CBOE Virtual Trade Tool (https://www.cboe.com/tradtool/virtualtrade.aspx). The commission costs per trade (using CBOE Virtual Trade) are $9.95/trade for stocks and ETFs and $14.95/trade for options.
• The securities you select for your portfolio can be selected from any traded securities that are available on CBOE Virtual Trading. (Exception! you may not invest in mutual funds or the S&P 500 market index)
STEP THREE: The assignment for the fourth week is to make your first option contract purchases using the CBOE Virtual Trade Tool (https://www.cboe.com/tradtool/virtualtrade.aspx). What did you purchase and how does it relate to the investment policies and strategies statement you developed for Homework #1? Did you modify the investment policies and strategies? If you changed your investment policies and procedures what exactly did you update? If you revised your investment strategies did you inform the client?
• Please submit your Homework #4 Option Investment Policies and Strategies in MS Word format with the following file name: LastNameFirstInitial_Homework04.docx. For example, if you name is John Smith, the file name of your response should be SmithJ_Homework04.docx.
• Your option purchase strategy should be 1-2 pages (300-600 words), with at least three references. By the due date, submit Homework #4 to your P4A- Add Investments to Portfolio Assignment Folder.
ADDITIONAL INFORMATION
Video
"How to Calculate Return on Investment"
https://www.youtube.com/watch?v=YZhcFlnJJnM
Multiple choise question:
1 Betty has saved $60,000 for a down payment on a home. She is now actively looking for her dream house and anticipates making an offer on a home within the next two months. If the offer is accepted, it will take up to three additional months to close on the house. Betty will need to deposit about $1,000 in an escrow account as "good faith" money when she makes the offer. The rest of the down payment is made at closing. The best place for Betty to deposit her funds now is
A: the stock market.
B: a municipal bond.
C: a six-month certificate of deposit (CD).
D: $1,000 in a two month certificate of deposit (CD) and the remainder
in a six-month CD.
E: a money market mutual fund.
2 Three years ago, Charles purchased a $1,000 face value 10-year Treasury note for par. The market value of this bond is now $950. If Charles sells the bond today, the tax implications of sale are
A: $50 loss against ordinary income
B: $50 capital gain
C: $50 capital loss
D: $50 gain against ordinary income
E: No tax effects since Treasury securities are exempt from taxes
3 Two years ago, an investor purchased a $1,000 par 6% coupon bond that pays interest semiannually. Inflation over the last two years has been 2% per year. The inflation-adjusted value of the next interest payment is
A: $28.84
B: $30.00
C: $31.21
D: $57.67
E: $60.00
4 Cameron pays 15% in dividend and capital gains taxes and 35% in ordinary income taxes. Ten years ago, Cameron purchased a position in a limited partnership for $10,000. Three years later, she was required to contribute $2,000 more to the partnership. Two years ago, she was required to contribute an additional $2,000. If Cameron sells her limited partnership investment today for $20,000, what are the taxes?
A: $ 900
B: $1,500
C: $2,100
D: $2,700
E: $3,500
5 Bonds A, B and C are all zero-coupon bonds. Bond A matures in 3 years; Bond B matures in 7 years, and Bond C matures in 10 years. Paul is uncertain as to the direction of interest rates over the next several years, so he wants to lock-in his return over his 7 year time horizon. Which bond is best for Paul?
A: Bond A because it matures in 3 years, and Paul can then roll-over the funds to a 4 year bond.
B: Bond B because it matches Paul's time horizon.
C: Bond C because it has a longer maturity, it will probably have a higher yield.
D: Since these are zero-coupon bonds, it does not matter which bond Paul
chooses.
E: Bonds are too risky for Paul to be investing.
6 Assume that the futures price of gold is $390 a troy ounce, and the contract is for 100 troy ounces. The initial margin is $2,000. If the future price increases by 5.0%, what is the return to the investor?
A: 1.0%
B: 2.5%
C: 5.0%
D: 19.5%
E: 97.5%
7 Iris pays 15% in dividends and capital gains taxes and 35% in ordinary income taxes. Several years ago, she purchased a Mortgage-Backed Security (MBS) for $20,000 which was the par value of the underlying assets. At the end of this year, she received a statement stating she had received $700 in scheduled amortization of principal, $1,200 in interest, and $500 in unscheduled collection of principal. What is Iris's after-tax cash flow this year from this investment?
A: $1,560
B: $1,695
C: $1,980
D: $2,040
E: $2,400
8 Before the new tax law enacted in 2003, dividends were taxed as ordinary income. Now the maximum tax rate on dividends paid to individuals is 15%. As a result of the law, an investor in the 25% tax bracket who received $70,000 in qualifying dividends had a tax savings of
A: $ 0.
B: $ 7,000.
C: $ 9,000.
D: $10,500.
E: $17,500.
9 Abby buys a position in a closed-end mutual fund that is selling at an 8% discount. The fund earns 12%, but the discount decreases to 5%. What is Abby's return on this investment?
A: 8.5%
B: 12.0%
C: 12.4%
D: 14.2%
E: 15.7%
10 Corey pays 15% in dividend and capital gains taxes and 35% in ordinary income taxes. Four years ago, she invested $500,000 in a private placement offering with some friends. The initial price was $50 a share. The investment group is now discussing the possibility of publicly selling their shares. One of the members of the group believes they could get at least $75 a share. If this is correct, what are Corey's taxes when she sells her shares (ignoring commissions and fees)?
A: $0 because the group is not allowed to sell their private placement shares to the public
B: $37,500
C: $54,000
D: $70,000
E: $87,500
11 A firm has $10 million to invest in safe securities. The time horizon is five years, and interest rates are anticipated to decrease over this period. The best investment for this firm is
A: Six-month CDs
B: Nonparticipating GICs
C: Treasury bills
D: Participating GICs
E: Two-year corporate bonds
12 What is the standard deviation of returns given returns of 10%, -5%, 8%, 3%?
A: 3.7%
B: 4.0%
C: 5.8%
D: 6.7%
E: 7.1%
13 Claire has 200 shares of stock in a firm that just issued 1 right per share. The right gives the holder the opportunity to purchase 0.125 shares of stock. If Claire exercises all her rights, how many addition shares of stock will she be able to obtain?
A: 8
B: 25
C: 125
D: 200
E: 1,600
14 Luke is 35 years old, has a good job, a wife and two small children, and is financially conservative. He has heard about the large returns that may be achieved by investing in the oil and gas field. Luke is interested, but he has no expertise to provide day-to-day management. Which of the following investments would be best for Luke?
A: direct investment through a working interest
B: general partner
C: limited partner
D: all of these options would be a reasonable investment for Frank
E: either B or C (partnership) would be a reasonable investment for Frank, but a direct investment (A) is not reasonable
15 A $1,000 par 1.4% coupon convertible bond with a stock purchase warrant for 1 share of stock at $35 per share is purchased for $900. The common stock has a current market price of $38 per share and the warrant's market price is $4. If the market price of the stock increases to $41.80, the minimum percentage increase in the value of the warrant is
A: 10.0%
B: 17.8%
C: 19.4%
D: 70.0%
E: 119.4%
16 Round lots are
A: 10 shares
B: 100 shares
C: 1,000 shares
D: 10,000 shares
E: 100,000 shares
17 A 6.4% preferred stock has a par value of $30 and is currently selling in the market at $40. The quarterly dividend for this stock is
A: $0.16.
B: $0.48.
C: $0.64.
D: $1.92.
E: $2.56.
18 Balloon payments
A: Increases the periodic cash flows to the lender
B: Decreases the probability of default
C: Increases the maturity of the loan
D: Occur at the beginning of the loan
E: Can consist of principal and accrued interest
19 Factors that should be considered in taking a stock option position include:
A: The dividend paid on the underlying stock
B: The volatility of the underlying stock
C: The time to expiration
D: The anticipated direction of market movement
E: All of the above are relevant factors in the option decision
20 Last month when IBM was selling for $86, Dan purchased a call option on IBM with an exercise price of $90 for $2 per option or $200 total. Yesterday IBM closed at $95. Based on the minimum value of the contract, if Dan sells his call at yesterday's close, what would his return be?
A: 4%
B: 6%
C: 50%
D: 150%
E: 250%
21 One of the most successful collection programs is the 50 State Quarters program developed by the U.S. Mint. This program began in 1999 and permitted each state to put a design on the back of the U.S. quarter. There are 5 state quarters issued each year over the 10-year program. According to CoinWorld.com, in 1999 4.43 billion quarters were minted across the first five states issued. In 2000, the U.S. Mint increased the mintage by 46%. What was the number of state quarters minted in 2000?
A: 2.04 billion
B: 4.43 billion
C: 4.63 billion
D: 6.47 billion
E: 6.65 billion
22 Wendy's broker has recommended she purchase 500 shares of a mutual fund that is currently priced at $25 a share. The commission on the purchase price is 3%, and the fund charges a 1% annual management fee and a $10 annual administrative charge. What is the total cost over the first year to invest in this fund?
A: $12,500
B: $12,875
C: $13,000
D: $13,010
E: $13,014
23 Advantages of purchasing Treasury securities directly from the government over the internet include all of the following EXCEPT:
A: Direct deposit of payments
B: Check-writing
C: Automatic reinvestment option
D: Record keeping
E: Book-entry system
24 Angie deposits $250 in an account that earns 12% per year. If no other deposits or withdrawals are made, how much will Angie have in her account at the end of 15 years?
A: $ 280
B: $ 700
C: $1,368
D: $3,450
E: $4,200
25 9
A: promissory note from his mother.
B: having his mother co-sign a bank loan.
C: selling personal assets.
D: issuing debt in the market.
E: all of the above are possible sources of funds for Zack.
26 A portfolio of Treasury bonds with coupon payment dates of February 15 and August 15 that matures in 10 years may be stripped into how many zero-coupon bonds?
A: 0 since Treasury securities and not eligible for stripping
B: 1
C: 10
D: 11
E: 21
27 Jason is in the 28% Federal income tax bracket and 7% New York state income tax. He has invested in New York State bonds that yields a 6% return. The taxable equivalent yield on this bond is
A: 6.45%
B: 7.32%
C: 8.54%
D: 9.23%
E: 10.61%
28 XYZ Corporation has a cumulative preferred stock that pays $1 per share per quarter. The firm did not declare a dividend the last two quarters. To be able to pay dividends to common shareholders, the preferred stock dividend this coming quarter must be
A: XYZ does not need to pay preferred stock dividends to be able to pay common stock dividends
B: $1
C: $2
D: $3
E: $4
29 Preferred stock with cumulative fixed dividends
A: Are required to pay dividends each quarter
B: Must pay the missed dividend before common shareholders can receive dividends
C: Are taxed on the accumulated dividends
D: Are considered to be bankrupted if one year of dividends is missed
E: All of the above are true
30 Diane has $85,000 to invest. She wants to invest in relatively safe securities. Diane believes interest rates will decrease and stabilize at a lower level over the next 5-10 years. She should invest in
A: Treasury bills
B: Long-term Treasury notes or bonds
C: Equity
D: B-rated corporate bonds
E: Commercial paper