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978-1260013924 Chapter 1 Lecture Note
Chapter 01 – Investments: Background and Issues CHAPTER ONE INVESTMENTS: BACKGROUND AND ISSUES INTRODUCTION TO THE INSTRUCTOR’S MANUAL Welcome to the Instructor’s Manual (IM) for the eleventh edition of the Essentials of Investments text by Bodie, Kane, and Marcus. This […]
978-1260013924 Chapter 1 Solution Manual
Chapter 01 – Investments: Background and Issues CHAPTER 01 INVESTMENTS: BACKGROUND AND ISSUES 1. Equity is a lower-priority claim and represents an ownership share in a corporation, whereas fixed-income (debt) security is a higher-priority claim but does not have an […]
978-1260013924 Chapter 10 Solution Manual
Chapter 10 – Bond Prices and Yields CHAPTER 10 BOND PRICES AND YIELDS 1. a. Catastrophe bond: Typically issued by an insurance company. They are similar to an insurance policy in that the investor receives coupons and par value, but […]
978-1260013924 Chapter 11 Solution Manual
Chapter 11 – Managing Bond Portfolios CHAPTER 11 MANAGING BOND PORTFOLIOS 1. Duration can be thought of as a weighted average of the ‘maturities’ of the cash flows paid to holders of the perpetuity, where the weight for each cash […]
978-1260013924 Chapter 12 Lecture Note
Chapter 12 – Macroeconomic and Industry Analysis CHAPTER TWELVE MACROECONOMIC AND INDUSTRY ANALYSIS CHAPTER OVERVIEW This is the first of three chapters that cover fundamental security valuation. This chapter introduces a top-down approach to fundamental security analysis. It covers the […]
978-1260013924 Chapter 12 Solution Manual
Chapter 12 – Macroeconomic and Industry Analysis CHAPTER 12 MACROECONOMIC AND INDUSTRY ANALYSIS 1. A top-down approach to security valuation begins with an analysis of the global and domestic economy. Analysts who follow a top-down approach then narrow their attention […]
978-1260013924 Chapter 13 Lecture Note
Chapter 13 – Equity Valuation CHAPTER THIRTEEN EQUITY VALUATION CHAPTER OVERVIEW This chapter discusses models to calculate the intrinsic value of common stock. Balance sheet models, dividend discount models (DDMs), Price/Earnings ratios and free cash flow models are presented. These […]
978-1260013924 Chapter 14 Solution Manual
Chapter 14 – Financial Statement Analysis CHAPTER 14 FINANCIAL STATEMENT ANALYSIS 1. a. Inventory turnover ratio in 2018 = Cost of Goods Sold Average Inventories = $2,850 ($490 + $480)/2 = 5.876 b. Debt to equity ratio in 2018 = […]
978-1260013924 Chapter 15 Lecture Note
Chapter 15 – Options Markets CHAPTER FIFTEEN OPTIONS MARKETS CHAPTER OVERVIEW This chapter describes characteristics of options, terminology used in the options’ markets, option payoffs and profits to both option owners and sellers (called writers), and positions that are comprised […]
978-1260013924 Chapter 15 Solution Manual
Chapter 15 – Options Markets CHAPTER 15 OPTIONS MARKETS 1. Options provide numerous opportunities to modify the risk profile of a portfolio. The simplest example of an option strategy that increases risk is investing in an ‘all options’ portfolio of […]
978-1260013924 Chapter 16 Lecture Note
Chapter 16 – Option Valuation Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. CHAPTER SIXTEEN OPTION VALUATION CHAPTER OVERVIEW This chapter discusses factors affecting the value of an […]
978-1260013924 Chapter 16 Solution Manual
Chapter 16 – Option Valuation CHAPTER 16 OPTION VALUATION 1. Intrinsic value = S0 – X = $55 – $50 = $5.00 Time value = C – Intrinsic value = $6.50 – $5.00 = $1.50 2. Using put-call parity: Put […]
978-1260013924 Chapter 17 Solution Manual
Chapter 17 – Futures Markets and Risk Management CHAPTER 17 FUTURES MARKETS AND RISK MANAGEMENT 1. Selling a contract is a short position. If the price rises, you lose money. Loss = (2,450 – 2,400) $250 = $12,500 2. […]
978-1260013924 Chapter 18 Lecture Note
Chapter 18 – Portfolio Performance Evaluation CHAPTER EIGHTEEN PORTFOLIO PERFORMANCE EVALUATION CHAPTER OVERVIEW This chapter presents various performance measures that are used for evaluation of portfolios. The process of decomposing portfolio returns into the various components of the portfolio- building […]
978-1260013924 Chapter 18 Solution Manual
Chapter 18 – Portfolio Performance Evaluation CHAPTER 18 PORTFOLIO PERFORMANCE EVALUATION 1. The dollar-weighted average will be the internal rate of return between the initial and final value of the account, including additions and withdrawals. Using Excel’s XIRR function, utilizing […]
978-1260013924 Chapter 19 Solution Manual
Chapter 19 – Globalization and International Investing CHAPTER 19 GLOBALIZATION AND INTERNATIONAL INVESTING 1. “International Investing Raises Questions” was published in The Wall Street Journal in 1997. Some of the arguments presented in the article may no longer be compelling […]
978-1260013924 Chapter 2 Lecture Note
Chapter 02 – Asset Classes and Financial Instruments CHAPTER TWO ASSET CLASSES AND FINANCIAL INSTRUMENTS CHAPTER OVERVIEW One of the early investment decisions that must be made in building a portfolio is asset allocation. This chapter introduces some of the […]
978-1260013924 Chapter 2 Solution Manual
Chapter 02 – Asset Classes and Financial Instruments CHAPTER 2 ASSET CLASSES AND FINANCIAL INSTRUMENTS 1. Common stock is an ownership share in a publicly held corporation. Common shareholders have voting rights and may receive dividends. Preferred stock represents nonvoting […]
978-1260013924 Chapter 20 Solution Manual
Chapter 20 – Hedge Funds CHAPTER 20 HEDGE FUNDS 1. No, a market-neutral hedge fund would not be a good candidate for an investor’s entire retirement portfolio because such a fund is not a diversified portfolio. The term ‘market–neutral’ refers […]
978-1260013924 Chapter 21 Lecture Note
Chapter 21 – Taxes, Inflation, and Investment Strategy CHAPTER TWENTY ONE TAXES, INFLATION, AND INVESTMENT STRATEGY CHAPTER OVERVIEW This chapter presents material on developing a framework for retirement planning. The chapter is built around a set of Excel models that […]
978-1260013924 Chapter 22 Solution Manual
Chapter 22 – Investors and The Investment Process CHAPTER 22 INVESTORS AND THE INVESTMENT PROCESS 1. a. Mature pension fund: Investment Objectives Return requirement: Return must exceed the fund’s actuarially assumed rate of return based in part on the anticipated […]
978-1260013924 Chapter 3 Solution Manual
Chapter 03 – Securities Markets CHAPTER 03 SECURITIES MARKETS 1. An IPO is the first time a formerly privately-owned company sells stock to the general public. A seasoned equity offering (or seasoned issuance) is the issuance of stock by a […]
978-1260013924 Chapter 5 Solution Manual
Chapter 05 – Risk and Return: Past and Prologue CHAPTER 05 RISK AND RETURN: PAST AND PROLOGUE 1. The 1% VaR will be less than –30%. As percentile or probability of a return declines so does the magnitude of that […]
978-1260013924 Chapter 6 Solution Manual
Chapter 06 – Efficient Diversification CHAPTER 06 EFFICIENT DIVERSIFICATION 1. So long as the correlation coefficient is below 1.0, the portfolio will benefit from diversification because returns on component securities will not move in perfect lockstep. The portfolio standard deviation […]
978-1260013924 Chapter 7 Solution Manual
Chapter 07 – Capital Asset Pricing and Arbitrage Pricing Theory CHAPTER 07 CAPITAL ASSET PRICING AND ARBITRAGE PRICING THEORY 1. The required rate of return on a stock is related to the required rate of return on the stock market […]
978-1260013924 Chapter 8 Lecture Note
Chapter 08 – The Efficient Market Hypothesis CHAPTER EIGHT THE EFFICIENT MARKET HYPOTHESIS CHAPTER OVERVIEW This chapter examines the concept of market efficiency. We are asking whether securities are, on average, fairly priced according to the benefits they give an […]
978-1260013924 Chapter 8 Solution Manual
Chapter 08 – The Efficient Market Hypothesis CHAPTER 08 THE EFFICIENT MARKET HYPOTHESIS 1. The correlation coefficient should be zero. If it were not zero, then one could use returns from one period to predict returns in later periods and […]
978-1260013924 Test Bank Chapter 1 Part 1
Essentials of Investments, 11e (Bodie) Chapter 1 Investments: Background and Issues 1) Financial assets represent ________ of total assets of U.S. households. A) under 70% B) over 90% C) under 10% D) about 30% Answer: A Difficulty: 1 Easy Topic: […]
978-1260013924 Test Bank Chapter 1 Part 2
43) Which of the following is not a financial intermediary? A) a mutual fund B) an insurance company C) a real estate brokerage firm D) a credit union Answer: C Difficulty: 2 Medium Topic: Financial Intermediaries Learning Objective: 01-02 Distinguish […]
978-1260013924 Test Bank Chapter 10 Part 1
Essentials of Investments, 11e (Bodie) Chapter 10 Bond Prices and Yields 1) The invoice price of a bond is the ________. A) stated or flat price in a quote sheet plus accrued interest B) stated or flat price in a […]
978-1260013924 Test Bank Chapter 10 Part 2
49) Analysis of bond returns over a multiyear horizon based on forecasts of the bond’s yield to maturity and reinvestment rate of coupons is called ________. A) multiyear analysis B) horizon analysis C) maturity analysis D) reinvestment analysis Answer: B […]
978-1260013924 Test Bank Chapter 10 Part 3
71) Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 5%. Assume annual coupon payments. Time Inflation in year just ended Par value Coupon payment + Principal repayment = Total payment […]
978-1260013924 Test Bank Chapter 11 Part 1
Essentials of Investments, 11e (Bodie) Chapter 11 Managing Bond Portfolios 1) All other things equal (YTM = 10%), which of the following has the longest duration? A) a 30-year bond with a 10% coupon B) a 20-year bond with a […]
978-1260013924 Test Bank Chapter 11 Part 2
50) When interest rates increase, the duration of a 20-year bond selling at a premium ________. A) increases B) decreases C) remains the same D) increases at first and then declines Answer: B Difficulty: 1 Easy Topic: Duration Learning Objective: […]
978-1260013924 Test Bank Chapter 12 Part 1
Essentials of Investments, 11e (Bodie) Chapter 12 Macroeconomic and Industry Analysis 1) A top-down analysis of a firm’s prospects starts with an analysis of the ________. A) firm’s position in its industry B) U.S. economy or even the global economy […]
978-1260013924 Test Bank Chapter 12 Part 2
55) The nominal interest rate is 6%. The inflation rate is 3%. The exact real interest rate must be ________. A) 2.91% B) 3.85% C) 1.45% D) 2.12% Answer: A Explanation: Treal = – 1 = 2.91% Difficulty: 2 Medium […]
978-1260013924 Test Bank Chapter 13 Part 1
Essentials of Investments, 11e (Bodie) Chapter 13 Equity Valuation 1) The accounting measure of a firm’s equity value generated by applying accounting principles to asset and liability acquisitions is called ________. A) book value B) market value C) liquidation value […]
978-1260013924 Test Bank Chapter 13 Part 2
44) Generally speaking, as a firm progresses through the industry life cycle, you would expect the PVGO to ________ as a percentage of share price. A) increase B) decrease C) stay the same D) No typical pattern can be expected. […]
978-1260013924 Test Bank Chapter 13 Part 3
69) ART has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of 0.20. Its earnings this year will be $3 per share. Investors […]
978-1260013924 Test Bank Chapter 14 Part 1
Essentials of Investments, 11e (Bodie) Chapter 14 Financial Statement Analysis 1) Which of the following assets is most liquid? A) cash equivalents B) receivables C) inventories D) plant and equipment Answer: A Difficulty: 1 Easy Topic: The Major Financial Statements […]
978-1260013924 Test Bank Chapter 14 Part 2
21 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Answer: C Explanation: Debt-to-equity ratio = 2,3000,000/900,000 = 2.56 Difficulty: 2 Medium Topic: Ratio Analysis Learning Objective: 14-03 Use […]
978-1260013924 Test Bank Chapter 14 Part 3
41 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Answer: A Explanation: Leverage ratio = Assets/Equity = $4,300,000/($500,000 + 2,800,000) = 1.3 Difficulty: 2 Medium Topic: Ratio Analysis […]
978-1260013924 Test Bank Chapter 14 Part 4
57) Use the following cash flow data of Haven Hardware for the year ended December 31, 2017. Cash Dividend $ 70,000 Purchase of Land $ 28,000 Cash Payment on Interest $ 20,000 Cash Payment on Salaries $ 90,000 Sales of […]
978-1260013924 Test Bank Chapter 15 Part 1
Essentials of Investments, 11e (Bodie) Chapter 15 Options Markets 1) You purchase one MBI July 120 call contract (equaling 100 shares) for a premium of $5. You hold the option until the expiration date, when MBI stock sells for $123 […]
978-1260013924 Test Bank Chapter 15 Part 2
45) An option with a payoff that depends on the average price of the underlying asset during at least some portion of the life of the option is called ________ option. A) an American B) a European C) an Asian […]
978-1260013924 Test Bank Chapter 15 Part 3
68) You sell one MBI July 90 call contract for a premium of $4 and two puts for a premium of $3 each. You hold the position until the expiration date, when MBI stock sells for $95 per share. You […]
978-1260013924 Test Bank Chapter 16 Part 1
Essentials of Investments, 11e (Bodie) Chapter 16 Option Valuation 1) If the Black-Scholes formula is solved to find the standard deviation consistent with the current market call premium, that standard deviation would be called the ________. A) variability B) volatility […]
978-1260013924 Test Bank Chapter 16 Part 2
50) The current stock price of Alcoco is $70, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of Alcoco’s stock is 40%. You want to purchase a put option […]
978-1260013924 Test Bank Chapter 16 Part 3
69) You would like to hold a protective put position on the stock of Avalon Corporation to lock in a guaranteed minimum value of $50 at year-end. Avalon currently sells for $50. Over the next year, the stock price will […]
978-1260013924 Test Bank Chapter 17 Part 1
Essentials of Investments, 11e (Bodie) Chapter 17 Futures Markets and Risk Management 1) Today’s futures markets are dominated by trading in ________ contracts. A) metals B) agriculture C) financial D) commodity Answer: C Difficulty: 2 Medium Topic: The Futures Contract […]
978-1260013924 Test Bank Chapter 17 Part 2
54) A long hedger will ________ from an increase in the basis; a short hedger will ________. A) be hurt; be hurt B) be hurt; profit C) profit; be hurt D) profit; profit Answer: C Difficulty: 2 Medium Topic: Hedging […]
978-1260013924 Test Bank Chapter 18 Part 1
Essentials of Investments, 11e (Bodie) Chapter 18 Evaluating Investment Performance 1) Hedge funds I. are appropriate as a sole investment vehicle for an investor. II. should only be added to an already well-diversified portfolio. III. pose performance-evaluation issues due to […]
978-1260013924 Test Bank Chapter 18 Part 2
34) Suppose you purchase one share of the stock of Cereal Correlation Company at the beginning of year 1 for $50. At the end of year 1, you receive a $1 dividend and buy one more share for $72. At […]
978-1260013924 Test Bank Chapter 18 Part 3
55) The following data are available relating to the performance of Long Horn Stock Fund and the market portfolio: Long Horn Market Portfolio Average return 19 % 12 % Standard deviations of returns 35 % 15 % Beta 1.5 1.0 […]
978-1260013924 Test Bank Chapter 19 Part 1
Essentials of Investments, 11e (Bodie) Chapter 19 International Diversification 1) Shares of several foreign firms are traded in the U.S. markets in the form of A) ADRs. B) ECUs. C) single-country funds. D) All of the options are correct. E) […]
978-1260013924 Test Bank Chapter 19 Part 2
27) The manager of Quantitative International Fund uses EAFE as a benchmark. Last year’s performance for the fund and the benchmark were as follows: EAFE Weight Return on Equity Index Currency Aplication E1/E0-1 Quantitative’s Weight Manager’s Return Eur 0.30 10 […]
978-1260013924 Test Bank Chapter 2 Part 1
Essentials of Investments, 11e (Bodie) Chapter 2 Asset Classes and Financial Instruments 1) Which of the following is not a money market instrument? A) Treasury bill B) commercial paper C) preferred stock D) bankers’ acceptance Answer: C Difficulty: 1 Easy […]
978-1260013924 Test Bank Chapter 2 Part 2
43) Investors will earn higher rates of returns on TIPS than on equivalent default-risk standard bonds if ________. A) inflation is lower than anticipated over the investment period B) inflation is higher than anticipated over the investment period C) the […]
978-1260013924 Test Bank Chapter 20 Part 1
Essentials of Investments, 11e (Bodie) Chapter 20 Hedge Funds 1) Which of the following are characteristics of a hedge fund? I. Pooling of assets II. Strict regulatory oversight by the SEC III. Investing in equities, debt instruments, and derivative instruments […]
978-1260013924 Test Bank Chapter 20 Part 2
37) Consider a hedge fund with $200 million at the start of the year. The benchmark S&P 500 Index was up 16.5% during the same period. The gross return on assets is 21%, and the expense ratio is 2%. For […]
978-1260013924 Test Bank Chapter 21 Part 1
Essentials of Investments, 11e (Bodie) Chapter 21 Taxes, Inflation, and Investment Strategy 1) Which one of the following is an example of “global” consumption smoothing? A) borrowing to buy a car B) borrowing to buy a home C) saving to […]
978-1260013924 Test Bank Chapter 21 Part 2
42) An investor plans to retire at age 62 with total savings of $1,000,000. If she is currently 37 years old, has no savings, and expects to earn 9% per year on her investments, how much money must she set […]
978-1260013924 Test Bank Chapter 22 Part 1
Essentials of Investments, 11e (Bodie) Chapter 22 Investors and the Investment Process 1) To ________ means to mitigate a financial risk. A) invest B) speculate C) hedge D) renege Answer: C Difficulty: 2 Medium Topic: Investor Objectives Learning Objective: 22-01 […]
978-1260013924 Test Bank Chapter 22 Part 2
45) The amount of risk an individual should take depends on his or her: I. Return requirements II. Risk tolerance III. Time horizon A) I only B) I and II only C) II and III only D) I, II, and […]
978-1260013924 Test Bank Chapter 3 Part 1
Essentials of Investments, 11e (Bodie) Chapter 3 Securities Markets 1) Underwriting is one of the services provided by ________. A) the SEC B) investment bankers C) publicly traded companies D) FDIC Answer: B Difficulty: 1 Easy Topic: How Firms Issue […]
978-1260013924 Test Bank Chapter 3 Part 2
50) According to SEC Rule 415 regarding shelf registration, firms can gradually sell securities to the public for ________ following initial registration. A) 1 year B) 2 years C) 3 years D) 4 years Answer: B Difficulty: 2 Medium Topic: […]
978-1260013924 Test Bank Chapter 3 Part 3
72) Trading on inside information is: I. Prohibited by federal law II. Prohibited by the CFA Institute Standards of Professional Conduct III. Monitored by the SEC A) I and II only B) II and III only C) I and III […]
978-1260013924 Test Bank Chapter 4 Part 1
Essentials of Investments, 11e (Bodie) Chapter 4 Mutual Funds and Other Investment Companies 1) Which one of the following invests in a portfolio that is fixed for the life of the fund? A) mutual fund B) money market fund C) […]
978-1260013924 Test Bank Chapter 4 Part 2
50) Under SEC rules, the managers of certain funds are allowed to deduct charges for advertising, brokerage commissions, and other sales expenses directly from the fund assets rather than billing investors. These fees are known as ________. A) direct operating […]
978-1260013924 Test Bank Chapter 5 Part 1
Essentials of Investments, 11e (Bodie) Chapter 5 Risk, Return, and the Historical Record 1) You put up $50 at the beginning of the year for an investment. The value of the investment grows 4% and you earn a dividend of […]
978-1260013924 Test Bank Chapter 5 Part 2
45) Historically, the best asset for the long-term investor wanting to fend off the threats of inflation and taxes while making his money grow has been ________. A) stocks B) bonds C) money market funds D) Treasury bills Answer: A […]
978-1260013924 Test Bank Chapter 5 Part 3
68) A security with normally distributed returns has an annual expected return of 18% and standard deviation of 23%. The probability of getting a return between -28% and 64% in any one year is ________. A) 68.26% B) 95.44% C) […]
978-1260013924 Test Bank Chapter 6 Part 1
Essentials of Investments, 11e (Bodie) Chapter 6 Efficient Diversification 1) Risk that can be eliminated through diversification is called ________ risk. A) unique B) firm-specific C) diversifiable D) all of these options Answer: D Difficulty: 1 Easy Topic: Diversification and […]
978-1260013924 Test Bank Chapter 6 Part 2
41) An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 20%, while the standard deviation on stock B is 15%. The correlation coefficient between the returns […]
978-1260013924 Test Bank Chapter 6 Part 3
65) You run a regression for a stock’s return on a market index and find the following Excel output: Multiple R 0.35 R-Square 0.12 Adjusted R-Square 0.02 Standard Error 38.45 Observations 12 Coefficients Standard Error t-Stat p-Value Intercept 4.05 15.44 […]
978-1260013924 Test Bank Chapter 7 Part 1
Essentials of Investments, 11e (Bodie) Chapter 7 Capital Asset Pricing and Arbitrage Pricing Theory 1) An adjusted beta will be ________ than the unadjusted beta. A) lower B) higher C) closer to 1 D) closer to 0 Answer: C Difficulty: […]
978-1260013924 Test Bank Chapter 7 Part 2
46) In his famous critique of the CAPM, Roll argued that the CAPM ________. A) is not testable because the true market portfolio can never be observed B) is of limited use because systematic risk can never be entirely eliminated […]
978-1260013924 Test Bank Chapter 7 Part 3
68) If the simple CAPM is valid and all portfolios are priced correctly, which of the situations below is possible? Consider each situation independently, and assume the risk-free rate is 5%. A) Portfolio Expected Return Beta A 15% 1.2 Market […]
978-1260013924 Test Bank Chapter 8 Part 1
Essentials of Investments, 11e (Bodie) Chapter 8 The Efficient Market Hypothesis 1) Which of the following beliefs would not preclude charting as a method of portfolio management? A) The market is strong-form efficient. B) The market is semistrong-form efficient. C) […]
978-1260013924 Test Bank Chapter 8 Part 2
49) The effect of liquidity on stock returns might be related to: I. The small-firm effect II The book-to-market effect III The neglected-firm effect IV. The P/E effect A) I and II only B) I and III only C) II […]
978-1260013924 Test Bank Chapter 9 Part 1
Essentials of Investments, 11e (Bodie) Chapter 9 Behavioral Finance and Technical Analysis 1) Models of financial markets that emphasize psychological factors affecting investor behavior are called ________. A) data mining B) fundamental analysis C) charting D) behavioral finance Answer: D […]
978-1260013924 Test Bank Chapter 9 Part 2
54) On a particular day, there were 920 stocks that advanced on the NYSE and 723 that declined. The volume in advancing issues was 80,846,000, and the volume in declining issues was 70,397,000. The trin ratio is ________, and technical […]
978-1260013924 Test Bank Chapter 9 Part 3
72) In 1997 CSX successfully purchased a significant share of Conrail. Immediately after the first offer was announced and the acquisition eventually consummated, the price of CSX fell below preacquisition levels and took many years to recover. This may be […]