ADMS3531 Personal Investment Management

1. What are some comparative advantages of investing in

A) Open-end mutual funds

B) Individual stocks and bonds that you choose for yourself

2. Why can closed-end funds sell at prices that differ from net asset value while open-end funds do not?

3. What are the advantages and disadvantages of exchange traded funds versus mutual funds?

4. An open-end fund has a net asset value of $10.70 per share. It is sold with a front-end load of 6%. What is the offering price?

5. If the offering price of an open-end fund is $12.30 per share and the fund is sold with a front-end load of 5%. What is its net asset value?

6. City Street fund has a portfolio of $450 million and liabilities of $10 million. If 44 million shares are outstanding what is net asset value?

7. Suppose you observe the investment performance of 350 investment managers over 5 years and rank them by investment returns during each year. After 5 years you find that 11 of the funds have investment returns that place the fund in the top half of the sample in each and every year of the sample. Such consistency of performance indicates to you that these must be the funds whose managers are, in fact, skilled, and you invest your money in these funds. Is your conclusion warranted?

8. You purchase 1,000 shares of A fund which has NAV/share of $10 a share at the beginning of the year. You pay a front-end load of 5%. The securities the fund invests in increase in value by 20% during the year. The fund expense ratio is 1.5%. What is your rate of return in you sell your shares after a year.

9. The composition of the Fingroup Fund portfolio is as follows:

The fund has not borrowed any funds, but its accrued management fee with the portfolio manager currently totals $30,000. There are 4 million shares outstanding. What is the net asset value of the fund?

Equity Evaluation Models

Ch 18 Bodie9

1. ABC stock has a sustainable growth rate of 8 percent, ROE of 14 percent, and dividends per share of $1.65. If the P/E ratio is 19, what is the value of a share of stock?

A) $85

B) $73.15

C) $50.95

D) $67.15

E) $81.90

2. The current price of the stock is $74 per share. Current earning per share are $3.40, the earnings growth rate is 6 percent, and the stock does not pay a dividend. The expected return on the stock is 13 percent. What one-year ahead P/E ratio is consistent with the stock’s expected return and earnings growth rate?

A) 24.60

B) 23.05

C) 23.20

D) 22.90

E) 25.80

3. ABC company just paid a dividend of $1.68 per share on its stock. The growth rate in dividends is expected to be a constant 5.5 percent indefinitely. Investors require an 18 percent return on the stock for the first three years, then a 13 percent return for the next three years, and then an 11 percent return thereafter. What is the current share price?