BBS Fundamentals of Investment

List out the differences between individual investors and institutional investors.

Is short selling more or less risky than long purchase? Why?

Assume that you sold short 250 shares for Rs. 200 per share. The initial margin and maintenance margin requirements were 55 percent and 25 percent, respectively. At what stock price will there be a margin call?

How does a market order differ from a limit order?

Assume that you have invested Rs. 6,000 today in an investment alternative that promises to pay you Rs. 10,500 exactly in 9 years. What is the yield on this investment? If a minimum return of 7 percent is required, would you recommend this investment?

What do you mean by reinvestment risk?

Bond A has a coupon rate of 8 percent paid annually and matures after 10 years. What will the price of this bond be if the market interest rate is 10 percent?

The ABC fund, a closed-end investment company, has a portfolio of assets worth Rs. 1,000 million. It has liabilities of Rs. 5 million. It also has 50 million shares outstanding. If the fund trades at 5 percent discount from its NAV, what is the market price of the fund's shares?

A portfolio P has Jensen's Alpha of 0.90 percent. How do you interpret this figure?

You have a call option to buy 100 shares of MIDBL stock at Rs. 200 before or on December 31. You paid Rs. 5 per share to option writer. Currently shares of MIDBL stock are selling at Rs. 212 a share. What is the intrinsic value of your options on the shares of MIDBL stock?

What are the advantages and disadvantages of options? Explain the basic features of call and put options.

Subham Hamal purchased 500 shares of BOK stock at Rs. 400 per share using initial margin requirement of 50 percent. He held the stock for exactly four months and sold it at the end of that period. During the four-month holding period, the stock paid Rs. 11 per share in cash dividends. He was charged an 8% annual interest on the margin loan. The minimum maintenance margin was 25%.

a. Calculate the initial value of the transaction, the debit balance, and equity position on Subham's transaction. b. Calculate the actual margin percentage, and indicate whether Subham's margin account would have excess equity, would be restricted, or would be subject to margin call, if the stock price rises to Rs. 700 per share. c. Calculate the rupee amount of dividend received and interest paid on the margin loan during the four-month holding period.

New National Corporation's (NNC) bond has 9 years until maturity, a coupon rate of 9 percent, and sells for Rs. 950.

a. What is the current yield on the bond?

b. What is its yield to maturity?
c. If the NNC bond's YTM declines to 7 percent 1 year from now, at what price it will be selling

Assume that the following quote for the Mega stock was obtained from Tuesday, February 6, issue of a financial newspaper.

Given this information, answer the following questions:

a. On what day did the trading activity occur?

 b. What is the firm's price-earnings ratio? What does that indicate?

c. What is the last price at which the stock traded on the date quoted?

d. How large a dividend is expected in the current year?

e. What are the highest and lowest prices at which the stock traded during the latest 52 week period?

f. How many shares of stock were traded on the day quoted?

g. At what price did the stock close on the immediately preceding day?

Suppose that an open-end mutual fund has NAV of Rs. 15 and the offering price of the shares is Rs. 16. The investor purchased 100 shares of this mutual fund. At the end of year one, the investor receives Rs. 2 per share in cash dividends and capital gain distributions and sells the shares at a NAV of Rs. 18. 

a. What is the HPR on this investment?

 b. Assuming that there is no load fee, what is the HPR on this fund?

c. Calculate holding period return, assuming all the dividends and capital gains distributions are reinvested into additional shares of the fund at an average price of Rs. 16 per share

Following summary statistics about four investment portfolios are provided to you.

Describe major types of investment vehicles? Which of these investment vehicles are most common in Nepalese financial market? Explain.

The probability distribution and expected return on Stock X and Y are provided below:

Assume that an investor has Rs. 1 million to invest, which he invests dividing equally in Stock X and Y.

a. What are the expected returns, variances and standard deviations of each stock?

b. What is the correlation coefficient between returns from Stock X and Y?

c. Can you diversify the risk forming portfolio of these two stocks? Explain.

d. What are the portfolio return, variance and standard deviation of the portfolio? 

e. Do you prefer to hold Stock X or Y or both the Portfolio? Explain.

Assume you have generated the following information about the stock of JBL Company: The company's latest dividends of Rs. 40 a share are expected to grow to Rs. 43.2 next year, to Rs. 46.7 the year after that, and to Rs. 50.4 in year 3. In addition, the price of the stock is expected to rise from Rs. 565 (its current price) to Rs. 777.50 in 3 years.

a. Using dividend discount model and a required return of 15 percent, what is the intrinsic value per share of the company's stock?

b. What is the stock's expected return using IRR procedure?

c. Given that dividends are expected to grow indefinitely at 8 percent and a 15 percent required rate of return, what is the intrinsic value per share of the stock?

d. Why do you think that a constant growth stock does not have \( g > k_s \)? Explain.

e. Assume that dividends in year 3 actually amount to Rs. 50.4, the dividend growth rate stays at 8 percent, and the required rate of return stays at 15 percent}. Using dividend valuation model to find the price of the stock at the end of year 3, do you note any similarity between your answer here and the forecasted price of the stock Rs. 777.5 given in the problem? Explain.