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MBAD 6153 Investments Practice Material Name _______________________ Complete the following questions/problems.

. Show all of your work involved to solve problems. (Answer key on last pagesdont look yet!) Use the following information for problems 1-3. You have been asked to create a small index of North Carolina Stocks using Cree Research (CREE), Duke Energy (DUK), Bank of America (BAC ), and Goodrich (GR). Your manager asks you to prepare a price-weighted and a market-weighted index for comparison purposes.
Stock CREE DUK BAC GR Price, t=0 $30.73 $14.10 $11.41 $52.18 Price, t=1 $30.21 $14.08 $13.25 $48.25 Shares (million) 89 1287 8357 124

1. Calculate the percentage change in value from yesterday (t=0) to today (t=1) using a Price-Weighted Index. SHOW YOUR WORK.

2. Calculate the percentage change in value from yesterday (t=0) to today (t=1) using a Market-Weighted Index. SHOW YOUR WORK.

3. Suppose that after the market closes on t=1, GR does a 2-for-1 (2:1) stock split. Using the Price-Weighted Index approach, calculate the new divisor. SHOW YOUR WORK.

4. Suppose you are in the 15% tax bracket. Would you prefer to earn a 4% taxable return or a 3% tax-free yield? What is the equivalent taxable yield of the 3% tax-free yield? Answer both questions and SHOW YOUR WORK.

5. Short-term unsecured debt issued by large corporations is called _________________ _______________.

6. Allocation of an investment portfolio across broad asset classes is called __________________ ____________________.

7. _______________ ________________ is the conflict of interest between managers and stockholders. 8. A market in which new issues of securities are offered to the public is called ______________ _______________. 9. A __________________ _________________ is a primary offering in which shares are sold directly to a small group of institutional or wealthy investors. 10. Why does it make sense for shelf registration to be limited in time?

Stock CREE DUK BAC GR Divisor 4

Price, t=0 30.73 14.1 11.41 52.18 PriceOld 27.105 MarketOld 122705.36 100

Price, t=1 30.21 14.08 13.25 48.25 PriceNew 26.4475 MarketNew 137522.9 87.92429279

Shares (million) 89 1,287.00 8357 124.00 Change -2.43% Change 12.08%

Stock CREE DUK BAC GR Divisor 4 3.087815484

Initial Price 30.73 14.1 11.41 52.18 PriceOld 27.105 MarketOld 122705.36 100

Final Price 30.21 14.08 13.25 48.25 PriceNew 26.4475 MarketNew 137522.9 87.92429279

Final Price 30.21 14.08 13.25 24.125 Change -2.43% Change 12.08%

Old New Shares (million) Shares (million) 89 89 1,287.00 1,287.00 8357 8357 124.00 248.00

Old New

1. 2. 3. 4.

-2.43% 12.08% 3.0878 A. 4% taxable equals (4% x (1-15%)) = 3.40% This is better than the 3% muni yieldtherefore accept the taxable. B. The taxable equivalent of 3% at the 15% tax bracket is (3%/(1-15%)) = 3.52% which is less than the 4% taxable yield.Accept the taxable!

5. Commercial paper 6. Asset allocation 7. Agency problem/theory/conflict 8. Primary market 9. Private placement 10. things change..elaborate on that theme.