Assignment 2 - BUS 320

Gustavo Luis Schuster

Student number: 138436

1 ​–
Breadth of Market: ​The idea behind ​breadth of market is to analyze how stocks declined and
advanced after a trading day in order to reflect the current behavior of market. So if the level of
advanced stocks outnumber the level of declined stocks, it supposedly means that the market is
bear, and vice-versa.

Short interest: ​The practice of short-selling often happen when investors anticipate a market
decline, borrowing stocks to sell it short. The number of shares of stock sold short in the market
indicates the short interest. Following the track of the level of short interest can indicate future
market demand as well as the present market spirit.

Odd-Lot: ​The assumption is that when fund managers hold a lot of money , that’s good news for
the market because they will eventually have to invest that cash, investors might be concerned
for two reasons: first, there is less demand for stocks if most of the cash is already invested.
Second, if the market takes a downturn, investors might want to withdraw their money. Fund
managers will then have to sell some of their stocks to accommodate these redemptions, putting
additional downward pressure on prices.

2 ​– When investing in the bond market the investor is usually subject to the following risks:

Interest Rate Risk: ​which is the risk concerning the interest rate volatility. The interest rate is
inversely proportional to the bond price.

Purchasing Power: ​Basically the purchasing risk concerns the eroding effects of inflation over
the power of money. Usually the interest rate on the bonds are supposed to cover the investor on
the inflation rate, although if the inflation’s effects are bigger than previously predicted, the gains
are likely to be eroded.

Business/Financial Risk: T ​ he financial risk is the uncertainty whether the borrower will default
on paying its obligations. The risk of default is related to the financial strength and stability of
the borrower.

Liquidity Risk: ​Regards the liquid aspect of trading a bond, that is, how easy and how fast the
bond can be traded in the market.
Call Risk: ​Refers to the probability of the bond being called before its maturity, which can
happen in case the interest rates fall. After receiving the money back (plus the call-premium) the
investors will have to find somewhere else in the bond market to put their money, but now the
interest rates will be lower.

3 ​– The main idea behind asset-backed securities is to create a pool of assets to then sell the right
to receive all or part of the future payment made on that debt. The securitized assets can range
from bank loans, leases, credit card bills, truck rentals, hospital receivables and a lot of other
kinds of assets. A mortgage-backed security is basically a derivative backed by the traditional
house mortgages, which is place in a trust and then sold to the investing public.

4 ​– The structure of interest rate is the relationship between yield (interest rate) and time to
maturity for any class of similar-risk securities. This relationship can be graphically projected by
a yield curve. When an investor is analyzing the behavior of this yield curve he can be provided
with a range of indicators and future trends of the markets, such as for example, Inflation ​can be
depicted by an upward movement of the curve, which in the future can influence the rise in the
near future. A downward-sloping yield curve signals that rates have peaked and are about to fall
and that the economy is slowing down.

5 ​–
N=15
I/Y=9%
PV= ? > CPT>PV= ​-879.08
PMT=75 (0.075*1000)
FV=1000

6 ​–
HPR = (Current income + (Ending Investment - Beginning investment))
Current income: N=1, I/Y=10, Pv=-900, PMT=0, FV=​990
Current income: 990 - 900 = ​90

90 + (950 - 900) / 900 = ​15.56%

7 ​–
N= 10
I/Y= 9
PV = ? > CPT > PV= ​-422,41
PMT= 0
FV= 1000
8 ​–
Open-end investment companies: ​A mutual fund that issues new shares to investors each time
that they send money to the fund. There is no limit to the number of new shares that can be
issued and, hence, no limit to the amount of money that people can invest in the fund.

Closed-end investment companies: A mutual fund with a fixed number of shares outstanding.
The fund is closed to new contributions from investors, so investors must buy shares in the fund
in the open-market.

Exchange-traded fund: ​An open-end fund that trades as a listed security on a stock exchange.

Real estate investment trust: ​A type of closed-end fund investment company that sells shares to
investors and invest the proceeds in various types of real estate and real estate mortgages.

Hedge funds:​ Lightly regulated investment funds that pool resources from wealthy investors.