New Abyssinia College

Investment Analysis and Portfolio Management

Group Assignment
CHAPTER 1 Introduction to Investment

1. Differentiate saving and investment

2. Distinguish between investment and speculation
3. Discuss various classifications of financial market based on different
criteria
4. Discuss how secondary markets benefit funds issuers.
5. Explain the difference between direct and indirect investing
6. What determines the price of financial instruments? Which are riskier,
capital market instruments or money market instruments? Why?
Chapter 2 & 6 Risk and Return, Portfolio Risk
7. Explain the notion between risk and return
8. Explain stand alone risk and portfolio risk, systematic and unsystematic
risk
9. By having portfolio of an assets an investor can only diversify away
unsystematic risk, Explain
10. You are comparing stock A to stock B. Given the following information,

Required
a. what are the expected returns of these two securities?
b. Calculate the standard deviations of each securities
11. Stocks L and M have yielded the following returns for the past two years
Years Return (%)
L M
1995 12 14
1996 18 12
Required

SET BY: TAMIRAT HAILU (MBA)

 New Abyssinia College
Investment Analysis and Portfolio Management
Group Assignment
a. What is the expected return on portfolio made up of 60% of L and
40% of M?
b. Find out the risk(standard deviation) of each stock
c. What is the covariance and coefficient of correlation between stock L
and M?
d. What is the portfolio risk of a portfolio made up of 60 % of L and 40 %
of M?
Chapter 3 Fixed income Securities
12. Mary just purchased a bond which pays $60 a year in interest. What is
this $60 called?
A. coupon
B. face value
C. discount
D. call premium
E. yield
13. Bert owns a bond that will pay him $75 each year in interest plus a
$1,000 principal payment at maturity. What is the $1,000 called?
A. coupon
B. face value
C. discount
D. yield
E. dirty price
14. A bond's coupon rate is equal to the annual interest divided by which
one of the following?
A. call price
B. current price
C. face value
D. clean price
E. dirty price

SET BY: TAMIRAT HAILU (MBA)

 New Abyssinia College
Investment Analysis and Portfolio Management
Group Assignment
15. The specified date on which the principal amount of a bond is payable
is referred to as which one of the following?
A. coupon date
B. yield date
C. maturity
D. dirty date
E. clean date
16. Currently, the bond market requires a return of 11.6 percent on the
10-year bonds issued by Winston Industries. The 11.6 percent is referred
to as which one of the following?
A. coupon rate
B. face rate
C. call rate
D. yield to maturity
E. interest rate
17. The current yield is defined as the annual interest on a bond divided by
which one of the following?
A. coupon
B. face value
C. market price
D. call price
E. dirty price
18. All else constant, a bond will sell at _____ when the coupon rate is
_____ the yield to maturity.
A. a premium; less than
B. a premium; equal to
C. a discount; less than
D. a discount; higher than
E. par; less than

SET BY: TAMIRAT HAILU (MBA)

 New Abyssinia College
Investment Analysis and Portfolio Management
Group Assignment
19. The Leeward Company just issued 15-year, 8 percent, unsecured
bonds at par. These bonds fit the definition of which one of the following
terms?
A. note
B. discounted
C. zero-coupon
D. callable
E. debenture
20. Which of the following are characteristics of a premium bond?
I. coupon rate < yield-to-maturity
II. coupon rate > yield-to-maturity
III. coupon rate < current yield
IV. coupon rate > current yield
A. I only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
21. Which of the following relationships apply to a par value bond?
I. coupon rate < yield-to-maturity
II. current yield = yield-to-maturity
III. market price = call price
IV. market price = face value
A. I and II only
B. I and III only
C. II and IV only
D. I, II, and III only
E. II, III, and IV only
22. Grand Adventure Properties offers a 9.5 percent coupon bond with
annual payments. The yield to maturity is 11.2 percent and the maturity
date is 11 years from today. What is the market price of this bond if the
face value is $1,000?
A. $895.43
B. $896.67
C. $941.20
D. $946.18
E. $953.30

SET BY: TAMIRAT HAILU (MBA)

 New Abyssinia College
Investment Analysis and Portfolio Management
Group Assignment
23. You are purchasing a 25-year, zero-coupon bond. The yield to maturity
is 8.68 percent and the face value is $1,000. What is the current market
price?
A. $106.67
B. $108.18
C. $119.52
D. $121.50
E. $128.47

Chapter 4 Stock and Equity Valuation

24. Miller Brothers Hardware paid an annual dividend of $1.15 per share
last month. Today, the company announced that future dividends will be
increasing by 2.6 percent annually. If you require a 12 percent rate of
return, how much are you willing to pay to purchase one share of this
stock today?
A. $12.23
B. $12.55
C. $12.67
D. $12.72
E. $12.88
25. Show Boat Dinner Theatres has paid annual dividends of $0.32, $0.48,
and $0.60 a share over the past three years, respectively. The company
now predicts that it will maintain a constant dividend since its business
has leveled off and sales are expected to remain relatively flat. Given the
lack of future growth, you will only buy this stock if you can earn at least
a 16 percent rate of return. What is the maximum amount you are willing
to pay for one share of this stock today?
A. $3.43
B. $3.75
C. $4.43
D. $4.69
E. $4.82

SET BY: TAMIRAT HAILU (MBA)

 New Abyssinia College
Investment Analysis and Portfolio Management
Group Assignment
26. Renew It, Inc., is preparing to pay its first dividend. It is going to pay
$0.45, $0.60, and $1 a share over the next three years, respectively.
After that, the company has stated that the annual dividend will be $1.25
per share indefinitely. What is this stock worth to you per share if you
demand a 10.8 percent rate of return on stocks of this type?
A. $6.67
B. $8.21
C. $10.14
D. $11.47
E. $12.03

Chapter 5 Security Analysis

27. Explain fundamental analysis of investment

SET BY: TAMIRAT HAILU (MBA)