1. ASHFORD BUS405 Entire course
(Principles of Investments)
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Week One
Readings
Chapter 1: A Brief History of Risk and Return
Chapter 2: The Investment Process
Chapter 3: Overview of Security Types
Chapter 4: Mutual Funds
Discussions
Week 1 – DQ1 - Blume’s Formula, Allocation, and Selection - BUS405 Principles of Investments
From Chapter 1, answer Concept Question 5: What is Blume’s formula? When would you want to use it in
practice? Also, from Chapter 2, answer Concept Question 4: What is the difference between asset
allocation and security selection? Remember to complete all parts of the questions and support your
answers with examples from the text and other resources.
Week 1 – DQ2 - Money Market Funds - BUS405 Principles of Investments
From Chapter 4, complete Problem 4: The Aqua Liquid Assets Money Market Mutual Fund has a NAV of $1
per share. During the year, the assets held by this fund appreciated by 2.5 percent. If you had invested
$50,000 in this fund at the start of the year, how many shares would you own at the end of the year?
What will the NAV of this fund be at the end of the year? Why? Remember to complete all parts of the
question, show your work, and report the results of your analysis.
Quiz
Week 1 Quiz - BUS405 Principles of Investments
Assignment
Week 1- Assignment - Annualized Returns – Chapter 3 problem 18 - BUS405 Principles of Investments
Complete problem 18 in Chapter 3 (shown below) and submit to the instructor. Show your work to find
the annualized return for each of the listed share prices. Write a 100 word analysis of the process to
calculate these annualized returns.
Suppose you have $28,000 to invest. You’re considering Miller-Moore Equine Enterprises (MMEE), which is
currently selling for $40 per share. You also notice that a call option with a $40 strike price and six months
to maturity is available. The premium is $4.00. MMEE pays no dividends. What is your annualized return
from these two investments if, in six months, MMEE is selling for $48 per share? What about $36 per
share?
Week Two
Readings

2. Chapter 5: The Stock Market
Chapter 6: Common Stock Valuation
Chapter 7: Stock Price Behavior and Market Efficiency
Chapter 8: Behavioral Finance and the Psychology of Investing
Discussions
Week 2 – DQ1 - Primary and Secondary Markets - BUS405 Principles of Investments
Complete Concept Question 1 from Chapter 5: If you were to visit your local Chevrolet retailer, there is
both a primary and a secondary market in action. Explain. Is the Chevy retailer a dealer or a broker?
Remember to complete all parts of the question and support your answers with examples from the text
and other resources.
Week 2 – DQ2 - Contrarian Investing - BUS405 Principles of Investments
Complete Concept Question 9 from Chapter 8: What does it mean to be a contrarian investor? How would
a contrarian investor use technical analysis? Post your answers to the discussion board. Remember to
complete all parts of the question and support your answers with examples from the text and other
resources.
Quiz
Week Two Quiz - BUS405 Principles of Investments
Assignment
Week 2 – Assignment - Abbott Laboratories Problem - BUS405 Principles of Investments
After reading the Value Line figures and information on Abbott Laboratories in the Questions and Problems
section of Chapter 6 (just before Problem 27), complete Problems 27, 28, 29, 30, and 31 and submit to
your instructor. Show your calculations and in your response to problem 31 write a 100 to 200 word
defense of your position as to the value of Abbott Laboratories stock at its current price of $50 per share.
27. What is the sustainable growth rate and required return for Abbott Laboratories? Using these values,
calculate the 2010 share price of Abbott Laboratories Industries stock according to the constant dividend
growth model.
28. Using the P/E, P/CF, and P/S ratios, estimate the 2010 share price for Abbott Laboratories. Use the
average stock price each year to calculate the price ratios.
29. Assume the sustainable growth rate and required return you calculated in Problem 27 are valid. Use
the clean surplus relationship to calculate the share price for Abbott Laboratories with the residual income
model.
30. Use the information from the previous problem and calculate the stock price with the clean surplus
dividend. Do you get the same stock price as in the previous problem? Why or why not?
31. Given your answers in the previous questions, do you feel Abbott Laboratories is overvalued or
undervalued at its current price of around $50? At what price do you feel the stock should sell?
Week Three
Readings
Chapter 9: Interest Rates
Chapter 10: Bond Prices and Yields
Discussions

3. Week 3 – DQ1 - Forward Interest Rates - BUS405 Principles of Investments
Complete Problem 16 from the Questions and Problems section of Chapter 9: According to the pure
expectations theory of interest rates, how much do you expect to pay for a one-year STRIPS on February
15, 2011? What is the corresponding implied forward rate? How does your answer compare to the current
yield on a one-year STRIPS? What does this tell you about the relationship between implied forward rates,
the shape of the zero coupon yield curve, and market expectations about future spot interest rates?
Remember to complete all parts of the questions, and report the results of your analysis.
Week 3 – DQ2 - Bond Prices versus Yields - BUS405 Principles of Investments
Complete Concept Question 9 of Chapter 10: (a) What is the relationship between the price of a bond and
its YTM? (b) Explain why some bonds sell at a premium to par value, and other bonds sell at a discount.
What do you know about the relationship between the coupon rate and the YTM for premium bonds? What
about discount bonds? For bonds selling at par value? (c) What is the relationship between the current
yield and YTM for premium bonds? For discount bonds? For bonds selling at par value? Remember to
complete all parts of the questions, and report the results of your analysis.
Quiz
Week 3 Quiz - BUS405 Principles of Investments
Assignment
Week 3 – Assignment – Bootstrapping Chapter 10 Problem 31 - BUS405 Principles of Investments
Complete problem 31 of Chapter 10 (shown below), and submit to your instructor. Show your calculations
and the algebraic manipulation of the price equation for the bond. In addition to solving the problem, write
a 100 to 200 word essay on the term structure of fixed income securities.
One method used to obtain an estimate of the term structure of interest rates is called bootstrapping.
Suppose you have a one-year zero coupon bond with a rate of r1 and a two-year bond with an annual
coupon payment of C. To bootstrap the two-year rate, you can set up the following equation for the price
(P) of the coupon bond: P=C_1/(1+r_1 )+(C_2+Par value)/(1+r_2 )^2
Because you can observe all of the variables except r2, the spot rate for two years, you can solve for this
interest rate. Suppose there is a zero coupon bond with one year to maturity that sells for $949 and a
two-year bond with a 7.5 percent coupon paid annually that sells for $1,020. What is the interest rate for
two years? Suppose a bond with three years until maturity and an 8.5 percent annual coupon sells for
$1,029. What is the interest rate for three years?
Week Four
Readings
Chapter 11: Diversification and Risky Asset Allocation
Chapter 12: Return, Risk, and the Security Market Line
Chapter 13: Performance Evaluation and Risk Management
Discussions
1. Week 4 – DQ1 – Expected Returns and Deviation - BUS405 Principles of Investments
Complete Problems 1, 2, and 3 from the Questions and Problems section of Chapter 11 (shown
below). Remember to complete all parts of the questions, and report the results of your analysis.
a. Use the following information on states of the economy and stock returns to calculate the
expected return for Dingaling Telephone.
StateofEconomy Probability of State of the Economy Security Return if State Occurs
Recession .30 -8%

4. Normal .40 13
Boom .30 23
2. b. Using the information in the previous question, calculate the standard deviation of returns.
c. Repeat Questions 1 & 2 assuming that all three states are equally likely.
3. Week 4 – DQ2 – Portfolio Weights - BUS405 Principles of Investments
Complete Problem 10 from the Questions and Problems section of Chapter 12: A stock has a beta
of .9 and an expected return of 9 percent. A risk-freeassetcurrentlyearns 4 percent.
a. What is the expected return on a portfolio that is equally invested in the two assets?
b. If a portfolio of the two assets has a beta of .5, what are the portfolio weights?
c. If a portfolio of the two assets has an expected return of 8 percent, what is its beta?
d. If a portfolio of the two assets has a beta of 1.80, what are the portfolio weights? How do you
interpret the weights for the two assets in this case? Explain.
Quiz
Week 4 Quiz - BUS405 Principles of Investments
Assignment
Week 4 – Assignment – Performance Metrics Chapter 13 Problem 22- BUS405 Principles
of InvestmentsComplete Problem 22 in the Questions and Problems section of Chapter 13 (shown
below). When you pick the best choice for your portfolio, defend your decision in a 100 - 200 word
essay.
You have been given the following return information for two mutual funds (Papa and Mama), the
market index, and the risk-free rate.
Year PapaFund MamaFund Market Risk-Free
2008 -12.6% -22.6 -24.5% 1%
2009 25.4 18.5 19.5 3
2010 8.5 9.2 9.4 2
2011 15.5 8.5 7.6 4
2012 2.6 -1.2 -2.2 2
Calculate the Sharpe ratio, Treynor ratio, Jensen’s alpha, information ratio, and R-squared for both
funds and determine which is the best choice for your portfolio.
Week Five
Readings
Chapter 14: Futures Contracts
Chapter 15: Stock Options
Discussions
Week 5 – DQ1 – Hedging with Futures- BUS405 Principles of Investments

5. Complete Concept Question 7 from Chapter 14: The town of South Park is planning a bond issue in
six months and Kenny, the town treasurer, is worried that interest rates may rise, thereby
reducing the value of the bond issue. Should Kenny buy or sell Treasury bond futures contracts to
hedge the impending bond issue? Remember to complete all parts of the question and support
your answers with examples from the text and other resources.
Week 5 – DQ2 – Option Strategies- BUS405 Principles of Investments
Complete Concept Question 12 from Chapter 15: Recall the options strategies of a protective put
and covered call discussed in the text. Suppose you have sold short some shares of stock. Discuss
analogous option strategies and how you would implement them. (Hint: They’re called protective
calls and covered puts.) Remember to complete all parts of the question and support your answers
with examples from the text and other resources.
Final Project
Week 5 – Final Project – Construct a well-diversified portfolio - BUS405 Principles of Investments
The student will construct a well-diversified portfolio using an initial investment stake of $50,000
(the portfolio should use 95% of the fund, but they may not use more than $50,000). The student
may include stocks, common or preferred; bonds, corporate or U.S. Treasury bonds; mutual funds;
and futures contract or options. The student will use the closing prices from the first day of the
class to determine the price of each issue. Only whole lots of any issues may be acquired, that is
no less than 100 shares of common or preferred stock; no less than 5 corporate bonds or $10,000
for U.S. Treasury Bonds; no fewer than the minimum required investment for any mutual fund;
and no fewer than 5 contracts for any option or futures position. The settlement date will be the
first day of Week 3. The student does not have to use all of the above mentioned securities, but
they must use more than one class. Transaction costs are ignored in the creation of the portfolio.