Investor’s Business Daily – Investors.com
Bloomberg Business – Bloomberg.com
Bonds Online – Bondsonline.com
CBOE – CBOE.com
Yahoo Finance – Finance.Yahoo.com
SEC GOV EDGAR – sec.gov/edgar
Barron’s – barrons.com
CNBC – cnbc.com/pro
Treasury Direct – treasurydirect.gov
Goldman Sachs – goldmansachs.com
YouTube – Portfolio Management
Motley Fool
Morning Star – Morningstar.com
FI360 – fi360.com
Value Line – valueline.com
Earnings Cast – earningcast.com
WEEK 1
CHAPTER 1
DISCUSSION:
1. Briefly discuss each of the eight steps in the investment planning process. (p. 1)
2. Explain the importance of client assessment and capital markets assessment. (pp. 1-2)
3. Describe the three types of investments that can be included within a portfolio. (p. 2)
4. Discuss the importance of continuous monitoring of portfolios. (p. 3)
CHAPTER 2
DISCUSSION:
1. Describe some of the debt instruments that may be included in a money market fund and the nature of these type instruments. (p. 5)
2. Explain how an investor might manage interest rate risk through the use of CDs. (p. 7, item #8)
3. Briefly discuss the nature of fees associated with the purchase of CDs as they relate to (a) banking institutions and (b) brokerage firms. (p. 9)
CHAPTER 3
DISCUSSION:
1. Describe why a risk adverse investor would be inclined to favor a direct issue of Treasury Department over a corporate issue of similar length to maturity. (pp. 13-14)
2. Discuss the tax ramifications of purchasing a T-bill on the open market prior to its maturity. (pp. 14-15)
3. Briefly discuss, if all government securities with like maturites have the same risk/reward characteristics, WHY an investor might be selective in the type of security he purchases? (p. 16)
CHAPTER 4
DISCUSSION:
1. Explain the rationale behind why an investor might choose NOT to sell bonds. (pp.20-21)
2. Discuss how interest income is usually received and the tax ramifications to an investor who receives such income in a taxable account. (pp. 21-22)
3. Briefly explain what the affect of interest rate movements are on the price of corporate bonds, especially as it relates to their term to maturity. (p. 24)
Chapter 5
CHAPTER DISCUSSION:
1. Briefly discuss how a convertible security can offer a “floor” value below which an investor can protect his investment (pp. 27-28)
2. Explain why the rates offered by convertible securities are generally lower than those available on nonconvertible issues of similar quality (p. 29)
3. Tell how profits and losses on a preferred stock are treated (p. 29)
4. Discuss the major advantages of an investor who buys a “stock purchase warrant” and a nonconvertible bond (pp. 27-28)
CHAPTER 6
DISCUSSION:
1. Distinguish between the three types of municipal bonds presented in the introduction, and decide when investors might find these financial instruments to be a useful “tool” in their portfolios (p. 35)
2. Explain why a risk averse investor might prefer investing in a “general obligation’ bond, rather th.
Enzyme, Pharmaceutical Aids, Miscellaneous Last Part of Chapter no 5th.pdf
Investor’s Business Daily – Investors.comBloomberg Business – Blo.docx
1. Investor’s Business Daily – Investors.com
Bloomberg Business – Bloomberg.com
Bonds Online – Bondsonline.com
CBOE – CBOE.com
Yahoo Finance – Finance.Yahoo.com
SEC GOV EDGAR – sec.gov/edgar
Barron’s – barrons.com
CNBC – cnbc.com/pro
Treasury Direct – treasurydirect.gov
Goldman Sachs – goldmansachs.com
YouTube – Portfolio Management
Motley Fool
Morning Star – Morningstar.com
FI360 – fi360.com
Value Line – valueline.com
Earnings Cast – earningcast.com
WEEK 1
CHAPTER 1
DISCUSSION:
1. Briefly discuss each of the eight steps in the investment
planning process. (p. 1)
2. Explain the importance of client assessment and capital
markets assessment. (pp. 1-2)
3. Describe the three types of investments that can be included
within a portfolio. (p. 2)
4. Discuss the importance of continuous monitoring of
portfolios. (p. 3)
CHAPTER 2
DISCUSSION:
1. Describe some of the debt instruments that may be included
2. in a money market fund and the nature of these type
instruments. (p. 5)
2. Explain how an investor might manage interest rate risk
through the use of CDs. (p. 7, item #8)
3. Briefly discuss the nature of fees associated with the
purchase of CDs as they relate to (a) banking institutions and
(b) brokerage firms. (p. 9)
CHAPTER 3
DISCUSSION:
1. Describe why a risk adverse investor would be inclined to
favor a direct issue of Treasury Department over a corporate
issue of similar length to maturity. (pp. 13-14)
2. Discuss the tax ramifications of purchasing a T-bill on the
open market prior to its maturity. (pp. 14-15)
3. Briefly discuss, if all government securities with like
maturites have the same risk/reward characteristics, WHY an
investor might be selective in the type of security he purchases?
(p. 16)
CHAPTER 4
DISCUSSION:
1. Explain the rationale behind why an investor might choose
NOT to sell bonds. (pp.20-21)
2. Discuss how interest income is usually received and the tax
ramifications to an investor who receives such income in a
taxable account. (pp. 21-22)
3. Briefly explain what the affect of interest rate movements are
on the price of corporate bonds, especially as it relates to their
term to maturity. (p. 24)
Chapter 5
CHAPTER DISCUSSION:
1. Briefly discuss how a convertible security can offer a “floor”
value below which an investor can protect his investment (pp.
27-28)
2. Explain why the rates offered by convertible securities are
3. generally lower than those available on nonconvertible issues of
similar quality (p. 29)
3. Tell how profits and losses on a preferred stock are treated
(p. 29)
4. Discuss the major advantages of an investor who buys a
“stock purchase warrant” and a nonconvertible bond (pp. 27-28)
CHAPTER 6
DISCUSSION:
1. Distinguish between the three types of municipal bonds
presented in the introduction, and decide when investors might
find these financial instruments to be a useful “tool” in their
portfolios (p. 35)
2. Explain why a risk averse investor might prefer investing in a
“general obligation’ bond, rather than a “revenue bond” (p. 36)
3. Elaborate upon the selection process that should be
considered when contemplating the direct purchase of municipal
bonds (pp. 39-40)
CHAPTER 7
DISCUSSION:
1. Briefly discuss how “stripped bonds” are “manufactured,”
and how these issues are priced to be competitive. (p.43)
2. Explain why investors should exercise caution in selecting
target-maturity funds. (p. 43)
CHAPTER 8
DISCUSSION:
1. Identify a zero-coupon bond that has a convertible feature.
(p. 46)
2. 2. Discuss the tax implications of investing in zeros in a
taxable account. (p. 45)
3. How might zero-coupon bonds be utilized by a parent looking
to save enough dollars to fund a college education for his
daughter? (p.45)
CHAPTER 10
DISCUSSION:
4. 1. Briefly discuss how deposits and premiums paid to an
insurance company factor into the purchase of GICs that are
held by it (p. 53)
2. Discuss how the term “Guaranteed” might be misunderstood
by individuals looking for a safe and secure investment (pp. 53-
54)
3. 3. Explain how an investor’s expectation of future interest
rate movements might influence his choice of GIC type (p. 54)
CHAPTER 11
DISCUSSION:
1. Explain why common stock ownership might be preferable to
direct ownership of real estate (p. 57)
2. Discuss what investors should anticipate receiving in terms
of total return (pp. 57-58)
3. Discuss the different ways in which common stock may be
owned (p. 59)
4. List some of the sources that provide information such as
stock listings, trading activity, and security analysis (pp. 59-60)
CHAPTER 23
DISCUSSION:
1. Briefly discuss what is meant by the term “guaranteed,” as it
relates to an annuity (pp. 167-168)
2. Explain the impact inflation may have on a long-term payout
when the annutiy is (a) fixed, (b) variable (p. 169)
3. Identify the occasions when a penalty for premature
distributions of annuity assets does NOT apply (pp. 169-170)
4. Discuss how annuities are treated during the accumulation
phase (p. 171)
CHAPTER 28
DISCUSSION:
1. Briefly discuss how the price of gold is generally determined
(p. 243)
2. Explain when a taxable loss in a precious metal investment is
recognized, and one circumstance where it may not be. (p. 244)
3. List two advantages of “storage certificate programs” as
5. opposed to taking physical delivery of a precious metal. (p.
245)
WEEK 2
CHAPTER 9
DISCUSSION:
1. Briefly discuss when an individual might find that the use of
this tool would be advantageous (p. 48)
2. List and explain briefly the different methods by which
“note” repayment may be scheduled (pp. 49-50)
3. In each of the following circumstances regarding the use of
promissory notes, answer “Yes” or “No” and briefly explain the
reasoning behind your answer:
A. Can a promissory note actually be sold?
B. Can a “note” agreement specify a minimum period for which
the balance will be outstanding?
C. Are loan forms for promissory notes readily available or very
sparse?
(pp. 49-50)
CHAPTER 12
DISCUSSION:
1. Explain what is meant when preferred dividends are
“passed,” and the implications for regular common stockholders
of the company (p. 65)
2. Discuss the implication of “participating” preferred stock
issue ownership (p. 66)
3. Identify the MAIN characteristic that differentiates payments
issued by regular corporate bonds and those dividend payments
of a preferred stock issue (pp. 65-66)
4. Describe the risk profile of an investor who expresses above
average interest in owning preferred stocks (p. 68)
CHAPTER 13
DISCUSSION:
1. Distinguish between a rights offering and a warrant (pp. 71-
6. 72)
5. Explain the significance of the fundamental (intrinsic) value
that a warrant possesses (p. 74)
6. Briefly discuss how longer term (LEAPs) call options parallel
some of the characteristics retained by warrants (pp. 72 and 74)
7. Discuss how the use of leverage (as it relates to the exercise
of a stock warrant) impacts the total return for an investor if:
(a) the underlying stock price increases or (b) the underlying
stock price decreases (p. 72)
CHAPTER 14
DISCUSSION:
A. Briefly explain why “put” options work as natural opposites
to “call” options (p. 81)
B. Determine if leverage plays any significant role in the use of
stock options and if so, does whether it appeals only to the
speculator (p. 82)
C. Explain why these options commonly referred to as “wasting
assets.” (p. 83)
D. Discuss how time management plays a role in the use of a
short-term call option and the purchase of a LEAP (p. 83)
CHAPTER 16
DISCUSSION:
1. Discuss how all “open” positions at a tax year’s end are
treated (p. 101)
2. Briefly explain what role a “commodity pool” might play as a
viable alternative to a commodity futures investment (p. 101)
3. Discuss the high risk nature of investing in these type
contracts and determine what role margin plays in the
“riskiness” of such investments (pp. 100-101)
CHAPTER 17
DISCUSSION:
1. Distinguish between “no-load,” “back-load,” and “12b-1”
fees (p. 108)
2. Explain the importance of a mutual fund’s historical
7. performance and some key points to consider when utilizing this
information (p. 110)
3. Discuss the importance in distinguishing between diversified
and non-diversified funds in an investment portfolio, as well as
how this will affect its risk profile (p. 111)
4. List some of the different sources you can research for
information on mutual funds and fund investing (pp. 111-113)
CHAPTER 19
DISCUSSION:
1. Distinguish between a mutual fund and a hedge fund (p. 133)
2. Explain the importance of a hedge fund’s historical
performance and some key points to consider when utilizing this
information (pp. 135-136)
3. Discuss the importance of using professional management
when investing in hedge funds (p. 133)
4. List some of the different sources you can research for
information on hedge funds and fund investing (p.137)
CHAPTER 20
DISCUSSION:
1. Briefly discuss what a separately managed account is and
how it differs from a pooled account (p. 139)
2. Explain how an SMA works (p. 139)
3. Explain when an SMA should be chosen over another form of
investment (p. 140)
CHAPTER 21
DISCUSSION:
1. Briefly discuss what a structured product is (pp. 143-144)
2. Explain how a structured product works (p. 144)
3. 3. Explain the advantages and disadvantages of investing in a
structured product (pp. 144-145)
CHAPTER 24
DISCUSSION:
1. Discuss how “psychic income” concerns may play a role in an
8. investor desiring to invest in real estate (p. 195)
2. Identify typical expenses that an investment property owner
can deduct for income tax purposes, and contrast them with
activity that must be “capitalized” (pp. 195-196)
3. Describe the tax implications of IRC Section 483 on a seller
of real estate (pp. 198-199)
4. Explain some benefits resulting from the real estate
ownership in corporate form (pp. 202-204)
CHAPTER 26
DISCUSSION:
1. Distinguish between “straight” and “modified” pass-through
certificates (p. 229)
2. List the three elements of a monthly distribution that an
investor in a mortgage-backed security receives (p. 226)
3. Discuss the risk vs. return tradeoff when investing in
mortgage-backed securities (pp. 224-225)
4. Describe the consequences of one or more mortgages in an
underlying pool of mortgages going into default (p. 227)
CHAPTER 27
DISCUSSION:
1. Briefly discuss why an investor desiring a passive role in
nonfinancial asset investing might be interested in an oil and
gas reserves operation. (p. 235)
2. Explain the difference between “percentage depletion” and
“cost depletion.” (pp. 235-236)
3. List some of the alternatives available to risk-seeking
investors who are NOT interested in oil and gas tax shelters (p.
237)
CHAPTER 28
DISCUSSION:
1. Briefly discuss how the price of gold is generally determined
(p. 243)
9. 2. Explain when a taxable loss in a precious metal investment is
recognized, and one circumstance where it may not be. (p. 244)
3. List two advantages of “storage certificate programs” as
opposed to taking physical delivery of a precious metal. (p.
245)
WEEK 3
CHAPTER 30
DISCUSSION:
1. Distinguish between a master limited partnership and a
private limited partnership (p. 255)
2. Explain the ways in which “leverage” can affect an
investment in limited partnerships (p. 256)
3. State some reasons why a careful reading of any partnership
agreement is important, especially as it relates to liability
concerns and payments to investors (pp. 258-259)
CHAPTER 31
DISCUSSION:
1. Briefly explain what is meant by the terms “letter stock” and
“mezzanine financing” (p. 263)
2. Explain why privately-placed debt issues normally provide a
higher rate of return than do securities that are traded publicly
(pp. 264-265)
3. Discuss how mergers and acquisitions play a role in venture
firms (pp. 263-264)
WEEK 4
CHAPTER 33
DISCUSSION:
1. Explain why focusing only on the potential for loss in a
portfolio is insufficient in explaining what investment risk
really is (p. 271)
2. Distinguish between inflation risk and inflation as tax (p.
275)
10. CHAPTER 34
DISCUSSION:
1. Distinguish among the following risk measurement terms:
beta, r-squared, covariance, and correlation coefficient (pp.
286-289)
2. Define the nature of probability distributions and the two
types associated with them (pp. 281-282)
3. Discuss the importance of an investment advisor being able
to explain to his or her client why a mutual fund characterized
by a very low standard deviation could be riskier than a similar
type fund with a higher absolute number (pp. 281-282)
4. Discuss the problem raised when calculating standard
deviation using probability distributions (pp. 282-285)
CHAPTER 35
DISCUSSION:
1. Briefly discuss the main disadvantage of relying too heavily
upon a mathematical “solution” to a financial planning task (pp.
298-299)
2. Explain how the valuation formula of a perpetual bond, for
time value purposes, is most useful (p. 300)
3. Distinguish between the results arrived at after calculating
for (a) an ordinary annuity payment and, (b) an annuity due
payment (pp. 305-306)
4. Discuss what is mean by the “effective annual rate” when
there is more than one compounding period in a year (p. 312)
WEEK 5
CHAPTER 36
DISCUSSION:
1. List the six components or sources of return for which proper
analysis of an investment’s return must include (pp. 317-323)
2. Briefly explain how a simple arithmetic average return for an
investment over a 2-year period can overstate its “real” rate of
return (pp. 318-319)
3. Discuss the implications of the following statement: “It’s not
11. how much you earn on an investment, it’s how much you keep”
(pp. 316-323)
4. Explain the shortcomings of the IRR Method, especially as it
relates to cash flows emanating from an investment (pp. 328-
330)
CHAPTER 37
DISCUSSION:
1. The coupon rate is also known as the stated rate. How is this
interest generally paid? Is there any time when no cash flow is
received from a bond? (p. 345)
2. Discuss how investors arrive at a desired rate of return for a
bond (pp. 345-348)
3. Explain why a bond’s yield-to-maturity is the “effective rate”
that the holder of the bond expects to receive (pp. 348-351)
4. Briefly discuss the relationship between the formulas used to
calculate (a) the after-tax yield, and (b) the taxable equivalent
yield of a bond (pp. 349-350)
CHAPTER 38
DISCUSSION:
1. Briefly explain why, in valuing a stock, the variable of cash
flow “estimation” may pose a problem when calculating its
intrinsic value (p. 357)
2. Distinguish between the terms “capitalized earnings” and
“capitalization rate” (p. 361)
3. Describe the relationship between a dividend payout ratio and
a retained earnings ratio and determine whether one formula be
derived from the other (pp. 361-364)
WEEK 6
CHAPTER 39
DISCUSSION:
1. Discuss the progression of the Markowitz portfolio model
into the capital market theory (p. 367)
2. Describe what is meant by the security market line being the
graphic representation of the capital asset pricing model (pp.
12. 368-369)
3. Contrast the differences between option writing and option
buying (pp. 370-371)
4. Why isn’t the Black-Scholes option model based upon an
American style option? (p. 374)
CHAPTER 40
DISCUSSION:
1. Discuss the investment process and the general steps relating
to it (p. 379)
2. Briefly discuss the three phases in the investor life cycle (pp.
379-380)
3. Explain the dilemma posed when attempting to measure the
risk tolerance or preferences of a client, especially as it relates
to (a) indifference or utility curves and, (b) Prospect Theory
(pp. 380-381)
4. Discuss the importance of every financial advisor creating an
investment policy statement for each client (pp. 381-383)
5. Distinguish between the different risk-adjusted performance
measures: the (a) Sharpe ratio, (b) Treynor ratio, and (c)
Information ratio (pp. 384-385)
CHAPTER 41
DISCUSSION:
1. Briefly explain why having similarly correlated assets in a
portfolio may actually be more risky than having assets with a
low degree of correlation (pp. 389-390)
2. Describe how historical and expected relationships between
assets aid in the generation of an “efficient frontier” of
potential portfolios for consideration (p. 391)
3. Distinguish between strategic asset allocation and tactical
asset allocation (pp. –392-394)
4. Briefly explain how the “January effect” anomaly contradicts
the efficient market hypothesis or theory (p. 397)
WEEK 7
CHAPTER 43
13. DISCUSSION:
1. Discuss how strictly adhering to an investment strategy of
dollar cost averaging over time should always result in a lower
average cost to the investor than if a share averaging strategy
was followed (pp. –413-415)
2. Describe the market environment when the investment
strategies of dollar cost averaging and bond laddering work best
(pp. 416-418)
3. Discuss how the strategy of immunization is related to (a)
reinvestment risk and (b) interest rate risk (pp. 416-417)
CHAPTER 44
DISCUSSION:
1. Analyze the different derivative security tools involved in
hedging, briefly explaining how each are used to attain its
objective to lower risk (pp. 421-422)
2. Discuss the implications of employing portfolio insurance in
an investment portfolio (p. 421)
3. Distinguish between the short sales of equity securities and
those of exchange-traded funds (p. 426)
4. Discuss the implications of the following statement: “The
derivative markets are actually negative-sum games.” (p. 428)
5. Define an offsetting notional principal contract and explain
when might an investor might engage in such a transaction (p.
441)
6. Explain how a combination of a long call and a short put
equates to holding a synthetic position in the underlying stock
(pp. 430-431)
CHAPTER 45
DISCUSSION:
1. Discuss the roles that initial margin and maintenance margin
play in the leveraging of investment assets in a client’s
portfolio (pp. 447-448)
2. Discuss the advantages and disadvantages of the leveraging
of financial assets (pp. 449-450)
3. Identify some of the alternative sources for “leverage”
borrowing (p. 451)
15. alternative courses of action, and may result in additional fact
finding and discovery on the part of the planner. After making
recommendations, the client may provide or revise their goals
(step two) which will require additional analysis (step three).
Communicating the Recommendation(s) The financial planner
ensures recommendations are communicated and understood by
the client. The client gives acceptance of recommendations, and
the planner and client both are cognizant of direct and indirect
consequences of actions taken. When presenting
recommendations to a client, planners often need to revisit
previous steps in the planning process. Communications may be
live, virtual, or over the phone, and multiple communication
sessions are likely to occur before the planning process moves
to implementation. Financial professionals should take
particular care when working with vulnerable populations to
ensure they understand the communications. Implementing the
Recommendation(s) After agreement is reached between the
client and planner on a course of action, the planner outlines
how implementation will occur. If implementation results in
additional planner compensation, the form and magnitude of
compensation needs to be disclosed to the client. Depending on
the business model of the planner, the client may implement his
or her own recommendations or the planner may implement
recommendations on behalf of the client. Any conflict of
interest of the planner through the implementation of a product
should be disclosed to the client. Monitoring the
Recommendation (s) This step of the planning process is limited
by the first. The client and planner need to agree on monitoring
responsibilities when establishing the relationship. Planners
who entered into a long term relationship with their clients have
an obligation of following up and updating the plan. Monitoring
may occur on a time weighted basis, such as monthly or
annually, or monitoring may occur on a strategic basis, such as
when asset allocations become misaligned. Practicing within
Professional and Regulatory Standards Financial planners,
insurance agents, stock brokers and other financial service
16. professionals must be constantly vigilant of their dynamic
regulatory environments. Today’s regulatory environment
changes quickly; standards of care due to clients require
exploration and are undergoing regulatory challenges.
The basic form of a convertible bond or preferred stock
offers some protection in the event that common stock prices
decline. If the price of the company’s common stock falls below
the convertible’s value as a fixed income security, the investor
would still have a bond or preferred stock with a price
determined by its intrinsic worth as a bond or preferred stock.
This concept is often referred to as providing a “floor” under
the price of the convertible security.
These rates are generally lower because of the added safety
and protection for investors if they want to avoid price declines
the convertibles tend to pay less.
Profits or losses on the sale of a convertible bond or
preferred stock, or on the maturity of a convertible bond, are
treated as capital gains or losses
The advantages of the stock purchase warrant are options to
buy a stock as a stated given price at that time and fixed the
same were as convertible and conversions. In addition the
leverage and capital gain potential of the warrants.
Assignment 3: Demand and Supply
The use of E-Books has increased in recent years, especially
with the advent of mobile E-Readers. A marketing research
firm recently developed the following supply and demand
schedules for E-books:
18. 2
15000
4500
Assignment Guidelines:
Using Microsoft (MS) Excel, construct a graph showing supply
and demand in the E-Book market based on the data above.
(Save this file because you will re-work it later in the
assignment.) When finished, copy and paste or import your
graph into an MS Word document.
(Tutorials for working with MS Excel and MS Word can be
found through theTutoring Services and Tutorials link at the top
of the page.)
In your MS Word document, below your imported graph,
respond to the following:
1. Explain how the Laws of Supply and Demand are illustrated
in this graph.
2. Describe the equilibrium price and quantity in this market.
3. Assume that the government imposes a price floor of $12 in
the E-Book market. Explain what would happen in this market.
4. Assume that the price floor is removed and a price ceiling is
imposed at $6. Explain what would happen in this market.
5. Now, assume that the price of E-Readers (used with E-Books)
drops from $60 by fifty percent. How would this change impact
the demand for E-Books? Explain your answer. Then,
reconstruct your original graph to show this change and place it
in your MS Word document below your explanation.
Remember, quotations, paraphrases, and ideas you get from
19. books, articles, or other sources of information should be cited
using APA style. Help with citing sources can be found through
the Academic Resources page under Course Home.
Save your MS Word file using the
filename LastnameFirstInitial_M1A3 and submit it to the M1:
Assignment 3 Dropbox by Wednesday, November 11, 2015.