Problem 5 page 21
Sally is reviewing the performance
of several portfolios in the family trusts. Trust A is managed by Wall Street
Investment Advisors and Trust B is managed by LaSalle Street Investment
Advisors. Both trusts are invested in a combination of stocks and bonds and
have the following returns:
Trust
A Trust B
Year 1 15% 12%
Year 2 10 15
Year 3 -4 -2
Year 4
25
20
Year 5 -8 -5
- a.
Calculate the annualized geometric and arithmetic returns over this 5-year
period. - b. Which
manager performed the best, and is there a significant enough difference
for Sally to move her money to the winning manager? - c.
Explain the difference between the geometric and arithmetic returns.
Problem 5 page 72
You sell 100 shares of Norton
Corporation short. The price of the stock is $60 per share. The margin
requirement is 50 percent.
- a. How
much is your initial margin? - b. If
stock goes down to $42, what is your percentage gain or loss on the
initial margin (equity)? - c. If
stock goes up to $67.50, what is your percentage gain or loss on the
initial margin (equity)? - d. In
part c, if the minimum margin standard is 30 percent, will you be
required to put up more margin? (Do the additional necessary calculations
to answer this question
Problem 12 Page 73
Assume the following five companies are used in computing an
index:
Company
Shares outstanding Base period jan 1, 1984 current period December 31, 2007 marketprice
A
6,000 $
6
$ 12
B
2,000
5
18
C
10,000 8
40
D
1,000
20
10
E 4,000
15
32
- a. If
the index is price weighted, what will be the value of the index on
December 31, 2007? (Take the average price on December 31, 2007, and divide
by the average price on January 1, 1984, and multiply by 100.) - b. If
the index is value weighted, what will be the value of the index on
December 31, 2007? (Take the total market value on December 31, 2007, and
divide by the total market value on January 1, 1984, and multiply by 100.) - c.
Explain why the answer in part b is different from the answer in
part a.
