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*.