7. 8. 9. You own 100 shares of General Electric stock and you want to sell it because you need the money to make a down payment on a stereo. Assume there is absolutely no secondary market system in common stocks. How would you go about selling the stock? Discuss what you would have to do to find a buyer, how long it might take, and the price you might receive. (4 Marks) Explain why the set of points between the risk-free asset and a portfolio on the Markowitz efficient frontier is a straight line. (4 Marks) Draw a graph that shows what happens to the Markowitz efficient frontier when you combine a risk free asset with alternative risky asset portfolios on the Markowitz efficient frontier. Explain this graph. Marks) (4 10. Identify and briefly discuss three criticisms of beta as used in the capital asset pricing model (CAPM). Marks) (4 QUESTION ONE 1. 2. 3. 4. 5. 6. The Wall Street Journal reported that the yield on common stocks is about 2 percent, whereas a study at the University of Chicago contends that the annual rate of return on common stocks since 1926 has averaged about 12 percent. Reconcile these statements. (4 Marks) "Young people with little wealth should not invest money in risky assets such as the stock market, because they can't afford to lose what little money they have." Do you agree or disagree with this statement? Why? (4 Marks) Your healthy 63-year-old neighbor is about to retire and comes to you for advice. From talking with her, you find out she was planning on taking all the money out of her company's retirement plan and investing it in bond mutual funds and money market funds. What advice should you give her? Marks) (4 Discuss how an individual's investment strategy may change as he or she goes through the accumulation, consolidation, spending, and gifting phases of life. Why is a policy statement important? Marks) (4 Your 45-year-old uncle is 20 years away from retirement; your 35-year-old older sister is about 30 years away from retirement. How might their investment policy statements differ? Marks) Define market and briefly discuss the characteristics of a good market.(4 Marks) (4

7. 8. 9. You own 100 shares of General Electric stock and you want to sell it because you need the money to make a down payment on a stereo. Assume there is absolutely no secondary market system in common stocks. How would you go about selling the stock? Discuss what you would have to do to find a buyer, how long it might take, and the price you might receive. (4 Marks) Explain why the set of points between the risk-free asset and a portfolio on the Markowitz efficient frontier is a straight line. (4 Marks) Draw a graph that shows what happens to the Markowitz efficient frontier when you combine a risk free asset with alternative risky asset portfolios on the Markowitz efficient frontier. Explain this graph. Marks) (4 10. Identify and briefly discuss three criticisms of beta as used in the capital asset pricing model (CAPM). Marks) (4 QUESTION ONE 1. 2. 3. 4. 5. 6. The Wall Street Journal reported that the yield on common stocks is about 2 percent, whereas a study at the University of Chicago contends that the annual rate of return on common stocks since 1926 has averaged about 12 percent. Reconcile these statements. (4 Marks) "Young people with little wealth should not invest money in risky assets such as the stock market, because they can't afford to lose what little money they have." Do you agree or disagree with this statement? Why? (4 Marks) Your healthy 63-year-old neighbor is about to retire and comes to you for advice. From talking with her, you find out she was planning on taking all the money out of her company's retirement plan and investing it in bond mutual funds and money market funds. What advice should you give her? Marks) (4 Discuss how an individual's investment strategy may change as he or she goes through the accumulation, consolidation, spending, and gifting phases of life. Why is a policy statement important? Marks) (4 Your 45-year-old uncle is 20 years away from retirement; your 35-year-old older sister is about 30 years away from retirement. How might their investment policy statements differ? Marks) Define market and briefly discuss the characteristics of a good market.(4 Marks) (4

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.12: Uneven, Or Irregular, Cash Flows

Problem 3ST

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