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
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text: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
Transcribed Image Text: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
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 1 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education