аЯрЁБс>ўџ ;=ўџџџ<џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџьЅС{` №П'bjbjюFюF ;$Œ,Œ,џ 'џџџџџџЄ       Ц Ц Ц 8ў $ Ж::"\\\\\\ŠŒŒŒŒŒŒ$Сh)ВА \\\\\А  \\Х^^^\d \ \Š^\Š^^  ^\. @F№{:/ХЦ Рм^Šл0 ^лœjл^л ^,\\^\\\\\ААX\\\ \\\\d ‚ D‚       џџџџ CHAPTER 12 INVESTING IN STOCKS SOLUTIONS TO END OF CHAPTER APPLICATION PROBLEMS Pages 412-413 in Textbook 1. Risk and Return a. Stock L: Large-cap Stock M: Mid-cap Stock S: Small-cap b. Stock L: Income Stock M: Growth and Income Stock S: Growth c. Stock S is best for aggressive investors since it will have the greatest risk and growth potential and will not provide investors with any income to offset short –term losses. d. Stock L is best for conservative investors since it will have less variability over time and its dividend will provide a stable income. e. If you have a 5 year time horizon, stocks are all a bit risky since they could experience short-term declines in value. Of these three, Stock L will expose you to the least risk of loss of principal. You definitely wouldn’t want to invest in Stock S since it currently has negative income and its has already experienced large price appreciation. 2. Classify Stocks a. KMart: Value; Mid-cap; Services; Retail (Department & Discount) b. Intel: Growth, Large-cap; Technology; Semiconductors c. General Motors: Value; Large-cap; Consumer Cyclical; Auto & Truck Manufacturing d. Level 3 Communications: Growth; Mid-cap; Services; Communications. 3. Stock Split a. 3:1 x 150 = 450 shares b. 90/3 = $30 per share c. You would expect the share price after the split to be slightly higher than $30 on the expectation of future good performance. 4. Margin a. $3000/50 = 60 shares. $5 profit per share Percent return = (60 x 5)/3,000 = 10% b. Margin allow you to earn the $5 per share with an investment of only 55% of the original $3,000 cost. 55% x 3,000 = $1,650. Percent return = (60 x 5)/1,650 = 18.2% The net return on investment in this scenario will be lower by the amount of interest paid on the margin loan. 5. Types of Orders a. Total cost = (100 x 25.50) + 20 = $2,570, or $25,70 per share. b. Total cost = (100 x 25.50) + 20 = $2,570, or $25.70 per share. c. This order would not be executed since the market price has risen above your maximum. If the market price later fell to $25.25 within the time period of the order, the total cost would be (100 x 25.25) + 20 = $2,545, or 25.45 per share. 6. Ratios a. EPS = 2,000,000/1,000,000 = $2 per share b. P/E = $30.00/$2.00 = 1.5 times c. Dividend yield = $1.00/$27.00 = 3.7%. Note that investors who buy the stock today will expect a dividend yield of $1.00/$30.00 =- 3.3%, if dividends don’t rise this year. d. Total return = ($1 + $30 - $27)/$27 = 14.8% 7. Market Risk a. Vixen Inc. has the most market risk since its beta (2.5) is the highest. The lowest beta stock (0.5) is Luke Enterprises. b. Vixen Inc would be expected to experience an increase of roughly 2.5 x 10 = 25%. c. Luke’s expected change in value would be about half of the market’s loss, or -5%. d. The portfolio beta is the weighted average of the betas of the individual stocks = 1.25 8. Dividends a. 400 x 0.90 = $360.00 this quarter. b. If you are in the 15% bracket for federal income taxes, your dividends will be taxes at the capital gains tax rate of 5%. c. $3.60/$65.00 = 5.5% 9. Locking in Profits a. Her cost to buy the shares was (100 x 20) + 35 = 2,035. Because of her limit order, her stock would have been sold at $26.00, generating (100 x 26) – 35 = $2,565 to Ariel. Her return on investment was (2,565 – 2,035)/2,035 = 26% b. If she had placed a market order instead, she might have had it executed at $25.50, in which case she would have gotten (100 x 25.50) – 35 = $2,515. Her return on investment would have then been (2,515 – 2,035)/2,035 = 23.6%     PAGE  PAGE 142 PnŸ Џ Ч г  ” ‹’СЮU_0ўџ   !"#%&'њђэщэщэщэщэщэщэщэщэщэщхнйнйнйнйЯЩЯЩщЯЩЯОЯЩщйхhе…0JmHnHu hе…0Jjhе…0JUhы jhы UhBV‘hе… hе…5hЛDXhЄaя5 hЄaя5-Pjk–ЇКЭшј­ : › œ Џ ђ * } У Ф д ю їъхххиЯЯиЯЯиииххЦЦЦЦЦхи„ ^„ gdе…„@^„@gdе… „@„рў^„@`„рўgdе…gdе… „ „рў^„ `„рўgdе…$a$gdЄaяџ&ўўю  ‰ Š ” С ч fŽўџT–‡ˆ’ОрŽНОЮLЁіђђђэђђђђђээффђзэђђђђээђђђ „ „ ^„ `„ gdе…„ ^„ gdе…gdе… „@„рў^„@`„рўgdе…іQR_…0рўџ  #$ђээђђђээђђђэыыыыыыыыпныпн „ќџ„&`#$gdы gdе… „@„рў^„@`„рўgdе…$%&'§§јgdе…901hP:pЄaяАа/ Ар=!А"А# $ %ААаАа а†œ@`ёџ@ ЄaяNormalCJ_HaJmH sH tH DA@ђџЁD Default Paragraph FontRi@ѓџГR  Table Normalі4ж l4жaі (k@єџС(No List4 @ђ4 ЄaяFooter  ЦрР!.)@Ђ. Єaя Page Number'$џџџџPjk–ЇКЭшј­:›œЏђ*}УФдю‰Š”СчfŽўџT–‡ˆ’ОрŽ Н О Ю L Ё і Q R _ …    0 р  ў џ   #$%(˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜0€€˜@0€€yˆ00Ѕ˜@0€€yˆ00Ѕ˜@0€€yˆ00Ѕ˜@0€€yˆ00Ѕ˜@0€€yШ00yШ00˜@0€€˜@0€€yШ00Ѕyˆ00HЅ(š@0€€ 00 &&&)' ю і$' & ")!•!џ•€ВЗџ џ   %(ˆј­Ж:@dk”•ёіEHЮ ж O Y _ ` џ џ   %(33333333333ў џ џ   "(џ џ   %(хы 8е…BV‘Єaяџ@€ў ў l#ў ў '@@џџUnknownџџџџџџџџџџџџG‡z €џTimes New Roman5€Symbol3& ‡z €џArial"1ˆ№аh2Д“F6Д“Fщ щ !№ ДД4ј ј 2ƒQ№HX №џ?фџџџџџџџџџџџџџџџџџџџџџЄaя2џџCHAPTER 12 INVESTING IN STOCKSCollege of BusinessCollege of Businessўџр…ŸђљOhЋ‘+'Гй0 ˜РЬшє 0< \ h t€ˆ˜ф CHAPTER 12 INVESTING IN STOCKSCollege of Business Normal.dotCollege of Business2Microsoft Office Word@FУ#@„їл9/Х@œk:/Хщ ўџеЭеœ.“—+,љЎ0 hpŒ”œЄ ЌДМФ Ь їфCollege of Businessј G CHAPTER 12 INVESTING IN STOCKS Title ўџџџўџџџ !"#$%ўџџџ'()*+,-ўџџџ/012345ўџџџ§џџџ8ўџџџўџџџўџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџRoot Entryџџџџџџџџ РF )|:/Х:€Data џџџџџџџџџџџџ1TableџџџџлWordDocumentџџџџ;$SummaryInformation(џџџџџџџџџџџџ&DocumentSummaryInformation8џџџџџџџџ.CompObjџџџџџџџџџџџџqџџџџџџџџџџџџўџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџўџ џџџџ РFMicrosoft Office Word Document MSWordDocWord.Document.8є9ВqRoot Entryџџџџџџџџ РF ?i–ѕ/Х@@Data џџџџџџџџџџџџ1TableџџџџлWordDocumentџџџџ;$ ўџџџўџџџ !"#$%ўџџџ'()*+,-ўџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџ?§џџџўџџџўџџџўџџџ>џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџўџџџўџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА SummaryInformation(џџџџџџџџџџџџ&DocumentSummaryInformation8џџџџџџџџCompObjџџџџџџџџџџџџqџџџџџџџџџџџџўџ џџџџ РFMicrosoft Office Word Document MSWordDocWord.Document.8є9ВqўџеЭеœ.“—+,љЎDеЭеœ.“—+,љЎ\ hpŒ”œЄ ЌДМФ Ь їфCollege of Businessј G CHAPTER 12 INVESTING IN STOCKS Title4 $€,
This is a personal WEB site developed and maintained by an individual and not by Seattle University. The content and link(s) provided on this site do not represent or reflect the view(s) of Seattle University. The individual who authored this site is solely responsible for the site's content. This site and its author are subject to applicable University policies including the Computer Acceptable Use Policy (www.seattleu.edu/policies).