FINA2802G Investments and Portfolio Analysis (Spring, 2011)
Dr. Dragon Tang
Homework 1
Due: 1pm, Wednesday, 9 Feb, 2011
Please TYPE the assignment and submit it to tutor’s mail box: No.8 (Grace Yu), 9/F K.K.Leung Building. Late assignment will receive zero mark. Remember to type your Name and University No. on the upper right-hand corner.
1. Financial Markets and the Economy. Why is financial market important to our economy? What are the other ways to finance the firms and stimulate economic growth? (Think about Japan, Germany, etc.) What are the advantages and disadvantages between those ways and the financial market?
2. Investing in Competitive Markets. You are a mutual fund manager. You have been making 9% annual return for your fund. Now your boss wants you to have a higher return, what will you tell your boss?
3. Corporate Governance. Briefly discuss the agency problem (refer to section 1.3).
4. Municipal Bonds. Suppose the annual yield on a 10-year Municipal bond is 3.20% while the annual yield on a 10-year Treasury bond is 4.20%.
a) Which category of taxpayers will find the 10-year Bond more attractive than the10-year Municipal bond?
b) What effect does the Dividend Tax Reform of 2003 have on the yield on Munis? Clearly explain the logic behind your answer. [Find information about the Reform yourself.]
5. Current Yield of Corporate Bond. What is the current yield on a corporate bond that has a price of $1,125 and a coupon rate of 6%? Assume that coupon interest is paid semi-annually and the bond has a face value of $1,000.
6. Stock and Bond Market Indexes. Stock A sells at $30 and has 40 million shares outstanding in the market. Stock B sells at $45 and has 20 million shares outstanding. Stock C sells at $24 and has 5 million shares outstanding.
a) Calculate the price-weighted, value-weighted, and equally weighted market index composed of these three stocks.
b) If stock A is split two for one, how should you...