FIN 567 Education Organization -

For more classes visit Assume that you have $500,000 to invest in equities and want to establish a new portfolio that includes ten (10) stocks to be selected from the Dow Jones Industrial Average of 30 companies.
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   FIN 567 Class Project For more classes visit    Assume that you have $500,000 to invest in equities and want to establish a new portfolio that includes ten (10) stocks to be selected from the Dow Jones Industrial Average of 30 companies. It is also desired to start with nearly equal dollar values of each issue. Use current market prices to compute the number of shares required. You are bullish on the markets in the long-term; however, you have read analyst predictions that over the next 18 months the market will likely stay flat with some downside potential. Despite these predictions, you want to make some money in the short-term, and at the same time avoid any downside spikes in the markets. A hedging strategy using options and/or futures seems appropriate. Please develop a plan to accomplish your goal and give a detailed explanation, with numerical computations, of the upside opportunities and the downside risks for each chosen position. In addition to your investment in equities, you also have $1 million dollars to invest conservatively in U.S. Treasury issues and money market securities. Select four T-bonds and/or T-notes ranging in maturity from two years to five years and purchase equal dollar amounts with a total of approximately $500,000. Invest the remaining $500,000 in the money market. You need not select individual money market issues; just assume that the money market investments are secure and return the risk free rate. Please discuss the how the inclusion of the fixed income securities affects the risk in your total portfolio.   To begin the project you need to select 10 stocks and fixed income issues. When buying large quantities of stocks, it is most usual and convenient to issue orders in round lots (rounded to 100 shares). You should do this for your analysis. When you sum the value of the rounded lots, the result will almost certainly not be exactly $500,000. Ignore that difference and use the sum of the rounded lots as your equity investment. The same holds true for the fixed income selections. A spreadsheet is provided in Doc Sharing to help you do the required computations. General Guidelines This project is about quality and substance, not about volume. Your narratives should be concise, comprehensive, and easy to read. APA format is required. Your pricing numbers for derivatives must be expressed in a spreadsheet format. Your presentation should be in the following order: 1. Executive Summary 2. Explanation of Hedging Strategy 3. Spreadsheet 4. Explanation of the strategy’s risks and rewards  5. Conclusion Executive Summary This narrative should be a brief explanation of the objective, strategy, and conclusion. There need only be enough information to provide a reader an overview of the issue, your approach, and your perceptions on how you will benefit. Spreadsheet For every derivative security you select as a part of your strategy, there should be a spreadsheet entry identifying the derivative, and all purchasing or selling elements, e.g. strike price, expiration, and costs.  You should also show possible outcomes. Example, if you recommend selling a call option, then show the net results if the underlying stock moves down, stays flat, and rises above the strike price. The net results should be expressed in net dollars (actual return or loss), actual percentage gain or loss, and annualized percentage gain or loss. Risks and Rewards This is a narrative based on the probabilities shown in your spreadsheet. You should provide a brief explanation of the outcomes should the market decline, stay flat, or rise. Conclusion This is your opportunity to express your professional opinion that your strategy will enhance your portfolio. *******************************************************  FIN 567 Final Exam For more classes visit    Question 1. Question : (TCO E) A stock sells for $60 and the risk-free rate of interest is 10%. A call and a put on this stock expire in one year and both options have an exercise price of $55. How would you trade to create a synthetic call option? If the put sells for $2, how much is the call option worth? (Assume annual compounding.)   Question 2. Question : (TCO H) Explain how a put price varies with interest rates. Does the relationship vary for European and American puts? Explain. Question 3. Question : (TCO D, F, G) Your newest client believes that the Asian currency crisis is going to increase the volatility of earnings for firms involved in exporting, and that this earnings volatility will be translated into large stock price changes for the affected firms. Your client wants to create speculative positions using options to increase his/her exposure to the expected changes in the riskiness of exporting firms. That is, your client wants to prosper from changes in the volatility of the firm’s stock returns. Discuss which Greek your client should focus on when developing his/her options positions. Question 4. Question : (TCO B) Explain the distinction between a normal and an inverted market. Question 5. Question : (TCO C) Describe the difference between a stack hedge and a strip hedge. What are the advantages and disadvantages of each? Question 6. Question : (TCO H) What is the main difference in the calculation of the DJIA and the S&P 500 index? Explain. Question 7. Question : (TCO B) The spot value of the euro is $1.50, and the 90-day forward rate is $1.45. If the U.S. dollar interest factor to cover this period is 2%, what is the EMU rate for this period? Question 8. Question : (TCO K) The IMM Index stands as 93.30. What is the discount yield? If you buy a T-bill futures at that index value and the index becomes 92.90, what is your gain or loss? Question 9. Question : (TCO A) At a party, a man tells you that he is an introducing broker. He goes on to explain that his job is  introducing prospective traders such as you to futures brokers. He also relates that he holds margin funds as a service to investors. What do you make of this explanation? Question 10. Question : (TCO J, L) Consider a firm financed only by common stock and a convertible bond issue. When should the bondholders exercise? Explain. If the common shares pay a dividend, could it make sense for the bondholders to exercise before the bond matures? Explain by relating your answer to our discussion of the exercise of American calls on dividend-paying stocks. *******************************************************  FIN 567 Midterm For more classes visit    Question 1. Question : (TCO A) An order that closes an existing position is called a(n) ______. Question 2. Question : (TCO A) Which of the following is not a characteristic of a short call position? Question 3. Question : (TCO E) The owner of a call that expires in the money (ignore cash settlement options) ________. Question 4. Question : (TCO C) For tax purposes, futures contracts are assumed to be ______. Question 5. Question : (TCO C) The agency that administers the Commodity Exchange Act is ____.
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