券和組合課后習題答案：sm03

CHAPTER3

SELECTINGINVESTMENTSINAGLOBALMARKET

AnswerstoOuestions

1.Themajoradvantageofinvestingincommonstocksisthatgenerallyaninvestorwould

earnahigherrateofreturnthanoncorporatebonds.Also,whilethereturnonbondsis

pre-specifiedandfixed,thereturnoncommonstockscanbesubstantiallyhigherifthe

investorcanpicka“winner"-i.e.,ifthecompany'sperformanceturnsouttobebetter

thancurrentmarketexpectations.Themaindisadvantageofcommonstockownershipis

thehigherrisk.Whiletheincomeonbondsiscertain(exceptintheextremecaseof

bankruptcy),thereturnonstockswillvarydependinguponthefutureperformanceofthe

companyandcouldwellbenegative.

2.Thethreefactorsare:

(1)LimitingoneselftotheU.S.securitiesmarketwouldimplyeffectivelyignoringmore

than50%oftheworldsecuritiesmarket.WhileU.S.marketsarestillthelargest

singlesector,foreignmarketshavebeengrowinginabsoluteandrelativesizesince

1969.

(2)Theratesofreturnavailableonnon-U.S.securitiesoftenhavesubstantiallyexceeded

thoseofU.S.securities.

(3)Diversificationwithforeignsecuritiesreducesportfoliorisk.

3.Internationaldiversificationreducesportfolioriskbecauseofthelowcorrelationof

returnsamongthesecuritiesfromdifferentcountries.Thisisduetodiffering

internationaltradepatterns,economicgrowth,fiscalpolicies,andmonetarypolicies

amongcountries.

4.TherearedifferentcorrelationsofreturnsbetweensecuritiesfromtheU.S.andalternate

countriesbecausetherearesubstantialdifferencesintheeconomiesofthevarious

countries(atagiventime)intermsofinflation,internationaltrade,monetaryandfiscal

policiesandeconomicgrowth.

5.ThecorrelationsbetweenU.S.stocksandstocksfordifferentcountriesshouldchange

overtimebecauseeachcountryhasafairlyindependentsetofeconomicpolicies.

Factorsinfluencingthecorrelationsincludeinternationaltrade,economicgrowth,fiscal

policyandmonetarypolicy.Achangeinanyofthesevariableswillcauseachangein

howtheeconomiesarerelated.Forexample,thecorrelationbetweenU.S.andJapanese

stockwillchangeasthebalanceoftradeshiftsbetweenthetwocountries.

6.Themajorrisksthataninvestormustconsiderwheninvestinginanybondissueare

businessrisk,financialriskandliquidityrisk.Additionalriskassociatedwithforeign

bonds,suchasJapaneseorGermanbonds,areexchangerateriskandcountryrisk,

CountryriskisnotamajorconcernforJapaneseorGermansecurities.Exchangeraterisk

istheuncertaintythatarisesfromfloatingexchangeratesbetweentheU.S.dollarandthe

JapaneseyenorDeutschmark.

7.Theadditionalrisksthatsomeinvestorsbelieveinternationalinvestingintroducesinclude

foreignexchangeriskandcountryriskForexampleithedomesticreturnonCanada

bondsof10.36%exceededtheU.S.returnof9.78%,Theexchangerateeffectof-2.19%

loweredtheCanadiandollarreturnafterconversiontoU.S.dollarsto8.17%.(Exhibit

3.2).

8.Therearefouralternativestodirectinvestmentinforeignstocksavailabletoinvestors:(1)

purchaseAmericanDepositoryReceipts(ADRs)

(2)purchaseoFAmericanshares(issuedbyatransferagent)

(3)directpurchaseofforeignshareslistedonaforeignorU.S.exchange

(4)purchaseofinternationalmutualfunds.

9.Unlikecorporatebonds,interestonmunicipalbondsisexemptfromtaxationbythe

federalgovernmentandbythestatethatissuedthebond,providedtheinvestorisa

residentofthatstate.Forinstance,amarginaltaxrateof35percentmeansthataregular

bondwithaninterestrateof8percentyieldsanetreturnaftertaxesofonly5.20percent

[.08x(1-.35)].Atax-freebondwitha6percentyieldwouldbepreferable.

10.Theconvertiblebondofthegrowthcompanywouldhavetheloweryield.Thisis

intuitivebecausethereisagreaterpotentialforthepriceofthegrowthcompanystockto

increase,whichwouldmaketheconversionfeatureofthebondextremelyattractive.

Thus,theinvestorwouldbewillingtotradeoffthehigherupsidepotentialresultingfrom

conversionfortheloweryield.

11.Liquidityistheabilitytobuyorsellanassetquicklyatapricesimilartothepriorprice

assumingnonewinformationhasenteredthemarket.Commonstockshavethe

advantageofliquiditysinceitisveryeasytobuyorsellasmallposition(therebeinga

largenumberofpotentialbuyers)atapricenotsubstantiallydifferentfromthecurrent

marketprice.Rawlandisrelativelyilliquidsinceitisoftendifficulttofindabuyer

immediatelyandoftentheprospectivebuyerwillofferapricethatissubstantially

differentfromwhattheownerconsiderstobethetruemarketvalue.Areasonforthis

differenceisthatwhilecommonstockdataareregularlyreportedinalargenumberof

dailynewspapersandseveralmagazinesandcloselywatchedbyalargenumberof

individuals,rawlandsimplylacksthiskindofinterest.Further,thespeculativenatureof

rawlandinvestmentcallsforhighriskandlongermaturitybeforeprofitscanberealized.

Finally,theinitialinvestmentonaplotofrawlandwouldbesubstantiallygreaterthana

roundlotinmostsecurities.Asaresult,thesmallinvestorisgenerallyprecludedfrom

thiskindofinvestment.

12.Astockwarrantisanoptionissuedbyacorporationtobuyanumberofsharesofthe

corporation^commonstockataspecifiedprice.Warrantstypicallyhavealifeofseveral

yearsandcouldevenbyperpetual.

Acalloptionissimilartoastockwarrantwithtwoessentialdifferences.Oneisthatthe

calloptionisnotissuedbythecorporationbutbyanindividualwho“writes“itand

standsbehindit.Theseconddifferenceisthatacalloptiongenerallyhasamaturityof

lessthanayear.

13.Artandantiquesareconsideredilliquidinvestmentsbecauseinmostcasestheyaresold

atauctions.Theimplicationofbeingtradedatauctionsratherthanonadeveloped

exchangeisthatthereistremendousuncertaintyregardingthepricetobereceivedandit

takesalongtimetocontactabuyerwhooffersthe“right”price.Besides,manybuyersof

artandantiquesareaccumulatorsratherthantradersandthisfurtherreducestrading.

Coinsandstampsaremoreliquidthanartandantiquesbecauseaninvestorcandetermine

the“correct”marketpricefromseveralweeklyormonthlypublications.Thereisnosuch

publicationofcurrentmarketpricesofthenumerousuniquepiecesofartandantiques

andownersareforcedtorelyondealerestimates.Further,whileacoinorstampcanbe

readilydisposedoftoadealeratacommissionofabout10-15percent,thecommissions

onpaintingsrangefrom30-50percent.

TosellaportfolioofstocksthatarelistedontheNewYorkStockExchange,aninvestor

simplycontactshis/herbrokertoselltheshares.Costoftradingstocksvariesdepending

onwhetherthetradeishandledbyafullservicebrokeroradiscountbroker.

14.TheresultsofExhibit3.13wouldtendtosupportaddingsomestocksfromemerging

marketstoyourportfolio.ThetableindicatesalowpositivecorrelationwithU.S.stocks

(0.347withtheS&P500),whichimpliesreasonablygooddiversificationopportunities.

However,suchmarketstendtobelessliquidthanmarketsofdevelopedcountries.

15.Exhibit3.14indicatesthataninvestmentinAmericanpaintingsduringthisperiodwasa

goodinvestment.ThegeometricmeanforAmericanpaintings(16.20%)washigherthan

thatofU.S.commonstocks,measuredbytheS&P500index(14.92%),Inaddition,risk

asmeasuredbystandarddeviation,waslowerforAmericanpaintings(16.07%)thanfor

theS&P500Index(17.57%).

16.CFAExaminationI(1993)

16(a).InternationalstocksversusU.S.stocks-Problems:

1.Informationaboutforeignfirmsisoftendifficulttoobtainonatimelybasisandonce

obtained,canbedifficulttointerpretandanalyzeduetolanguageandpresentation

differences.

2.Financialstatementsarecomparablefromcountrytocountry.Differentcountriesuse

differentaccountingprinciples.Evenwhensimilaraccountingmethodsareused,

cultural,institutional,politicalandtaxdifferencescanmakecross-country

comparisonshazardousandmisleading.

3,StockvaluationtechniquesusefulintheUnitedStatesmaybelessusefulinother

countries.Stockmarketsindifferentcountriesvaluedifferentattributes,

4.Smithmustconsidercurrencyriskinselectingnon-U.S.stocksforhisportfolio.

5.Increasedcosts:custody,managementfees,andtransactionsexpensesareusually

higheroutsidetheUnitedStates.

17.CFAExamination111(1993)

17(a).Argumentsinfavorofaddinginternationalsecuritiesinclude:

1.Benefitsgainedfrombroaderdiversification?includingeconomic,politicaland/or

geographicsources.

2.Expectedhigherreturnsatthesameorlower(ifproperlydiversified)levelof

portfoliorisk.

3.Advantagesaccruingfromimprovedcorrelationandcovariancerelationshipsacross

theportfolio'sexposures.

4.Improvedassetallocationflexibility,includingtheabilitytomatchorhedgenon-U.S.

liabilities.

5.Widerrangeofindustryandcompanychoicesforportfolioconstructionpurposes.

6.Widerrangeofmanagersthroughwhomtoimplementinvestmentdecisions.

7.Diversificationbenefitsarerealizabledespitetheabsenceofnon-U.S.pension

liabilities.

Atthesametime,thereareanumberofpotentialproblemsassociatedwithmovingaway

fromadomestic-securities-onlyorientation:

1.Possiblehighercosts,includingthoseforcustody,transactions,andmanagementfees.

2.Possiblyreducedliquidity,especiallywhentransactinginsize.

3.Possibleunsatisfactorylevelsofinformationavailability,reliability,scope,timeliness

andunderstand-ability.

4.Risksassociatedwithcurrencymanagement,convertibilityandregulations/controls.

5.Risksassociatedwithpossibleinstability/volatilityinbothmarketsandgovernments.

6.Possibletaxconsequencesorcomplications.

7.RecognitionthatEAFEhasunderperformedsince1989.

17(b).Apolicydecisiontoincludeinternationalsecuritiesinaninvestmentportfolioisa

necessaryfirststeptoactualization.However,certainotherpolicyleveldecisionsmustbe

madepriortoimplementation.Thatsetofdecisionswouldinclude:

1.Whatportionoftheportfolioshallbeinvestedinternationally,andinwhatequityand

fixed-incomeproportions?

2.Shallalloraportionofthecurrencyriskbehedgedornot?

3.Shallmanagementoftheportfoliobeactiveorpassive?

4.Shallthemarketexposuresbecountry/market-wide(top-down)orcompany/induslry

specific(bottom-up)?

5.Whatbenchmarksshallresultsbejudgedby?

6.Howwillmanagerstylebeincorporatedintotheprocess?

7.Howwilltheprocessreflect/resolvetheimportantdifferencesinorientationbetween

theinternational(nonU.S.)majormarketsandtheU.S.emergingmarkets

perspectives?

Untildecisionsontheseadditionalpolicy-levelissueshavebeenmade,implementation

ofthebasicdecisiontoinvestinternationallycannotbegin.

CHAPTER3

AnswerstoProblems

1.StudentExercise

2.StudentExercise

3,StudentExercise

4.StudentExercise

5.CFAExamination(Adapted)

5(a).Thearithmeticaverageassumesthepresenceofsimpleimeiest,whilethegeometric

averageassumescompoundingorinterest-on-interest.Thegeometricmeaninternalrate

ofreturnisacriticalconceptinsecurityandportfolioselectionaswellasperformance

measurementinamulti-periodframework.

5(b).Rankingisbestaccomplishedbyusingthecoefficientofvariation(standarddeviation/

arithmeticmean,multipliedby100):

1-RealEstate36.88

2-TreasuryBills48.93

3-LongGov?tBonds104.92

4-CommonStocks164.37

5-LongCorp.Bond166.96

Thecoefficientofvariationrankingmethodologyalternativelymaybecomputedusing

thegeometricmean(standarddeviation/geometricmeanmultipliedby100).Thismethod

providesarankingalmostidenticaltothepriormethod(withthe4thand5thrankings

reversed:

1-RealEstate37.08

2-TreasuryBills49.31

3-LongGov'tBonds108.29

4-LongCorp.Bonds179.44

5-CommonStocks191.83

Inbothcases,alowerratioindicatesahigherreturnforrisk4

Or,asomewhatdifferentrankingmethodologyutilizesSharpe'srewardforrisk-taking

measureusingthearithmeticmeanreturnminustheriskfreeratedividedbythestandard

deviationmultipliedby100.Therankingusingthismeasurewouldbeasfollows:

1-RealEstate84.29

2-CommonStocks22.13

3-TreasuryBills0.00

4-LongGov'tBonds-6.88

5-LongCorp.Bonds-8.23

Underthisreward-for-riskrankingmethodology,thehighertheratio,thehigherthe

returnperunitofrisk.Thearithmeticmeanwasusedinthiscomputation;however,the

geometricmeanalsocouldbeusedtocalculatethisranking.

5(c)(1).Expectedmeanplusorminustwostandarddeviations:

Arithmetic:10.28%+/-16.9%(2)=-23.52%to+44.08%

Geometric:8.81%+/-16.9%⑵=-24.99%to+42.61%

5(c)(2).Ninety-fivepercentoftheareaunderthenormalcurveliesbetween+/-twostandard

deviationsofthemean.Sincethemeanminustwostandarddeviations(9.44-7.0=2,44)

ispositive,onemayconcludethattheprobabilityofbreakingevenisgreaterthan95%.

5(d).Itseemsatfirstthatgovernmentbondsofferlessreturnandmoreriskthanrealestate.

However,realestateandgovernmentbondsmightprovideagoodcombinationifthetwo

donotfluctuateinasimilarfashion,sothatthevariabilityoftheportfolioislessthanthe

variabilityoftheindividualinvestments.Ifthecorrelationcoefficientapplicabletothis

pairofinvestmentsisknownandisnothighlypositive,thecombinationwouldbe

advantageous.

6(a).⑴CommonStockRiskPremium

=ReturnCommonStock-ReturnofU.S.Gov'tT-bills

=12.50-4.50

=8.00%

(2)SmallFirmsStockRiskPremium

=ReturnofSmallCapitalizationCommonStock

-ReturnofTotalStocks(S&P500)

=14.60-12.50

=2.10%

(3)Horizon(Maturity)Premium

=ReturnonLong-termGov'tBonds

-ReturnonU.S.Gov'tT-bills

三510?4.50

=0.60%

(4)DefaultPremium

=ReturnonLong-termCorporateBonds

-ReturnonLong-termGov'tBonds

=5.80-5.10

=0.70%

6(b).IfInflation=4%

“cHoldingPeriodReturn,

Real"rateorfreturn=------------------------------1

1+rateofinflation

UST-bills

—：―--1二.0048or0.48%

RealRateofReturn-1-t-.04

?

CommonStock_1251D817or8.17%

RealRateofReturn—\+.04

屠黑黑1鬻*黑…w。

扇黑麒暗吹圖1-1=0106oH.060/o

SmallCapCommonSlock_1+.146°

1=.1019or10.09%

RealRateofReturn-?+Q4

APPENDIX3

AnswerstoProblems

1.Lauren'saveragereturnKayleigh'saveragereturn

7(5+12-11+10+12)-(5+15+5+7-10