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(Due May 6 Paper copy in class)

Alf Walle Spring 2011

Name Class number Student number Trying for B? Zhang chi 4 23 Yes No

INSTRUCTIONS

This is a take home test. I assume you will talk among yourselves. I also assume that you will do your own work. By successfully completing this test (and the final) you will receive a C in the class. The work will either be acceptable or unacceptable. If unacceptable, it will be returned to be redone.

You can receive a higher grade by doing papers but must do the tests.

Use this test file as a format. Each question is a page. Just copy the format onto your computer and generate the test.

Answer all the questions. A page will be a typical response. Focus on quality of answer and style.

This chapter will focus on chapters 10 through 17 .

1. We talked about stocks being equity. Discuss what equity is, what benefits it has and why some people might want to avoid it for something else.

⑴ annual return of listed companies may be, such as bonus interest, bonus issues.

⑵ trading in the stock market, gain access to bid-ask spread.

⑶ performance of listed companies can grow, enjoy, while operating scale capital expansion proceeds. This is mainly through a bonus issue of listed companies, equity shares, allotment, etc. to achieve.

⑷ able to sell at any time in the stock market to obtain cash needed to prepare for a moment.

⑸ in times of inflation, invest in good stocks but also to avoid currency depreciation, the role of a store of value.

2. Compare debentures with regular bonds. Given the lack of collateral why would someone want to buy debentures?

(1) liquidity. Bonds can generally be freely transferable on the market in the circulation.

(2) security. Compared with stocks, bonds usually provide a fixed interest rate. No direct contact with the firm performance, income is relatively stable, with less risk. In addition,bankruptcy, bond holders have priority in the stock holders of the remaining assets of the company claims.

(3) profitability. Bond yields is mainly manifested in two aspects, one can invest in bonds to investors on a regular or irregular basis to bring interest income: Second,investors can take advantage of changes in bond prices, the sale of bonds to earn the difference.

3. The book says that preferred stock is somewhat like bonds. What are the similarities and what are the differences? Why might people want convertible preferred stock? What concession might owners have to make order to get the convertible option?

Bonds are corporate debt, regardless of whether the enterprise profitable, the debt must be liquidated.

Stock, regardless of whether it is preferred, all belong to the investment of enterprises,enterprises have to bear the business risk, corporate earnings in dividends when you can, when losses in the enterprise value of the shares to be lost, along with business risk.

Bonds yielded only the interest on the stock in addition to interest, there is increase or decrease in stock value changes.

In the corporate liquidation, bond claims priority preference shares. Convertible bonds have been given the stock conversion rights, individual investors,convertible is a balance between benefits and risks of investment instruments. The benefits of convertible bonds: When investors do not know the issuing company and theprospects of development potential, can be invested in such bonds. Operating results to be a significant issue, outlook bullish on its stock, they can convert the bonds into stock,to get more profit.

In short, convertible bonds, investors can easily choose different levels of theirinvestment projects, both because of its lower interest rate than regular bonds, so it welcomed by the issuing company.

4. Compare closed end and open end investment companies.

(1) with different maturities. Closed-end funds typically have a fixed closure period, normally closed period of 5 years or more, usually 10-15 years . The opening fund is no fixed term, investors can keep the fund company or bank and other intermediary bodies redemption .

(2) the issue size requirements are different. Closed-end funds issue a fixed size, and in a closed period can not increase the release of new

Units; opening fund size limit is not issued, the investor's funds to subscribe for new units, the fund size to

Increase; redemption of units, its fund size to decrease.

(3) the transfer of different ways. Closed-end funds in a closed period, when investors subscribe for units in the Fund will not be able to benefit

Redemption fund management company, can only seek a stock exchange or other trading venues listed, similar to stock trading

Tickets and bond trading, transaction prices influenced by market supply and demand.Fund investors should be open to keep the base

Fund management companies or banks and other intermediaries to subscribe for or redemption, the sale of flexible.

(4) major determinant of transaction prices are different. Closed-end funds trade prices reflect market conditions, the Fund does not depend on

Net asset value, subject to market factors such as supply and demand greater; and open funds is entirely dependent on the price per unit The size of the net asset value.

5 Even though closed end and open end investment companies are different in structure, they largely serve investor in a similar way. Discuss

Capital of many investors, professional fund management institutions and personnel management, capital works. Funds counter the establishment of investment fund sponsors generally, to raise funds by issuing securities. Fund investors do not participate in the Fund's management and operation, only the returns on investments on a regular basis. According to investors, fund managers invest in the operation of the commission, charge management fee income. Increasing variety in the securities market, trading background of increasing complexity, the ordinary people and professionals to compare operating results in terms of widening. Small personal funds entrusted to investment managers focused on specific operations can also reduce the risk of investment and diversification effects.

Investment Fund is a large uncertainty from the investor share of the voluntary contribution will be to bring together different, by the expert management of the investment, the proceeds of the proportion of share capital by the investor according to a financial organization.