Solution manual
Fundamentals of investments valuation and management
10th edition by Bradford Jordan and Thomas Miller
All Chapters 1-21 Covered
,TABLE OF CONTENT
D D
PARTDONE:DINTRODUCTION
ChapterD1:DADBriefDHistoryDofDRiskDandDReturn
ChapterD2:DTheDInvestmentDProcess
ChapterD3:DOverviewDofDSecurityDTypes
ChapterD4:DMutualDFunds,DETFs,DandDOtherDInvestmentDCompanies
PARTDTWO:DSTOCKDMARKETS
ChapterD5:DTheDStockDMarket
ChapterD6:DCommonDStockDValuation
ChapterD7:DStockDPriceDBehaviorDandDMarketDEfficiency
ChapterD8:DBehavioralDFinanceDandDtheDPsychologyDofDInvesting
PARTDTHREE:DINTERESTDRATESDANDDBONDDVALUATION
ChapterD9:DInterestDRates
ChapterD10:DBondDPricesDandDYields
DD
PARTDFOUR:DPORTFOLIODMANAGEMENT
ChapterD11:DDiversificationDandDRiskyDAssetDAllocation
ChapterD12:DReturn,DRisk,DandDtheDSecurityDMarketDLine
ChapterD13:DPerformanceDEvaluationDandDRiskDManagement
PARTDFIVE:DFUTURESDANDDOPTIONS
ChapterD14:DMutualDFunds,DETS,DandDOtherDFundDTypes
ChapterD15:DStockDOptions
ChapterD16:DOptionDValuation
PARTDSIX:DTOPICSDINDINVESTMENTS
ChapterD17:DAlternativeDInvestments
ChapterD18:DCorporateDandDGovernmentDBonds
ChapterD19:DProjectingDCashDFlowDandDEarnings
ChapterD20:DGlobalDEconomicDActivityDandDIndustryDAnalysis
ChapterD21D(online):DMortgage-BackedDSecurities
,Fundamentals of Investments Valuation and Management, 10th Edition Jordan
D D D D D D D D
Chapter 1-21 D
Chapter 1 D
A Brief History of Risk and Return
D D D D D D
Concept QuestionsD
1. ForDbothDriskDandDreturn,DincreasingDorderDisDb,Dc,Da,Dd.DOnDaverage,DtheDhigherDtheDriskDofDanDinvest
ment,DtheDhigherDisDitsDexpectedDreturn.
2. SinceDtheDpriceDdidn’tDchange,DtheDcapitalDgainsDyieldDwasDzero.DIfDtheDtotalDreturnDwasDfourDpercent
,DthenDtheDdividendDyieldDmustDbeDfourDpercent.
3. ItDisDimpossibleDtoDloseDmoreDthanD–
100DpercentDofDyourDinvestment.DTherefore,DreturnDdistributionsD areDcutDoffDonDtheDlowerDtailDatD–
100Dpercent;DifDreturnsDwereDtrulyDnormallyDdistributed,DyouDcouldDloseDmuchDmore.
4. ToDcalculateDanDarithmeticDreturn,DyouDsumDtheDreturnsDandDdivideDbyDtheDnumberDofDreturns.DAsDsu
ch,DarithmeticDreturnsDdoDnotDaccountDforDtheDeffectsDofDcompoundingD(and,DinDparticular,DtheDeffect
DofDvolatility).DGeometricDreturnsDdoDaccountDforDtheDeffectsDofDcompoundingDandDforDchangesDinDth
eDbaseDusedDforDeachDyear’sDcalculationDofDreturns.DAsDanDinvestor,DtheDmoreDimportantDreturnDofDa
nDassetDisD theDgeometricDreturn.
5. Blume’sDformulaDusesDtheDarithmeticDandDgeometricDreturnsDalongDwithDtheDnumberDofDobservations
DtoDapproximateDaDholdingDperiodDreturn.DWhenDpredictingDaDholdingDperiodDreturn,DtheDarithmeticDre
turnDwillDtendDtoDbeDtooDhighDandDtheDgeometricDreturnDwillDtendDtoDbeDtooDlow.DBlume’sDformulaDadj
ustsDtheseDreturnsDforDdifferentDholdingDperiodDexpectedDreturns.
6. T-
billDratesDwereDhighestDinDtheDearlyDeightiesDsinceDinflationDatDtheDtimeDwasDrelativelyDhigh.DAsDweDdi
scussDinDourDchapterDonDinterestDrates,DratesDonDT-
billsDwillDalmostDalwaysDbeDslightlyDhigherDthanDtheDexpectedDrateDofDinflation.
7. RiskDpremiumsDareDaboutDtheDsameDregardlessDofDwhetherDweDaccountDforDinflation.DTheDreasonDisDt
hatDriskDpremiumsDareDtheDdifferenceDbetweenDtwoDreturns,DsoDinflationDessentiallyDnetsDout.
8. Returns,DriskDpremiums,DandDvolatilityDwouldDallDbeDlowerDthanDweDestimatedDbecauseDaftertaxDretu
rnsDareDsmallerDthanDpretaxDreturns.
9. WeDhaveDseenDthatDT-billsDbarelyDkeptDupDwithDinflationDbeforeDtaxes.DAfterDtaxes,DinvestorsDinDT-
billsDactuallyDlostDgroundD(assumingDanythingDotherDthanDaDveryDlowDtaxDrate).DThus,DanDallDT-
billDstrategyDwillDprobablyDloseDmoneyDinDrealDdollarsDforDaDtaxableDinvestor.
10. ItDisDimportantDnotDtoDloseDsightDofDtheDfactDthatDtheDresultsDweDhaveDdiscussedDcoverDoverD80Dyears
,D wellDbeyondDtheDinvestingDlifetimeDforDmostDofDus.DThereDhaveDbeenDextendedDperiodsDduringDwhic
, hDsmallD stocksD haveD doneD terribly.D Thus,D oneD reasonD mostD investorsD willD chooseD notD toD pursueD
aD 100
Fundamentals of investments valuation and management
10th edition by Bradford Jordan and Thomas Miller
All Chapters 1-21 Covered
,TABLE OF CONTENT
D D
PARTDONE:DINTRODUCTION
ChapterD1:DADBriefDHistoryDofDRiskDandDReturn
ChapterD2:DTheDInvestmentDProcess
ChapterD3:DOverviewDofDSecurityDTypes
ChapterD4:DMutualDFunds,DETFs,DandDOtherDInvestmentDCompanies
PARTDTWO:DSTOCKDMARKETS
ChapterD5:DTheDStockDMarket
ChapterD6:DCommonDStockDValuation
ChapterD7:DStockDPriceDBehaviorDandDMarketDEfficiency
ChapterD8:DBehavioralDFinanceDandDtheDPsychologyDofDInvesting
PARTDTHREE:DINTERESTDRATESDANDDBONDDVALUATION
ChapterD9:DInterestDRates
ChapterD10:DBondDPricesDandDYields
DD
PARTDFOUR:DPORTFOLIODMANAGEMENT
ChapterD11:DDiversificationDandDRiskyDAssetDAllocation
ChapterD12:DReturn,DRisk,DandDtheDSecurityDMarketDLine
ChapterD13:DPerformanceDEvaluationDandDRiskDManagement
PARTDFIVE:DFUTURESDANDDOPTIONS
ChapterD14:DMutualDFunds,DETS,DandDOtherDFundDTypes
ChapterD15:DStockDOptions
ChapterD16:DOptionDValuation
PARTDSIX:DTOPICSDINDINVESTMENTS
ChapterD17:DAlternativeDInvestments
ChapterD18:DCorporateDandDGovernmentDBonds
ChapterD19:DProjectingDCashDFlowDandDEarnings
ChapterD20:DGlobalDEconomicDActivityDandDIndustryDAnalysis
ChapterD21D(online):DMortgage-BackedDSecurities
,Fundamentals of Investments Valuation and Management, 10th Edition Jordan
D D D D D D D D
Chapter 1-21 D
Chapter 1 D
A Brief History of Risk and Return
D D D D D D
Concept QuestionsD
1. ForDbothDriskDandDreturn,DincreasingDorderDisDb,Dc,Da,Dd.DOnDaverage,DtheDhigherDtheDriskDofDanDinvest
ment,DtheDhigherDisDitsDexpectedDreturn.
2. SinceDtheDpriceDdidn’tDchange,DtheDcapitalDgainsDyieldDwasDzero.DIfDtheDtotalDreturnDwasDfourDpercent
,DthenDtheDdividendDyieldDmustDbeDfourDpercent.
3. ItDisDimpossibleDtoDloseDmoreDthanD–
100DpercentDofDyourDinvestment.DTherefore,DreturnDdistributionsD areDcutDoffDonDtheDlowerDtailDatD–
100Dpercent;DifDreturnsDwereDtrulyDnormallyDdistributed,DyouDcouldDloseDmuchDmore.
4. ToDcalculateDanDarithmeticDreturn,DyouDsumDtheDreturnsDandDdivideDbyDtheDnumberDofDreturns.DAsDsu
ch,DarithmeticDreturnsDdoDnotDaccountDforDtheDeffectsDofDcompoundingD(and,DinDparticular,DtheDeffect
DofDvolatility).DGeometricDreturnsDdoDaccountDforDtheDeffectsDofDcompoundingDandDforDchangesDinDth
eDbaseDusedDforDeachDyear’sDcalculationDofDreturns.DAsDanDinvestor,DtheDmoreDimportantDreturnDofDa
nDassetDisD theDgeometricDreturn.
5. Blume’sDformulaDusesDtheDarithmeticDandDgeometricDreturnsDalongDwithDtheDnumberDofDobservations
DtoDapproximateDaDholdingDperiodDreturn.DWhenDpredictingDaDholdingDperiodDreturn,DtheDarithmeticDre
turnDwillDtendDtoDbeDtooDhighDandDtheDgeometricDreturnDwillDtendDtoDbeDtooDlow.DBlume’sDformulaDadj
ustsDtheseDreturnsDforDdifferentDholdingDperiodDexpectedDreturns.
6. T-
billDratesDwereDhighestDinDtheDearlyDeightiesDsinceDinflationDatDtheDtimeDwasDrelativelyDhigh.DAsDweDdi
scussDinDourDchapterDonDinterestDrates,DratesDonDT-
billsDwillDalmostDalwaysDbeDslightlyDhigherDthanDtheDexpectedDrateDofDinflation.
7. RiskDpremiumsDareDaboutDtheDsameDregardlessDofDwhetherDweDaccountDforDinflation.DTheDreasonDisDt
hatDriskDpremiumsDareDtheDdifferenceDbetweenDtwoDreturns,DsoDinflationDessentiallyDnetsDout.
8. Returns,DriskDpremiums,DandDvolatilityDwouldDallDbeDlowerDthanDweDestimatedDbecauseDaftertaxDretu
rnsDareDsmallerDthanDpretaxDreturns.
9. WeDhaveDseenDthatDT-billsDbarelyDkeptDupDwithDinflationDbeforeDtaxes.DAfterDtaxes,DinvestorsDinDT-
billsDactuallyDlostDgroundD(assumingDanythingDotherDthanDaDveryDlowDtaxDrate).DThus,DanDallDT-
billDstrategyDwillDprobablyDloseDmoneyDinDrealDdollarsDforDaDtaxableDinvestor.
10. ItDisDimportantDnotDtoDloseDsightDofDtheDfactDthatDtheDresultsDweDhaveDdiscussedDcoverDoverD80Dyears
,D wellDbeyondDtheDinvestingDlifetimeDforDmostDofDus.DThereDhaveDbeenDextendedDperiodsDduringDwhic
, hDsmallD stocksD haveD doneD terribly.D Thus,D oneD reasonD mostD investorsD willD chooseD notD toD pursueD
aD 100
