Investment and Net Asset Value
Assignment 1
1. Suppose you discover a treasure chest of RM10 billion in cash
a. Is this a real or financial asset?
b. Is society any richer for the discovery?
c. Are you wealthier?
d. Is anyone worst off as a result of the discovery?
2. The average rate of return on investment in large stocks has outpaced that on investments in T-Bills by about 8% since 1926 in US. Why, then, does anyone invest in T-Bills?
3. You see an advertisement for a book that claims to show how you can make RM1 million with no risk and with no money down. Will you buy the book? Why?
4. You are bullish on Telekom stock. The current market price is RM50 per share, and you have RM5,000 of your own to invest. You borrow an additional RM5,000 from your broker at an interest rate of 8% per year and invest RM10,000 in the stock.
a. what will be your rate of return if the price of Telekom stock goes up by 10% during the next year? (ignore dividend)
b. How far does the price of Telekom stock should have fall for you to get a margin call if your maintenance margin is 30% of the value of the short position?
5. The composition of the Fingroup Fund portfolio is as follows:
|Stock |Shares |Price (RM) |
|A |200,000 |35 |
|B |300,000 |40 |
|C |400,000 |20 |
|D |600,000 |25 |
The fund has not borrowed any funds, but its accrued management fee with the portfolio manager currently totals
1. Suppose you discover a treasure chest of RM10 billion in cash
a. Is this a real or financial asset?
b. Is society any richer for the discovery?
c. Are you wealthier?
d. Is anyone worst off as a result of the discovery?
2. The average rate of return on investment in large stocks has outpaced that on investments in T-Bills by about 8% since 1926 in US. Why, then, does anyone invest in T-Bills?
3. You see an advertisement for a book that claims to show how you can make RM1 million with no risk and with no money down. Will you buy the book? Why?
4. You are bullish on Telekom stock. The current market price is RM50 per share, and you have RM5,000 of your own to invest. You borrow an additional RM5,000 from your broker at an interest rate of 8% per year and invest RM10,000 in the stock.
a. what will be your rate of return if the price of Telekom stock goes up by 10% during the next year? (ignore dividend)
b. How far does the price of Telekom stock should have fall for you to get a margin call if your maintenance margin is 30% of the value of the short position?
5. The composition of the Fingroup Fund portfolio is as follows:
|Stock |Shares |Price (RM) |
|A |200,000 |35 |
|B |300,000 |40 |
|C |400,000 |20 |
|D |600,000 |25 |
The fund has not borrowed any funds, but its accrued management fee with the portfolio manager currently totals