Chapter 1: Q3B. (page 104)
What is a 12b-1 fee?
It is an annual fee charged for managing the marketing and distribution costs of mutual funds.
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What are some comparative advantages of investing your assets in the following:
a. Unit investment trusts.
b. Open-end mutual funds.
c. Individual stocks and bonds that you choose for yourself.
Both a call and a put currently are traded on stock XYZ; both have strike prices of \(50 and maturities of six months. What will be the profit to an investor who buys the call for \)4 in the following scenarios for stock prices in six months?
( a ) \(40; ( b ) \)45; ( c ) \(50; ( d ) \)55; ( e ) \(60.
What will be the profit in each scenario to an investor who buys the put for \)6??
Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at \(40 per share. She borrows \)4,000 from her broker to help pay for the purchase. The interest rate on the loan is 8%.
a. What is the margin in Dée’s account when she first purchases the stock?
b. If the share price falls to $30 per share by the end of the year, what is the remaining margin in her account? If the maintenance margin requirement is 30%, will she receive a margin call?
c. What is the rate of return on her investment?
Wall Street firms have traditionally compensated their traders with a share of the trading profits that they generated. How might this practice have affected traders’ willingness to assume risk? What is the agency problem this practice engendered?
What is the difference between asset allocation and security selection?
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