Chapter 1: Question 4 (page 79)
How do security dealers earn their profits?
Through frequent trading at bid and ask price and by trading on information not available to others.
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Call one full-service broker and one discount broker and find out the transaction costs of implementing the following strategies:
a. Buying 100 shares of IBM now and selling them six months from now.
b. Investing an equivalent amount in six-month at-the-money call options on IBM stock now and selling them six months from now.
In what circumstances are private placements more likely to be used than public offerings?
Would you expect a typical open-end fixed-income mutual fund to have higher or lower operating expenses than a fixed-income unit investment trust? Why?
Look at the futures listings for corn in Figure 2.10.
a. Suppose you buy one contract for December 2011 delivery. If the contract closes in December at a price of $6.43 per bushel, what will be your profit or loss? (Each contract calls for delivery of 5,000 bushels.)
b. How many December 2011 maturity contracts are outstanding?
Why are high-tax-bracket investors more inclined to invest in municipal bonds than are low-bracket investors?
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