Short essays for specific open-end questions

Present discussions in paragraph form with itemized headings for each of the 3 questions below. Consider each one as a two-to-four paragraph essay. Your report should be a non- sensitive, impersonal business report befitting a literate graduate from a top-50 business school. Mechanical errors, such as spelling mistakes or disagreement between subject and verb tenses detract from quality. A high-impact report incorporates headers, itemization, short paragraphs, and smart sentences. Edit several times before submission. Essay #1. Market backdrop and portfolio performance (15 points maximum) Summarize and reference one financial author who explains why market prices moved as they did during the recent past. Use your words and paraphrase his/her/their argument for “why and what happened to the financial market just then?” Debate the point. Link your portfolio gains, losses, and trading activity to the preceding argument. Essay #2. Use beta for your stock to find the economic profit (10 points maximum) How much economic profit (%) did the start-up common stock create for a well-diversified portfolio? Compute ROR risk-adjusted throughout your common stock holding period. HINT: The textbook paragraph on p. 546 following formula 11.6 explains how ROR risk-adjusted equals -8.11% for company A. Into that textbook example substitute these numbers: Compute RORequilibrium using (i) alpha and (ii) beta from the BBL or the Company summary page on google or yahoo (if alpha is unavailable set FI 302 Business Finance Fall 2015 v20150925 Assignment resources: http://bama.ua.edu/~fi302/tg.html ASSIGNMENT DOCUMENTATION FOR "THE TRADING GAME" You are assigned an imaginary brokerage account with beginning wealth of $100,000. Invest the currency by purchasing financial securities such as stocks, bonds, options, a foreign currency exchange traded fund, etc. It’ll be easy if you follow the instructions and follow your hunch. Take away from this assignment increased understanding for how financial markets allow an incredible diversity of choices by matching security buy-side demand with sell-side supply. 1 Watch rivers of capital flow, be adventurous, learn! View how C&BA classmates perform with a real dollar portfolio at http://mycba.ua.edu/cimg . Your project grade does not depend on your financial profit or loss. Instead, the score derives from these raw points: 30 points for the first submission due at the date in Table 1; 30 points for the second submission; 40 points for the third submission; a bonus up to 12 points accrues for submitting some tasks and printouts early (see Rule 4; The maximum score equals 100). Ignoring submission 3 subtracts 25 points from submissions 1 and 2. WHERE YOU SUBMIT PAPERS DEPENDS ON YOUR FI 302 SECTION! For all 3 stapled submissions the cover page is an Excel printout showing your name in cell E1. Table 1 lists all 3 due dates. Get the spreadsheet at http://bama.ua.edu/~fi302/trader.xlsx Sections Fi302-003,320,321: Submit papers in class when due. Pick-up graded papers during a subsequent class or office hour. Online Fi302-901,902 Deliver your stapled papers to Alston 200 on the due dates or snail mail to the address three days before due date. See feedback for each submission at the TG Links page > “2. Scores & online feedback.” Students communicate about TG scores with [email protected]. Note the TG submissions CANNOT submit by email, apologies but the paper ones are easier for teachers to process. Fi302 – Online 901 inbox PO Box 870224 University of Alabama Tuscaloosa, AL 35487-0224 TG1 First submission due date Tuesday September 29 TG2 Second submission due date Tuesday October 27 TG3 Third submission due date Tuesday November 24 TG TABLE 1: Due Dates . 1 For skills relevant to business choices see Iyengar (2010) http://www.youtube.com/watch?v=1p-QWwYMsB4. 2 DOCUMENT CONTENTS Part 1: Choosing start-up investments Part 2: Spreadsheet and first submission Part 3: The second submission Part 4: The third submission Withdraw funds from your brokerage account to invest at least $10,000 in a security from each of the following six asset classes: (1) a common stock, (2) a mutual fund, (3) a corporate bond, (4) a Treasury security, (5) an option, and (6) a foreign currency exchange traded fund. Investment requires at least $60,000 (= 6 x $10,000). You can buy extra securities, too, any kind you want. Record all security prices in the spreadsheet. Cash balances not withdrawn from your brokerage account are available to buy extra securities. For the TG (only) excess cash does not earn interest nor lose value. Many students are very nervous when selecting securities, collecting information from the internet or insider sources, entering data in the spreadsheet, or writing the report. This nervousness occurs from lacking confidence to follow hunches. For this assignment my rec is don’t worry, be happy, just read the instructions, put in some time, and figure it out! There are no secrets for playing well at the game of security selection. Few have figured how to consistently predict financial market performance. Read what deep pocket informed money writes at http://theguruinvestor.com/ or the www.schwab.com Our Perspective reports. An informative site for future reference is www.aaii.org, an investment organization. Have fun with this trading game during this forced swim through the financial markets. Choose some investments with extravagance and uniqueness. Those are truly dynamic characteristics. Game rules are few. RULE 1: Buy the 6 securities at startup, at least $10,000 in each, and record the data in the assignment spreadsheet. Collect printouts from the spreadsheet and from the internet to submit for the first due date (see Table 1). Buy extra securities if you want. RULE 2: Two or 3 days before the second submission sell 2 things you own. Plus, buy 2 new things. You make the choices. Record the prices and brokerage account deposits and withdrawals in the spreadsheet. Turn in printouts from the spreadsheet and from the internet for the second due date. RULE 3: Three or 4 days before the third submission sell-off all securities at current market prices. Deposit the cash flows into your brokerage account. Prepare and submit TG#3 for the third due date. RULE 4: TG#3 has 3 items. One is the spreadsheet printouts after liquidation to cash. Second are 3 short essay answers. Third are the Bruno Business Library printouts (BBL) from Morningstar Investment Research Center or the Bloomberg Terminal. The spreadsheet printouts are required, no exceptions or exemptions. You can be exempt from the second and third items by doing other tasks (the BAT or BMC, see below). Submitting the BBL, BAT, or BMC with TG#1 or TG#2 (instead of with TG#3) earns a bonus. 4a. Taking the Bloomberg Assessment Test (BAT) substitutes for essays #2 and #3. For TG#3 submit only the BAT confirmation, the spreadsheet printouts, essay #1, and the BBL printouts. 4b. Taking the BAT and completing either the Equity or Fixed income Bloomberg Market Concepts module (BMC) substitutes for the BBL and essays #2 and #3. For TG#3 submit only the BAT confirmation, the BMC confirmation, the spreadsheet printouts, and essay #1. 4c. Taking the BAT and completing two BMC modules (one must be Equity or Fixed income; the second is your choice) substitutes for the BBL and essays #1, #2 and #3. For TG#3 submit only the BAT confirmation, the BMC confirmation, and the spreadsheet printouts. Get a bonus by submitting the BBL, BAT, or BMC items with TG#1 (6 points per item, max bonus = 12 points) or TG#2 (3 points per item, max bonus = 6 points) instead of with TG#3 (no bonus, no penalty). Learn more about Bloomberg, the BAT, and the BMC at http://about.bloomberginstitute.com/students/ Use your CRIMSON email when REGISTERING for the BAT or BMC. For more information on rule 4 see http://bama.ua.edu/~fi302/tg-bloomberg.pdf. 3 Part 1: Choosing start-up investments The discussion below refers to your six start-up assets that you must buy before the first due date. With your excess cash you may make whatever and as many extra investments you want and can afford. Minimum transactions equal 6 buys for TG#1, 2 sells and 2 buys for TG#2, and total sell-off at the end for TG#3. (1) Common Stock – Use the google stock screener to choose a common stock for a nonfinancial company that trades on a U.S. exchange. A stock screener allows you to set different criteria and then finds all stocks with information that satisfy the criteria. Browse to https://www.google.com/finance and along the far left frame click Stock screener. See a listing of Company names on the bottom half of the page. Notice the statement above the listing like “1 – 20 out of 31488” which means there are 31,488 company stocks in the database that satisfy the criteria settings displayed on the top half of this page. The top bar beneath the Stock Screener heading shows the criteria currently are set to “All exchanges” in the “United States” showing companies for “All industry sectors”. You must set a minimum of 4 different criteria that shrinks the list to 20 or fewer companies. Setting 4 criteria is easily figured out by trial and error. For example, for Market cap the criteria range is wide open from $0 to $640B mas or menos. Click and drag the handle bar from the left of the Company Distribution toward the center, notice the number of companies passing the screener drops below 31,488 very quickly. Likewise drag the right side handle bar toward the center. You may type in the number instead of pulling handle bars. For example, type 1B and 2B to set the screener to shown only companies between $1 billion and $2 billion market cap. There are a few more than 1,700 company stocks trading on All US exchanges passing through the criteria setting 1B<MarketCap<2B. Easily delete any of the 4 default criteria shown by clicking the X. Easily add criteria by clicking the +. Explore the Add criteria list and find 4 or more to set that eventually results in a list not exceeding 20 company stocks. When the list shows 20 or fewer companies select any one for your possible investment. Do not select a mutual fund, or exchange traded fund (ETF), or bank, or any other purely financial company. Choose a nonfinancial. Sometimes it’s hard to tell just from the name. PRINTOUT 1: Print the google Stock Screener page that shows the criteria settings with 20 or fewer company names passing the filter. To be sure, right click on the ticker in the Symbol column and open the company page in a new tab or window. Scroll down the Company summary page and check just beneath the Related companies table that “Sector: Financials” is not what it shows. If this is a financial company then select a different company (only a nonfinancial should be selected!). Browse the description, maybe check out some company news, financial statements, or research reports. If you decide that this is your potential winner then jot down and record the ticker symbol and stock price in your spreadsheet! Buy at least $10,000 of shares. PRINTOUT 2: Print the Company summary page for your stock investment. Point your browser to http://finance.yahoo.com/ and type the ticker symbol of your stock into the Search Finance box at the top. Beneath the label “Charts” click “Interactive.” Often the initial chart shows the stock price (vertical) during the most recent 1d(ay) of trading. Click 2y(ears) a little to the right of the 1d so that the chart shows the price movement over the previous two years > Click “+ Indicator” > Click the (+) next to Simple Moving Average (SMA) and a row appears with a little trashcan, the word “Period”, a box with the number 50, and the letters S(hort), M(edium), or L(ong) > Change the number in the box to 10 and click S just to the right > Click the (+) next to Simple Moving Average (SMA) which adds another row, set the number in the box to 100, and click the L. Then print out this chart by clicking the print icon way to the right beside the “Go to Symbol” button. Note that every time you add a “period” row the color of the new line is automatically assigned by Yahoo. Add several rows to get two colors that show nicely and delete the period rows that aren’t used. 4 PRINTOUT 3: Print the chart showing the 10-day and 100-day moving average. Write in big letters at the top of this printout “BUY” or “SELL” by comparing the chart to the textbook Figure 8.1 and the Rule 8.1 specification for the moving average trading strategy on textbook page 370-371. (2) Mutual Fund – There are over 5,000 mutual funds in the USA so finding a winner can be difficult especially over a short horizon. A mutual fund screener helps sort funds on various criteria. Open http://www.lib.ua.edu/bruno, click Research Tools and select Databases, and in the “Filter Databases by” box, type and select Morningstar Investment Research Center. Login with your mybama User ID and password. Next click “Screen for Funds.” Click the General pull-down menu and see the different sorting criteria that may be used to screen the funds. You need to SET A MINIMUM OF 4 CRITERIA to get a good-looking final sample with not more than 20 Search Results. Set any criteria that you wish. For explanatory purposes, though, here is a little more instruction. Do not use this exact set-up, modify it somehow. To learn how it works, though, maybe do this: (1) Scroll down the General list of variables and click Fees & Expenses which is nearly at the bottom. According to financial experts, mutual fund fees are an important determinant of wealth accumulation. After clicking the variable, a “Build Screen”” pop-up box opens. The Data item “Expense ratio” displays in pull-down menu 1. Click View data definition to read about the expense ratio. Since mutual funds don’t send you a “bill” for money due, they collect their revenue by siphoning off your assets. The bigger the expense ratio, the more they siphon. Close the definition box. Set the Condition in pull-down menu item 2 that will screen on the Expense ratio. Probably “<=” is appropriate here since you want small fees, not large fees. Pull-down menu item 3 is a Value that you must set. Click Benchmark and view the range of expense ratios across all mutual funds. Close the benchmark description. Select one of the items for the value, for example, enter a number like 0.8 or select the Category average. Now that items 1, 2, and 3 in the Build Your Screen pop-up box are complete, click OK. Notice that the criterion setting displays in the Screener main view. The number of funds passing the screen displays toward the left of the setting. Perhaps the number is in the thousands. We need it to be less than 20! (2) Select Fees & Expenses as the data to screen on. Accept And as item 1, the “Relationship to other criteria.” For item 2 set the data equal to No-Load funds (read the definition for more). Accept the Condition “=” for item 3. For item 4 set the value to YES. Click OK. (3) Select Fund Category as the data to screen on. Accept items 1, 2, and 3 as is. For the Value item in #4 select a category, for example Sector Equity and Financial. Click OK. (4) Select a fourth criterion to screen on. If zero funds pass your screen then Change one of the filters. When you’ve set 4 or more and find less than 24 funds passing your screen, click the Click button to view results and you are shown a a page that lists the funds passing my screen and also lists the Screen Summary of criteria settings. Now start over and set YOUR criteria that imposes your biases and beliefs to find the hidden jewel! PRINTOUT 4: Print the Results page that lists funds and criteria settings. Note that some browsers do not show the criteria on the results page but instead only shows them under the Criteria tab. For that case make printouts for both the Results and Criteria pages. Select one of the resultant funds for your mutual fund investment. Click on the fund name to get a Snapshot of information about the particular mutual fund. PRINTOUT 5: Print the page showing the Snapshot of the mutual fund. Jot down the ticker symbol that appears to the right of the fund name and type it into your spreadsheet. With the ticker symbol, you can easily find the fund price later. 5 (3) Corporate bond - Point to www.finra.org, the home page for the Financial Industry Regulatory Authority. Click “Investors” tab and then “Market Data”. The tools, calculators, and other tabs show information that someday may be worth browsing. For now, however, click “Bonds” > toward the middle of the page click “Advanced Bond Search” > click “Corporate” for the bond type. Set (a) coupon type = fixed; (b) Interest Frequency = Semiannual; (c) maturity date two years or more beyond the end of this semester, (d) set trade parameters indicating trading activity within the last 10 days; (e) Exclude Callable. Show results. Set if you wish any of these optional variables: an issuer name (e.g. Alabama), coupon rate (e.g. 5.0 to 8.0), rating (e.g. AAA to BBB), or industry group (e.g. Energy). Refine as needed. See the bond detail and select a bond by clicking the link in the Symbol column. PRINTOUT 6: Get the Bond detail for your bond Notice that Finra and Bloomberg quote bond prices per $100; e.g., 98.63 means a bond price of $986.30 and to spend $10,000 you must buy 11 bonds, 102.87 means $1,028.70. In your spreadsheet enter, for example, 986.30 or 1028.70. (4) Treasury security - TIPS are U.S Treasury inflation protected securities that hedge on USD purchasing power. That is, the investment rate of return indexes to inflation in a positive way. Find a recent secondary market TIPS price at http://online.wsj.com/mdc/public/page/2_3020-tips.html?mod=topnav_2_3010 . Two prices exist in any commodity market. The top row of the table at time of this writing shows the “Bid” is 103.06 and “Asked” is 103.07. Buy at the Asked price to invest, sell at the Bid price to divest. Thus, the preceding quote shows sellers received $1,030.60 for the bonds (recall their face value equals $1,000). Buy one at $1,030.70 except the minimum purchase requirement is $10,000 so buy 10. Choose one of the TIPS and buy some and don’t get one that matures too soon. Record in your description cell the coupon rate and maturity date, then the price cell gets dollars per $1000, for example $1030.70. Later, for TG#2 & #3; add $25 to your original bond price (e.g. $1,055.70). Use this pretend policy since the quote for a TIPS price publishes infrequently. No print-outs or subsequent visits to this site are required. (5) Options - There are many different strategies since there are many kinds of options in many different markets. Here is one plan to buy a stock option for a well-known company in the news about which maybe you have a hunch whether market sentiment is bullish (rising price) or bearish (falling price). Browse to http://finance.yahoo.com/ and type in the stock ticker symbol for your target company in the Quote Lookup box and click Go (the Search for ticker is pretty simple if needed). When the stock page pulls up then along the left-frame click Options. Next, select a tab with date beyond end of the semester. The column labeled Last is the option price at the last trade. Each row is a different option. The put profits when the stock price falls so bears buy them. The bulls buy calls which profit when the stock price rises. Choose an option near the biggest Open Interest number (“near the money”). There the river of capital is flowing deepest and for TG#2 you’ll easily find the price again. Enter the LAST price per option into the spreadsheet plus a good description of the entire SYMBOL (copy/paste the ticker into the description cell, e.g. “ENR140222C006000”; no print-outs needed). For optional information on options see textbook chapter 12 and http://bama.ua.edu/~fi302/tg-options.pdf . (6) Foreign currency exchange traded fund - Point your browser to http://finance.yahoo.com/currency-investing and scroll down the page to the “Top 10 Currency Related ETFs.” Each row represents an exchange traded fund that profits (loses) as exchange rates move. Hold the cursor over the Symbol to view the name of the fund and click the symbol to access more information. For example, click CYB and scroll down to the 6 Fund Summary and read how this fund profits when the Chinese yuan appreciates relative to the US dollar. The price per share of the fund is in column “Price.” Select one of these or any other currency fund, invest at least $10,000 and record the price in your spreadsheet (no print-outs needed). Another great site for free ETF research is http://etfreplay.com/ . Part 2: Spreadsheet and first submission Get the spreadsheet from the assignment resources page at http://bama.ua.edu/~fi302/tg.html Save your copy of trader.xlsx to your storage media. To make sure it works, exit the internet browser and open the file. There should not be any errors, warnings, or suspicious conversion functions. Post a query on the Discussion Board or see the Bashinsky specialists if you have difficulty obtaining a usable spreadsheet. a. Enter the prices of the 6 start-up investments in ranges E6:J6. Enter the quantities in E3:J3. The price times quantity should exceed $10,000 at startup. Buy them before the first due date. Enter really good descriptions of the securities in E2:J2 so that you can easily find the prices later for the second and third due dates. For all current purchases sum the products of prices times quantities, and type the sum that you are withdrawing into O7. b. Collect the SP500, too (ticker symbol = ^SPX), and enter in D6. The SP500 usually appears near the Dow-Jones Industrial Average (DJIA) on many web-pages. The SP500 represents one of the more comprehensive measures for the stock market performance of US large capitalization companies (the DJIA is made from 30 stock prices). For background, see http://en.wikipedia.org/wiki/S%26P_500 c. If you buy an extra security then enter its description in D16. Enter its price in D17 and again in D18. Enter the quantity in D19. Repeat the data entry in range E16:E19 for your second extra security, etc. d. Cell O14 shows the value of your securities given that all quantities and prices are entered correctly. Once all steps are complete then confirm that the value of your securities plus cash balances plus broker fees equals the Beginning wealth then, in cell O14, type the number and replace the formula. Doing so prevents the number in O14 from changing when later you sell and change quantities to zero. e. The "Reconciliation of Balances with Expenses and Income" in K2:O20 is like balancing a checkbook. For "total purchases," sum the value of all securities purchased. Cell E27 shows the cost of the startup investments. Make sure cell E28 properly measures cost of optional extra investments. E29 shows total purchases. If you sell securities (unlikely for first due date unless you are a raging bull) or receive stock dividends (unnecessary to report) or bond coupons (unlikely for first due date) then enter those numbers in L7 and L8. f. The total value of your account equals the market value of securities plus cash. Cell O16 shows the value of your securities plus cash balances. Put your name in cell E1. A few days before the due date get these two printouts: COVERPAGE1a: Print the range C1:J30 This preceding named range includes the prices for your investments. To print this, select the range by name, or highlight it by moving your cursor while holding down the right mouse button, etc. (many different ways). Click File, Print, Selection, PREVIEW! Move margins: MAKE IT PRINT ON ONE PAGE! COVERPAGE1b: Print the range K2:O20 The preceding range is your brokerage account statement of cash flows. Make sure the money coming in and going out is counted correctly. Staple papers into one bundle and submit with coverpage 1a on top, followed by 1b, printouts 1-to-6, and the bonus eligible optional BBL or BAT or BMC printouts (keep copies). 7 Part 3: The second submission A few days before the second due date in Table 1 choose any 2 things you own and sell them. Plus buy 2 new things. Make the choices -- sell your winners or hold ‘em? Dump the losers or were they underpriced before and now they are even better? Record the prices and brokerage account deposits and withdrawals in the spreadsheet using the instructions below. Also get these required internet printouts for the second submission. It’s time to take the FINRA Investor Knowledge quiz. The “Financial Industry Regulatory Authority” (FINRA) is a new millennium consortium of industry and government agencies that facilitate access for companies and households to financial markets and products. The consortium has a long history under different initials and is globally powerful. Point your browser to http://apps.finra.org/Investor_Information/quiz/InvestorQuiz.asp and take this quiz. At the end click SUBMIT. Print the quiz & results. PRINTOUT 1: Print the complete FINRA quiz with your answers and score. Get the next required printout at http://finance.yahoo.com/ . Click on the “Personal Finance” tab, then toward the bottom of the page “Calculators.” These different calculators and planners at this and many other sites help you with different aspects of modern financial life. Choose any one and fill out its fields and obtain its analysis. PRINTOUT 2: Print the web-page with the results from an interesting calculator. Update the spreadsheet for the second submission as follows. a. Before but near the second due date find current prices for everything you own plus the SP500. Data entry to D7:J7. If you made extra buys for the first submission collect and data enter to D18:E18 etc.... For the 2 sells sum the products of prices times quantities, type the sum you are depositing into L27, and set the quantities (e.g., cell E3 if you sell the stock) at zero. Congratulations! You’ve completed your first investment roundtrip. If you deposited more from selling than you withdrew for purchasing these securities then the account balance increased (less built-in 1% transaction fees each way). b. For the 2 or more securities you are purchasing type the descriptions in D16.E16.&c (don’t overwrite old data). Enter the price in D17 and again in D18 (if you made extra buys use E, F, etc). Enter the quantity in D19. Repeat the data entry in range E16:E19 for your second purchase and any extra securities, too. For all current purchases sum the products of prices times quantities, and type the sum that you are withdrawing into O27. c. Cell O34 shows the value of your securities given that all quantities and prices for securities are entered correctly. Once all steps are complete then in cell O34 type the number to replace the formula. d. The total value of your account equals the market value of securities plus cash and is in cell O36. Make sure your name is in cell E1. A day or two before the due date get these two printouts from the spreadsheet. COVERPAGE2a: Print the range C1:J30 File, Print, Selection, PREVIEW, SHRINK, MARGINS! MAKE IT PRINT ON ONE PAGE! COVERPAGE2b: Print the range K22:O40 Staple papers into one bundle and submit with coverpage 2a on top, followed by 2b, printouts 1-to-2, and the bonus eligible optional BBL and/or BAT printouts (keep copies). 8 Part 4: The third submission TG#3 has 3 items. One is the spreadsheet printouts after liquidation to cash. Second are 3 short essay answers. Third are the Bruno Business Library printouts (BBL) from Morningstar Investment Research Center or the Bloomberg Terminal. The spreadsheet printouts are required, no exceptions or exemptions. You can be exempt from the second and third items by doing other tasks (the BAT or BMC, see below). Submitting the BBL, BAT, or BMC with TG#1 or TG#2 (instead of with TG#3) earns a bonus. Taking the Bloomberg Assessment Test (BAT) substitutes for essays #2 and #3. For TG#3 submit only the BAT confirmation, the spreadsheet printouts, essay #1, and the BBL printouts. Taking the BAT and completing either the Equity or Fixed income Bloomberg Market Concepts module (BMC) substitutes for the BBL and essays #2 and #3. For TG#3 submit only the BAT confirmation, the BMC confirmation, the spreadsheet printouts, and essay #1. Taking the BAT and completing two BMC modules (one must be Equity or Fixed income; the second is your choice) substitutes for the BBL and essays #1, #2 and #3. For TG#3 submit only the BAT confirmation, the BMC confirmation, and the spreadsheet printouts. Get a bonus by submitting the BBL, BAT, or BMC items with TG#1 (6 points per item, max bonus = 12 points) or TG#2 (3 points per item, max bonus = 6 points) instead of with TG#3 (no bonus). Learn more about the BBL, the BAT, and the BMC in http://bama.ua.edu/~fi302/tg-bloomberg.pdf. 4.1 Update the financial statements after liquidation to cash. Before but near the third due date in Table 1 find current prices for everything you own plus the SP500. Update the spreadsheet as follows. a. Data enter to D8:J8 and D18:E18. Securities sold for TG#2 don’t require price updates. b. For all extra investments made since the second due date (none are required) sum the products of prices times quantities and type the sum that you are withdrawing to finance the investments into O47. c. You are required to credit your account with the interest from your corporate bond coupon, not required for the TIPS, however. Your share of a semiannual coupon equals the proportion of a half-year (182.5 days) for which you owned the bond; e.g., if you owned a 9% bond for 21 days, your coupon income equals ($90/2)x(21/182.5), or $5.18 per $1000 bond (for 20 bonds, that’s a hundred bucks!). Enter that coupon income cell L48. Whether you want to add any dividends declared by your stocks is optional. Search company news on the internet if you wish to find financial information about dividends. d. Type into L47 everything you get from selling the securities. Set the quantities (cells E3:J3 and D19, E19 etc) at zero. If you deposited more from selling than you withdrew for purchasing securities then the account balance increased (less 1% transaction fees). Cell L59 is bigger or smaller than $100,000 implying a positive or negative rate-of-return. Make sure your name is in cell E1. A day or two before the due date get these two spreadsheet printouts: COVERPAGE 3a: Print the range C1:J30 File, Print, Selection, PREVIEW, SHRINK, MARGINS! MAKE IT PRINT ON ONE PAGE! COVERPAGE 3b: Print the range K2:O75 Staple papers into one bundle and submit with coverpage 3a on top, followed by 3b, then your essays, and then the required BBL printouts (if not already submitted or exempted). Get a bonus by submitting the BBL, BAT, or BMC items with TG#1 (6 points per item, max bonus = 12 points) or TG#2 (3 points per item, max bonus = 6 points) instead of with TG#3 (no bonus). Learn more about the BBL, the BAT, and the BMC in http://bama.ua.edu/~fi302/tg-bloomberg.pdf. 9 4.2 Short essays for specific open-end questions Present discussions in paragraph form with itemized headings for each of the 3 questions below. Consider each one as a two-to-four paragraph essay. Your report should be a nonsensitive, impersonal business report befitting a literate graduate from a top-50 business school. Mechanical errors, such as spelling mistakes or disagreement between subject and verb tenses detract from quality. A high-impact report incorporates headers, itemization, short paragraphs, and smart sentences. Edit several times before submission. Essay #1. Market backdrop and portfolio performance (15 points maximum) Summarize and reference one financial author who explains why market prices moved as they did during the recent past. Use your words and paraphrase his/her/their argument for “why and what happened to the financial market just then?” Debate the point. Link your portfolio gains, losses, and trading activity to the preceding argument. Essay #2. Use beta for your stock to find the economic profit (10 points maximum) How much economic profit (%) did the start-up common stock create for a well-diversified portfolio? Compute ROR risk-adjusted throughout your common stock holding period. HINT: The textbook paragraph on p. 546 following formula 11.6 explains how ROR risk-adjusted equals -8.11% for company A. Into that textbook example substitute these numbers: Compute RORequilibrium using (i) alpha and (ii) beta from the BBL or the Company summary page on google or yahoo (if alpha is unavailable set D= 0) and (iii) get ROR market as the %'SP500 in your spreadsheet. Show the derivation for ROR risk-adjusted and explain what it means! Essay #3. Choose one from below (15 points maximum) 3a. Explain the rationale for the transaction that you executed for the second submission. Document the extent by which the securities you sold at the midpoint perform relative to the replacements. Figure how the ending portfolio balance was affected. Or 3b. Explain how the price of your start-up corporate bond promised ROR relates to interest rate movements. Compute next year’s interest rate at which the one year rate of return from owning your start-up bond would be zero. At that end-of-year rate the capital loss (PV on calculator) from the price change exactly offsets the income (PMT) from the coupon. This “break-even rate” is shown on the library Bloomberg Horizon Analysis graph. Quantitatively compare the current yield with capital gains yield for that scenario. See the textbook discussion in Ch. 6.3.B on ”Horizon Analysis” for background reading. Or 3c. Explain the effect of the foreign currency ETF on your portfolio. Discuss whether the currency appreciated or depreciated relative to the USD and other major currencies. Was there any currency for which the exchange rate moved so much during the game that your ending wealth would have been greater had you invested $100,000 beginning wealth to buy and hold that one ETF instead of the portfolio? 10 Trading Game XRules for exceptional circumstances This information explains exceptional circumstances that may not occur for all students. XRule - 1) NOTICE ON MISSING OPTIONS PRICES. Sometimes you buy an option and its price will cease to be listed because the option ceases to be traded. If this problem persists for more than a week, you may make either of the following adjustments: (1) maybe your option is not trading because it is worthless. For example, if you have a call option for buying NCP shares at $20 per share, but the share price falls to $10, your option won't be traded because it is worthless (who would want to use it?) On the spreadsheet, enter a price of $0.01 for your option (with $0.00 some of the formulas won’t work). (2) When your option becomes too valuable, it ceases to be traded. Approximate its value by comparing its last price with some options on the same stock but with different strikes and extrapolate. For example, if you have a call option for buying AMR shares at $10 per share, and the share price goes to $35, your option may cease trading. You may have noticed that, during the days its price was listed, your option's price was $22 more than the ones with a strike of $30. If the ones with a strike of $30 now have prices of $9, then you can approximate the price of your option as $31. Remember, it’s only pretend money so do what seems reasonable. XRule - 2) NOTICE ON STOCK SPLITS: There is a tiny chance that during the period you own the stock the issuer announces a stock split. For example, if your stock had a 2-for-1 split then your number of shares doubles and the price that you see all of a sudden is about half-as-large as before. You must find company information and verify the split ratio. It might be 2-for-1, 3-for-2, etc. You must be certain of the ratio. Then adjust either your quantity or the quoted price, but not both, with the split ratio. For example, if the post-split price is $50 but you know it was a 2-for-1 split then in the spreadsheet either double the number of shares or the post-split price. XRule - 3) NOTICE ON MISSING BOND PRICES. Sometimes you buy a bond and its price is not listed next time probably because the bond was not traded. The website shows no price instead of an old price. Bonds do not trade as frequently as stocks (IBM has only one stock – it trades frequently – whereas IBM has dozens of bonds – not all trade everyday). Use the most recently available price for your bond even if old. If this occurs for your bond perhaps look on the internet every few days to see if a newer price appears; then if it doesn’t appear next time at least you’ll have a more recent price. In the worst case just use the same price as before. It’s only pretend money so do what seems “the right thing” nice rule. XRule - 4) Each individual student must submit an individual performance. Although two different students may both own, say, shares of IBM or bonds of WMT, there is no way that all securities can be the same, nor should discussions about the securities look alike. Copying or paraphrasing each other’s work, or several persons submitting identical Bloomberg printouts with time-stamps within 15 minutes of each other, is a violation of the UA Code Of Conduct. Definitely the wrong thing to do! Such ethics violations may incur severe penalties, including penalties and sanctions that note the incident in your permanent CBA student file.