BUS 431a: INVESTMENT AND PORTFOLIO MANAGEMENT SPRING 2013, AUBG Quiz 4(a S!"u#i!$ Gui%& P'!("&) 1 (* +!

i$#, : Table 12.B contains data on market advances and declines. Calculate cumulative .breadth and decide whether this technical signal is bullish or bearish. If the trading volume in advancing shares on day 1 was 300 million shares while the volume in declining issues was 200 million shares what was the Trin statistics for that day! "as Trin bullish or bearish! #ay 1 2 3 ( ) S!"u#i!$: Da1 2 3 ( ) & ' * % 10 A%.a$/&, %0& &)3 '21 )03 (%' %'0 1 002 %03 *)0 '&& D&/"i$&, '0( %*& '*% %&* 1 0%) '02 &0% '22 '(* '&& N&# A%.a$/ &, 202 +333 + &* +(&) +)%* 2&* 3%3 1*1 102 0 Cumulative Breadth 202 +131 +1%% +&&( +1 2&2 +%%( +&01 +(20 +31* +31* $dvances %0& &)3 '21 )03 (%' #eclines '0( %*& '*% %&* 10%) #ay & ' * % 10 $dvances %'0 1002 %03 *)0 '&& #eclines '02 &0% '22 '(* '&&

The signal is bearish as cumulative breadth is negative, however the negative number is declining in magnitude indicative of im-rovement. .erha-s the worst of the bear market has -assed. Trin / Volume advancing 0 Number advancing = 300 million 0 %0& = 0.*)*
Volume declining 0 Number declining 200 million 0 '0(

This is a slightly bullish indicator with average volume in advancing issues a bit greater than average volume in declining issues. P'!("&) 2 (12 +!i$#, : $ssume you have a 1+year investment hori1on and you are trying to choose among three bonds. $ll have the same degree of default risk and mature in 10 years. The first is a 1ero+cou-on bond that -ays 21000 at maturity. The second has an *3 cou-on rate and -ays the 2*0 cou-on once -er year. The third has a 103 cou-on rate and -ays the 2100 cou-on once -er year. a. 43 -oints5 If all these three bonds are now -riced to yield *3 to maturity what are their -rices! b. 43 -oints5 If you e6-ect their yields to maturity to be *3 at the beginning of the ne6t year what will their -rices be then! "hat is your before+ta6 holding+-eriod return on each bond! c. 43 -oints5 If your ta6 bracket is 303 on ordinary income and 203 on ca-ital gains income what will your after+ta6 rate of return be on each bond! d. 43 -oints5 7ecalculate your answers to -art b5 under the assum-tion that you e6-ect the yield to maturity on each bond to be '3 at the beginning of ne6t year. S!"u#i!$: a2 3u''&$# +'i/&, (2 P'i/& 1 -&a' 4'!) $!5 .rice increase Cou-on income .re+ta6 income .re+ta6 rate of return Ta6es8 $fter+ta6 income $fter+ta6 rate of return 0&'! /!u+!$ 2(&3.1% 2)00.2) 6 37208 2 0.00 6 37208 *.003 2 11.12 6 2;2:4 ).&03 *1 /!u+!$ 21 000.00 21 000.00 6 0200 2 *0.00 6 *0200 *.003 2 2(.00 6 ;8200 ).&03 101 /!u+!$ 21 13(.20 21 12(.%( 9 6 :228 2100.00 6 :0274 *.003 2 2*.1) 6 822;: ).)23

/2 P'i/& 1 -&a' 4'!) $!5 2)(3.%3 21 0&).1) 21 1%).(& .rice increase 6 *0274 6 8;21; 6 81228 Cou-on income 2 0.00 2 *0.00 2100.00 .re+ta6 income 6 *0274 614;21; 6181228 .re+ta6 rate of return 1'.(33 1(.)23 1(.223 Ta6es88 2 1%.*& 2 3'.03 2 (2.2) $fter+ta6 income 6 802** 610*212 611:201 $fter+ta6 rate of return 13.1(3 10.*13 10.(%3 8 In com-uting ta6es we assume that the 103 cou-on bond was issued at -ar and that the decrease in -rice when the bond is sold at year end is treated as a ca-ital loss 4ta6 saving5 and therefore is not treated as an offset to ordinary income. 88 In com-uting ta6es for the 1ero cou-on bond 23'.0& is ta6ed as ordinary income 4see -art 4b55, the remainder of the -rice increase is ta6ed as a ca-ital gain. 2