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Portfolio Construction, Management, and Protection, 4th ed.
Instructors’ Manual
Table of Contents
Key Points, Teaching Considerations, and
Answers to Questions and Problems
Chapter One
Chapter Two
Chapter Three
Chapter Four
Chapter Five
Chapter Six
Chapter Seven
Chapter Eight
Chapter Nine
Chapter Ten
Chapter Eleven
Chapter Twelve
Chapter Thirteen
Chapter Fourteen
Chapter Fifteen
Chapter Sixteen
Chapter Seventeen
Chapter Eighteen
Chapter Nineteen
Chapter Twenty
Chapter Twenty-One
Chapter Twenty-Two
The Process of Portfolio Management
Valuation, Risk, Return, and Uncertainty
Setting Portfolio Objectives
Investment Policy
The Mathematics of Diversification
Why Diversification is a Good Idea
International Investment and Diversification
The Capital Markets and Market Efficiency
Picking the Equity Players
Security Screening
Bond Pricing and Selection
The Role of Real Assets
Revision of the Equity Portfolio
Revision of the Fixed-Income Portfolio
Principles of Options and Option Pricing
Option Overwriting
Performance Evaluation
Fiduciary Duties and Responsibilities
Principles of the Futures Market
Benching the Equity Players
Removing Interest Rate Risk
Integrating Derivative Assets and Portfolio
Management
Chapter Twenty-Three Contemporary Issues in Portfolio Management
1
3
13
19
37
47
55
65
73
76
78
86
89
96
100
106
111
116
126
129
133
137
143
Test Bank
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
148
152
166
174
179
190
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
193
198
204
210
213
228
Chapter 13
Chapter 14
Chapter 15
Chapter 16
Chapter 17
Chapter 18
233
239
246
253
263
269
Chapter 19
Chapter 20
Chapter 21
Chapter 22
Chapter 23
272
276
281
286
289
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List of Transparency Masters
Please note: a complete set of PowerPoint Presentation Slides is available for download at
http://strong.swlearning.com.
Chapter 1
Low Risk vs. High Risk Investments
Low Risk vs. High Risk Investments (cont’d)
Six Steps of Portfolio Management
Six Steps of Portfolio Management (cont’d)
Chapter 2
Growing Annuity
Growing Perpetuity
Dispersion and Chance of Loss
Dispersion and Chance of Loss (cont’d)
Dispersion and Chance of Loss (cont’d)
Arithmetic and Geometric Mean Returns Example
Arithmetic and Geometric Mean Returns Example (cont’d)
Arithmetic and Geometric Mean Returns Example (cont’d)
Linear Regression
Linear Regression Example
Linear Regression Example (cont’d)
Chapter 3
Growth of Income Example
Growth of Income Example (cont’d)
Growth of Income Example (cont’d)
Possible Combinations of Objectives
Chapter 4
The Purpose of Investment Policy
Individual Investors
Chapter 5
Return
Two-Security Case
Two-Security Case Example
The n-Security Case
Portfolio Statistics With the Single-Index Model
Portfolio Statistics With the Single-Index Model (cont’d)
Chapter 6
Variance of a Linear Combination: The Practical Meaning
Variance of a Linear Combination: The Practical Meaning (cont’d)
Variance of a Linear Combination: The Practical Meaning (cont’d)
Markowitz Quadratic Programming Problem
CAPM
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Chapter 7
Relationship of World Exchanges
Relationship of World Exchanges (cont’d)
Relationship of World Exchanges (cont’d)
Forward Rates
Forward Rates (cont’d)
Forward Rates (cont’d)
Forward Rates Example
Forward Rates Example (cont’d)
Chapter 8
Conducting a Runs Test
January Effect
January Effect (cont’d)
Types of Firms in January
Chapter 9
Dividend Growth Rates
Dividend Growth Rates (cont’d)
Dividend Growth Rates (cont’d)
Why Dividends Do Not Matter
Chapter 10
Value Line Timeliness & Safety Ranking System
Sample Value Line Report
Sample S&P Stock Report
A Simple Financial Pages Screen
Chapter 11
Information Used to Build a Yield Curve
Calculating Duration
Calculating Duration (cont’d)
Calculating Duration Example
Calculating Duration Example (cont’d)
Using S&P’s Bond Guide
Using S&P’s Bond Guide (cont’d)
Choosing the Bonds
Bonds
Chapter 12
Timberland Investors
Timberland Ownership in the United States (thousand of acres)
Timberland Correlation Coefficients (1960-2002)
Popular Coins for Investment
Chapter 13
Constant Proportion
Constant Proportion Example
Constant Proportion Example (cont’d)
Constant Proportion Example (cont’d)
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Chapter 14
Laddered Portfolio
Laddered Portfolio (cont’d)
Barbell Portfolio
Barbell Portfolio (cont’d)
The Importance of Convexity
The Importance of Convexity (cont’d)
The Importance of Convexity (cont’d)
Chapter 15
Practical Example of a Call Option
The Financial Page Listing
The Financial Page Listing (cont’d)
Profit and Loss Diagrams for the Disney JUN 22.50 Call buyer
Profit and Loss Diagrams for the Disney JUN 22.50 Call writer
Profit and Loss Diagrams for the Disney JUN 22.50 Put buyer
Profit and Loss Diagrams for the Disney JUN 22.50 Put writer
Chapter 16
Forms of Margin (Margin Equivalents)
Table 16-7 Stock Portfolio
Table 16-8 Covered Equity Call Writing
Table 16-9 Covered Index Call Writing
Table 16-11 Put Overwriting
Risk/Return Comparisons (cont’d)
Chapter 17
Table 17-4 Mutual Fund Account Value
Table 17-5 Daily Valuation Worksheet
Table 17-6 Modified BAI Method Worksheet
Table 17-9 IRAR Example
Table 17-10 IRAR Worksheet
Chapter 18
Uniform Prudent Investor Act
Figure 18-1 Provisions of the Uniform Prudent Investor Act
Sole Interest of Beneficiary Rule
Chapter 19
Creation of a Contract
Creation of a Contract (cont’d)
Creation of a Contract (cont’d)
Creation of a Contract (cont’d)
Chapter 20
Protective Put Profit and Loss Diagram
Protective Put Profit and Loss Diagram (cont’d)
Protective Put Profit and Loss Diagram (cont’d)
Protective Put Profit and Loss Diagram (cont’d)
S&P 500 Stock Index Futures Contract
Dynamic Hedging Example
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Chapter 21
Table 21-2 Sample Conversion Factors
Table 21-3 Cheapest to Deliver Calculation
Table 21-4 Effects of Immunization
Table 21-4 Effects of Immunization (cont’d)
Chapter 22
Table 22-1 Fixed-Income Securities
Table 22-3 Final Stock Portfolio
Chapter 23
Flow Chart for Mechanics of a Short Sale
CFA Program Enrollment
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