Homework Assignment #1 – Lectures 1 - 3
Due at midnight of Sept. 10, 2025
1. An analysis of the investor’s investment objectives most probably appears in:
A. Policy statement
B. Asset allocation
C. Security analysis
D. Portfolio evaluation
2. The investment horizon is:
A. the investor's expected age at death
B. the starting date for establishing investment constraints
C. based on the investor's risk tolerance
D. the date at which the portfolio is expected to be fully or partially liquidated
E. none of the above
3. Explain concepts:
• Asset allocation
• Security selection
• Top-down strategy
• Bottom-up strategy
4. A price-weighted index consists of stocks A, B, and C which are priced at $24, $39, and $27 a
share, respectively. The current index divisor is 2.7. If stock B undergoes a 3-for-1 stock split,
what is the new index divisor?
5. An index consists of the following securities and has an index divisor of 3.0. What is the
price-weighted index return? If you have $500 to invest and want to mimic the PW index return,
how much should you invest in A, B and C?
Stock
A
B
C
Shares
Outstanding
4,000
3,000
5,000
Beginning
Price
$24
$18
$37
Ending
Price
$22
$19
$44
6. You want to buy shares of Delta stock which is selling for $19 a share. Your margin account
currently has available cash of $4,800. What is the maximum number of shares you can purchase
if the initial margin requirement is 70%?
7. You recently purchased 700 shares of Adelp stock for $21 a share. Your broker required a cash
payment of $11,025, plus trading costs, for this purchase. What was the initial margin requirement?
8. You purchased a stock for $24 a share with 60% margin. You sold the stock one year later for
$26 a share. You did not receive any dividend income. What was your holding period percentage
return on this investment? Assume no interest on borrowing.