INVESTMENTS (LL)
11th Edition
ISBN: 9781260150407
Author: Bodie
Publisher: MCG
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Question
Chapter 12, Problem 24PS
Summary Introduction
(a)
To determine:
To set the spreadsheet for calculating the relative strength of the banking sector compared to the broad market.
Introduction:
Relative strength helps to measure the extent to which a security has underperformed or it has outperformed its own industry or the entire market. Relative strength is a ratio of price of security to industry price index.
Expert Solution
Answer to Problem 24PS
The spreadsheet is obtained and given in explanation.
Explanation of Solution
Given Information:
The data given in the website. The initial value of the sector index and S&P 500 Index is equal to 100. Each week's
The data was downloaded from the given website.
| Week | SPY rate | FSRBX rate |
| 2013.01 | 1.64 | 1.75 |
| 2013.02 | 0.17 | 0.55 |
| 2013.03 | -0.82 | -0.92 |
| 2013.04 | 0.85 | 0.93 |
| 2013.05 | 0.59 | 0.92 |
| 2013.06 | -0.21 | -0.08 |
| 2013.07 | 0.12 | 1.37 |
| 2013.08 | 1.19 | 1.80 |
| 2013.09 | -3.27 | -2.73 |
| 2013.10 | -1.00 | -0.58 |
| 2013.11 | -0.03 | -0.87 |
| 2013.12 | 3.25 | 1.09 |
| 2013.13 | -0.23 | -0.21 |
| 2013.14 | -0.47 | -3.37 |
| 2013.15 | 0.47 | 0.00 |
| 2013.16 | -2.97 | -1.55 |
| 2013.17 | -0.91 | -1.75 |
| 2013.18 | 0.07 | 0.40 |
| 2013.19 | -0.20 | 1.11 |
| 2013.20 | 2.77 | 2.50 |
| 2013.21 | 0.11 | 0.04 |
| 2013.22 | 1.21 | 0.38 |
| 2013.23 | -0.27 | -0.89 |
| 2013.24 | 0.19 | 0.52 |
| 2013.25 | -0.85 | -0.17 |
| 2013.26 | -1.02 | -1.16 |
| 2013.27 | -0.92 | 0.04 |
| 2013.28 | -1.57 | 0.04 |
| 2013.29 | 1.72 | 0.95 |
| 2013.30 | -3.60 | -1.97 |
| 2013.31 | 0.32 | 0.83 |
| 2013.32 | 3.07 | 3.47 |
| 2013.33 | 0.88 | 1.05 |
| 2013.34 | 0.59 | 0.58 |
| 2013.35 | 0.85 | 0.54 |
| 2013.36 | 0.50 | 0.21 |
| 2013.37 | -1.49 | -1.72 |
| 2013.38 | 1.96 | 2.08 |
| 2013.39 | -1.00 | 0.16 |
| 2013.40 | -1.11 | -0.37 |
| 2013.41 | -1.13 | -1.51 |
| 2013.42 | 2.91 | 3.28 |
| 2013.43 | 3.61 | 2.73 |
| 2013.44 | 1.29 | 1.60 |
| 2013.45 | -0.86 | -2.16 |
| 2013.46 | 0.79 | 1.18 |
| 2013.47 | 0.76 | 0.19 |
| 2013.48 | 0.06 | -0.19 |
| 2013.49 | 0.57 | 0.04 |
| 2013.50 | 1.11 | 1.83 |
| 2013.51 | 0.08 | -0.15 |
| 2013.52 | -2.01 | -2.22 |
| 2014.01 | -0.17 | -1.56 |
| 2014.02 | -1.24 | 0.16 |
| 2014.03 | 0.56 | -0.28 |
| 2014.04 | 2.38 | 2.74 |
| 2014.05 | 0.45 | -0.39 |
| 2014.06 | -0.32 | -2.45 |
| 2014.07 | 0.87 | 0.36 |
| 2014.08 | 1.07 | 1.63 |
| 2014.09 | -1.91 | -1.87 |
| 2014.10 | -1.15 | -1.23 |
| 2014.11 | -1.18 | -2.58 |
| 2014.12 | 0.25 | 0.29 |
| 2014.13 | 0.48 | 0.66 |
| 2014.14 | -3.26 | -2.29 |
| 2014.15 | 1.24 | 0.75 |
| 2014.16 | 0.16 | 1.54 |
| 2014.17 | 1.15 | 0.78 |
| 2014.18 | -1.17 | -1.30 |
| 2014.19 | 2.93 | 3.13 |
| 2014.20 | 0.96 | -0.52 |
| 2014.21 | -0.09 | -0.36 |
| 2014.22 | 0.05 | -0.04 |
| 2014.23 | 1.37 | 1.65 |
| 2014.24 | -1.96 | -1.07 |
| 2014.25 | 0.46 | 0.80 |
| 2014.26 | 1.49 | 1.19 |
| 2014.27 | 1.26 | 1.65 |
| 2014.28 | 0.57 | 0.35 |
| 2014.29 | 0.16 | -0.92 |
| 2014.30 | -0.69 | -1.24 |
| 2014.31 | 0.14 | 0.04 |
| 2014.32 | -0.47 | 0.39 |
| 2014.33 | -1.39 | -1.92 |
| 2014.34 | 1.24 | 1.00 |
| 2014.35 | 1.91 | 0.63 |
| 2014.36 | -0.46 | 0.08 |
| 2014.37 | -1.67 | -2.36 |
| 2014.38 | 1.32 | -0.08 |
| 2014.39 | -2.79 | -1.73 |
| 2014.40 | -0.78 | 0.04 |
| 2014.41 | -0.45 | 1.02 |
| 2014.42 | 1.41 | 2.23 |
| 2014.43 | 1.93 | 1.03 |
| 2014.44 | 1.35 | 3.02 |
| 2014.45 | 1.10 | -0.19 |
| 2014.46 | 1.60 | 1.72 |
| 2014.47 | -0.22 | -0.68 |
| 2014.48 | -0.41 | -0.38 |
| 2014.49 | 0.55 | 0.72 |
| 2014.50 | 0.31 | 0.19 |
| 2014.51 | -1.77 | -1.73 |
| 2014.52 | 3.15 | 2.41 |
| 2015.01 | 0.19 | -0.52 |
| 2015.02 | -2.10 | -2.89 |
| 2015.03 | 2.04 | 2.59 |
| 2015.04 | -1.76 | -1.81 |
| 2015.05 | 0.29 | 0.81 |
| 2015.06 | 1.72 | 1.71 |
| 2015.07 | 0.47 | 1.35 |
| 2015.08 | -0.50 | -1.07 |
| 2015.09 | -0.13 | 0.07 |
| 2015.1 | 1.99 | 2.13 |
| 2015.11 | -0.32 | -0.51 |
| 2015.12 | -0.29 | -0.66 |
| 2015.13 | -0.23 | -0.04 |
| 2015.14 | -0.64 | -0.41 |
| 2015.15 | 1.90 | 1.37 |
| 2015.16 | 0.24 | 3.11 |
| 2015.17 | 0.80 | 0.57 |
| 2015.18 | -2.48 | -2.76 |
| 2015.19 | -1.66 | -1.49 |
| 2015.2 | 1.01 | 0.59 |
| 2015.21 | 0.48 | 1.06 |
| 2015.22 | -2.83 | -0.80 |
| 2015.23 | -0.12 | -1.72 |
| 2015.24 | -0.17 | -1.60 |
| 2015.25 | 2.29 | 2.08 |
| 2015.26 | -0.53 | -0.11 |
| 2015.27 | -2.44 | -1.30 |
| 2015.28 | 0.34 | 2.67 |
| 2015.29 | 3.25 | 2.31 |
| 2015.3 | 0.17 | 0.72 |
| 2015.31 | -0.93 | -1.99 |
| 2015.32 | 2.89 | 1.88 |
| 2015.33 | -0.67 | -1.14 |
| 2015.34 | 1.23 | 0.54 |
| 2015.35 | -0.86 | -0.54 |
| 2015.36 | 1.73 | 1.80 |
| 2015.37 | -0.38 | -0.25 |
| 2015.38 | 1.61 | 0.78 |
| 2015.39 | 1.08 | 0.67 |
| 2015.4 | 1.20 | 0.87 |
| 2015.41 | 0.15 | -1.21 |
| 2015.42 | 0.78 | 0.28 |
| 2015.43 | -1.00 | -1.01 |
| 2015.44 | 1.25 | 1.62 |
| 2015.45 | 1.58 | 0.28 |
| 2015.46 | -0.05 | -0.62 |
| 2015.47 | -0.09 | -0.49 |
| 2015.48 | 0.85 | 1.12 |
| 2015.49 | 0.65 | 2.04 |
| 2015.5 | -1.11 | 0.03 |
| 2015.51 | 0.62 | 0.34 |
| 2015.52 | -0.76 | -0.74 |
| 2016.01 | 1.92 | 0.34 |
| 2016.02 | -0.29 | -0.65 |
| 2016.03 | -0.48 | -0.27 |
| 2016.04 | 1.88 | 1.78 |
| 2016.05 | -0.60 | -0.20 |
| 2016.06 | 1.24 | 1.82 |
| 2016.07 | -0.29 | -0.50 |
| 2016.08 | -4.57 | -4.10 |
| 2016.09 | 1.52 | 0.35 |
| 2016.1 | -1.21 | -1.77 |
| 2016.11 | 3.51 | 3.45 |
| 2016.12 | -0.97 | -2.21 |
| 2016.13 | 1.58 | -0.31 |
| 2016.14 | 0.74 | -0.24 |
| 2016.15 | 2.27 | 3.50 |
| 2016.16 | 0.61 | -0.30 |
| 2016.17 | 0.93 | 0.95 |
| 2016.18 | -0.03 | 0.34 |
| 2016.19 | 1.16 | 0.60 |
| 2016.2 | -0.61 | -0.97 |
| 2016.21 | 1.57 | 0.84 |
| 2016.22 | -1.97 | -2.20 |
| 2016.23 | 1.78 | 1.47 |
| 2016.24 | -1.64 | -2.55 |
| 2016.25 | -0.08 | -0.41 |
| 2016.26 | 1.70 | 1.18 |
| 2016.27 | 1.22 | 0.24 |
| 2016.28 | -0.87 | -3.31 |
| 2016.29 | -5.46 | -5.40 |
| 2016.3 | -0.90 | -4.03 |
| 2016.31 | 0.63 | 5.80 |
| 2016.32 | 0.00 | 3.71 |
| 2016.33 | 2.51 | 0.07 |
| 2016.34 | -0.50 | -1.49 |
| 2016.35 | -1.03 | -2.52 |
| 2016.36 | 1.94 | 1.66 |
| 2016.37 | 2.55 | 2.50 |
| 2016.38 | 0.40 | -1.74 |
| 2016.39 | 2.14 | 4.61 |
| 2016.4 | 0.31 | -2.58 |
| 2016.41 | -4.26 | -7.57 |
| 2016.42 | 2.63 | 2.98 |
| 2016.43 | -1.57 | -6.13 |
| 2016.44 | -4.01 | -2.14 |
| 2016.45 | 0.45 | -1.90 |
| 2016.46 | -1.14 | -2.72 |
| 2016.47 | 3.15 | 5.34 |
| 2016.48 | 1.52 | -0.24 |
| 2016.49 | -2.48 | -6.53 |
| 2016.5 | 1.18 | 1.08 |
| 2016.51 | -0.56 | -1.15 |
| 2016.52 | -4.06 | -6.69 |
| 2017.01 | -0.82 | 0.56 |
| 2017.02 | -5.77 | -7.23 |
| 2017.03 | 0.75 | 10.91 |
| 2017.04 | 4.91 | 7.74 |
| 2017.05 | -4.67 | -6.93 |
| 2017.06 | 1.56 | -1.07 |
| 2017.07 | 0.35 | 0.45 |
| 2017.08 | -1.32 | -5.12 |
| 2017.09 | -3.08 | -6.53 |
| 2017.1 | -0.07 | 1.77 |
| 2017.11 | 2.41 | 11.69 |
| 2017.12 | -0.43 | -7.26 |
| 2017.13 | 4.09 | 3.60 |
| 2017.14 | -2.56 | -4.91 |
| 2017.15 | 3.82 | 4.78 |
| 2017.16 | 0.81 | 2.42 |
| 2017.17 | 1.37 | 1.95 |
| 2017.18 | -1.85 | -4.99 |
| 2017.19 | 2.70 | 1.13 |
| 2017.2 | -3.52 | -4.13 |
| 2017.21 | 1.96 | 0.15 |
| 2017.22 | -2.89 | -7.05 |
| 2017.23 | -0.11 | -4.31 |
| 2017.24 | -2.87 | -4.07 |
| 2017.25 | -3.08 | -4.19 |
| 2017.26 | -0.96 | -4.67 |
| 2017.27 | -1.95 | -6.75 |
| 2017.28 | 1.72 | 12.69 |
| 2017.29 | -0.40 | 1.30 |
| 2017.3 | 0.55 | 7.63 |
| 2017.31 | 2.54 | 1.03 |
| 2017.32 | 0.62 | -1.55 |
| 2017.33 | -0.40 | -3.05 |
| 2017.34 | -0.66 | 3.25 |
| 2017.35 | -3.40 | 3.86 |
| 2017.36 | 1.35 | 2.30 |
| 2017.37 | -0.99 | 10.94 |
| 2017.38 | -2.63 | -10.46 |
| 2017.39 | -8.70 | -5.66 |
| 2017.4 | -19.79 | -18.66 |
| 2017.41 | 5.33 | 9.99 |
| 2017.42 | -6.63 | -7.68 |
| 2017.43 | 11.25 | 13.61 |
| 2017.44 | -3.07 | -8.20 |
| 2017.45 | -7.71 | -6.40 |
| 2017.46 | -8.19 | -20.03 |
| 2017.47 | 13.29 | 25.04 |
| 2017.48 | -2.39 | -0.34 |
| 2017.49 | 1.20 | -6.79 |
| 2017.5 | -0.09 | 2.69 |
| 2017.51 | -1.17 | -2.55 |
| 2017.52 | 6.66 | -0.29 |
The graph of the relative strength for S&P 500 and FB is plotted as shown below.
Using the price movements and their changing speed, the relative strength of the fund against the S&P 500 can be measured.
Summary Introduction
(b)
To determine:
To determine the instances where the relative strength ratio exceeds by minimum 5% from its 5 weeks prior value and to determine the number of weeks immediately following the substantial increase the banking sector outperforms S&P500 and how many weeks banking sector underperforms S&P500.
Introduction:
Relative strength helps to measure the extent to which a security has underperformed or it has outperformed its own industry or the entire market. Relative strength is a ratio of price of security to industry price index.
Expert Solution
Answer to Problem 24PS
As per the data, 16 times the relative strength increases more than 5%.
Explanation of Solution
Given Information:
The data is available in the given website.
Of the 255 total instances, there are 16 times when the relative strength increases by greater than 5% over the interval of 5 weeks.
Here, it is seen that 10 times the FSRBX underperformed the S&P 500 following the increase of more than 5%.
There are 6 times that FSRBX outperformed S&P 500 following the increase of more than 5%.
Summary Introduction
(c)
Requirement 3 To Determine:
To determine the instances where the relative strength ratio decreases by minimum 5% from its 5 weeks prior value and to determine the number of weeks immediately following the substantial decrease the banking sector outperforms S&P 500 and how many weeks banking sector underperforms S&P 500.
Introduction:
Relative strength helps to measure the extent to which a security has underperformed or it has outperformed its own industry or the entire market. Relative strength is a ratio of price of security to industry price index.
Expert Solution
Answer to Problem 24PS
As per the data, 31 times the relative strength moves decrease by greater than 5%.
Explanation of Solution
Given Information:
The data is available in the given website.
Of the 255 total instances, there are 31 times when the relative strength decreases by greater than 5% over the interval of 5 weeks.
Here it is seen that 17 times the FSRBX underperformed S&P 500 following the decrease of more than 5%.
There are 14 times that FSRBX outperformed S&P 500 following the decrease of more than 5%.
Summary Introduction
(d)
Requirement 4 To Determine:
To determine how well the relative strength rule functions in identifying the selling or buying opportunities.
Introduction:
Relative strength helps to measure the extent to which a security has underperformed or it has outperformed its own industry or the entire market. Relative strength is a ratio of price of security to industry price index.
Expert Solution
Answer to Problem 24PS
The data above gives the bullish sign and the bearish sign.
Explanation of Solution
Given Information:
The data is available in the given website.
We can see the relative strength depicted in second part of requirement as bullish sign. Here the FB fund is likely to underperform the S&P 500 index than to perform better than the index according to this signal.
We can see the relative strength depicted in third part of requirement as bearish sign. Here the FB fund did not give a better performance than the index but there is no statistical difference succeeding the considerable change in the relative strength. There is random successive performance.
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Chapter 12 Solutions
INVESTMENTS (LL)
Ch. 12 - Prob. 1PSCh. 12 - Prob. 2PSCh. 12 - Prob. 3PSCh. 12 - Prob. 4PSCh. 12 - Prob. 5PSCh. 12 - Prob. 6PSCh. 12 - Prob. 7PSCh. 12 - Prob. 8PSCh. 12 - Prob. 9PSCh. 12 - Prob. 10PS
Ch. 12 - Prob. 11PSCh. 12 - Prob. 12PSCh. 12 - Prob. 13PSCh. 12 - Prob. 14PSCh. 12 - Prob. 15PSCh. 12 - Prob. 16PSCh. 12 - Prob. 17PSCh. 12 - Prob. 18PSCh. 12 - Prob. 19PSCh. 12 - Prob. 20PSCh. 12 - Prob. 21PSCh. 12 - Prob. 22PSCh. 12 - Prob. 23PSCh. 12 - Prob. 24PSCh. 12 - Prob. 25PSCh. 12 - Prob. 1CPCh. 12 - Prob. 2CPCh. 12 - Prob. 3CPCh. 12 - Prob. 4CPCh. 12 - Prob. 5CP
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- As a financial advisor at ABC Corporation, the CEO asked you to analyze the followinginformation pertaining to two common stock investments, TI and SG. You are told that a oneyear Treasury Bill will have a rate of return of 5% over the next year. Also, information froman investment advising service lists the current beta for TI as 1.68 and for SG as 0.52. You areprovided a series of questions to guide your analysis. Economy Probability TI SG market Recession 30% -20% 5% -4% Average 20% 15% 6% 11% Expansion 35% 30% 8% 17% Boom 15% 50% 10% 27% 6. If you form a two-stock portfolio by investing RM70,000 in TI and RM30,000 in SG, whatis the portfolio beta and expected rate of return? 6. If you form a two-stock portfolio by investing RM70,000 in TI and RM30,000 in SG, whatis the portfolio beta and expected rate of return?arrow_forwardYou wish to invest ₱10,000 for a period of 5 years. Which of the following investments would be best for you? Defend your answer in choosing the bank with the best investment by creating a report showing the comparison of each bank.Bank A: 3.75% simple interest rateBank B: 3.25% compounded annuallyBank C: 3.25% compounded quarterlyBank D: 3.25% compounded monthlyBank E: 3.15% compounded dailyarrow_forwardSuppose that you initially invested $10,000 in the Stivers mutual fund and $5,000 in theTrippi mutual fund. The value of each investment at the end of each subsequent year isprovided in the table:Year Stivers ($) Trippi ($)1 11,000 5,6002 12,000 6,3003 13,000 6,9004 14,000 7,6005 15,000 8,5006 16,000 9,2007 17,000 9,9008 18,000 10,600Which of the two mutual funds performed better over this time period?arrow_forward
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- Find the required value for each problem. Show the formula used and the counts for each problem.1. Jane Morrison is planning to invest $ 25,000 today in a mutual fund that provides a yield of 8% compounded annually. What will the investment be worth in ten years? 2. Ramón Rivera is investing $ 7,500 in a CD from a bank that pays 6% interest compounded annually. How much will he have earned at the end of five years? 3. María Lebrón is considering an investment that pays 7.6% interest compounded annually. How much would she have to invest today if she expects this investment to bring her $ 25,000 in six years? 4. Elizabeth Terrier wants to accumulate $ 12,000 after 12 years. If the annual compound interest rate paid by her savings account is 9.25%, how much money would he have to deposit in her account today to reach her goal? 5. Carolina Carlo needs to decide whether she accepts a $ 17,000 bond today or waits two years and receives $ 20,100. The CAGR she could invest in is 6%. What…arrow_forwardCarlo Elise is adapting the cost averaging in investment. He decided to invest in a mutual fund for 6 months with a monthly investment of ₱3,000.00, The initial shares price of the fund was listed at ₱100 then increases by 5% every month for a year. Compute for the average price using cost-averaging method.arrow_forwardPlease refer to the formulas in the lesson and on the following website. Pay particular attention to the examples. Scroll to the bottom to review a table with a list of various formula arrangements that may be helpful in completing this assignment. 1) If you deposit $4,000 today in a bank account and the interest is compounded annually at 10 percent, what will be the value of this investment: a. five years from now? b. ten years from now? c. fifteen years from now? d. twenty years from now? 2) If a business manager deposits $12,000 in a savings account at the end of each year for twenty years, what will be the value of her investment: a. at a compounded rate of 12 percent? b. at a compounded rate of 18 percent? 3) The chief financial officer of a home health agency needs to determine the present value of a $60,000 investment received at the end of year 15. What is the present value if the discount rate is 5%? 4) After completing her residency, an obstetrician plans to invest $9,000…arrow_forward
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