NAME: RIC JOHN N.

CABILAN GRADE 12-GAISANO

Corporate Debt Securities: Exercises

1.) What are the basic features of corporate bonds?

 The basic features of corporate bonds are: (1) its debt instrument is in
the form of commercial papers which are short term instruments issued
by corporations, (2) corporate bonds which are long term debt
instruments issued by corporations, (3) corporate bonds provide fixed
payments although there are already variable-rate corporate securities,
(4) characterized by its maturity, par value, and coupon rate.
2.) How are treasury securities different from corporate bonds?
 Treasury securities and corporate bonds will differ upon the issuer. It is
called treasury securities if the National Government, through Bureau
of Treasury, is the issuer while corporate bonds’ issuer is the
corporations. Also, Treasury Securities are credit-risk free compared to
corporate securities because corporations may encounter default but it
entails higher interest than other.

EQUITY SECURITIES

1.) What makes the return from common stocks variable?

 The returns of common stocks may vary through dividends and gains.
Since the earnings of the company fluctuate from period to period, and
thus, the return of common stocks may vary. Also, holders of common
shares will only have residual interest from the earnings of the
business. Dividends are only declared if there are excess of funds after
paying the obligation to creditors. Hence, if there are so much excess
of interest left in the company, common shares are subject to greater
variability of return.
2.) How are common stocks different from preferred stocks?
 Common stocks are different from preferred stocks because common
stocks’ return may vary due to fluctuations occurred, while preferred
stocks entails fixed rate of return. In addition, preferred stock holders
are priority when it comes to sharing of interest than common stocks
but they it has fixed rate.

Pooled Funds

1.) What are the different types of pooled funds?

 Pooled funds are a generic term for portfolio of money from many
individual investors that are aggregated for the purpose of investment.
Mutual funds, hedge funds, exchanged-trade funds, pension funds, and
unit investment trusts are all are all examples of professionally
 managed pooled funds. They are pooled funds devoted to money
market instruments, government securities, fixed income instruments,
and equities. They are pooled funds that combine asset classes just
like in the case of balanced funds that include both fixed income
securities and equities in its portfolios.

Alternative Investments

1.) Why are alternative investments considered very risky assets?

 They are considered very risky assets since the future cash flows
associated with owning these assets are unclear and the absence of a
ready market increases the liquidity risk of these assets. Also, some of
these assets are susceptible to theft and deterioration.

Risk-Return Measure

1.) Provide examples of risk measure of single asset.

STOCK X
2011 16.25%
2012 19.50%
2013 13.80%
2014 25.50%
2015 9.20%

 Rmean= 16.85%

Difference In Percentage
2011 16.25% -16.85% -.6% -.006
2012 19.50%-16.85% 2.65% .00265
2013 13.80%-16.85% -3.05% -.00305
2014 25.50%-16.85% 8.65% .00865
2015 9.20%-16.85% -7.65% -.00765

 Get the squared difference

Difference
2011 (16.25% -16.85%)^2 .000036
2012 (19.50%-16.85%)^2 .00070225
2013 (13.80%-16.85%)^2 .00093025
2014 (25.50%-16.85%)^2 .00748225
2015 (9.20%-16.85%)^2 .00585225

 Add the squared difference

Sum= 0.015003
 Divide by the number of periods
 σ^2= 0.015003/5 years = 0.0030006
2.) How do we compute the variance of a single asset?
 We compute variance of a single asset through the formula

(𝑅𝑡−𝑅𝑚𝑒𝑎𝑛)2
σ^2= ∑𝑛𝑡=1( )
𝑛

3.) What does the coefficient of variation measure?

 The formula of the coefficient variation measure is
Coefficient of Variation= σ/Rmean