th49. What are ETFs? What are their advantages over index funds?

Which exchange initiated trading in ETFs? ETFs are exchange traded funds. Each ETF is a basket of securities designed to track an index. ETFs trade just like an individual stock. Hence, unlike index mutual funds their prices are updated throughout the day and intraday trading is possible. ETFs can also be short sold just like an individual stock. Hence ETFs provide better liquidity and more trading opportunities than index funds. The American Stock Exchange first created ETFs and there is now over $300 billion invested in ETFs. 51. As a small (minority) stockholder would you prefer to have cumulative voting or straight voting shares? As a majority shareholder? Cumulative voting gives a small shareholder a better chance of electing a given board member because they don't have to own (or control by proxy) a majority of shares. As a controlling stockholder you can ensure that you will always be able to elect the entire board of your choice if you have straight voting. 47. What are weak form, semi-strong form and strong form efficiency? Does one form of efficiency imply another? Weak form efficiency implies that past price and trading information is contained in today's stock price and is of no value to an investor. Semi-strong efficiency implies that an investor cannot use any publicly available information to predict tomorrow's price change. Strong form efficiency implies that public and inside information is of no value in predicting tomorrow's price change. Strong form efficiency implies that the markets are also weak and semi-strong form efficient. Likewise, semi-strong from efficiency implies that the markets are also weak form efficient. 48. Answer the following questions concerning the given partial stock quote:

a) What was the dividend yield? b) What was the most recent four quarters of earnings per share? c) Valued at the closing price, what was the total dollar volume of shares traded? d) What was the stock price at the beginning of the year? a) The dividend yield = $1.3 / $53.75 = 2.4% b) The most recent four quarters of earnings per share = $53.75 / EPS = 44 ; EPS = $1.22 c) Valued at the close, the total $ volume of shares traded = $53.75 * 4,905,983 = $263,696,586 d) The stock price at the beginning of the year was ($53.75 - Pbegin) / Pbegin = 0.103; Pbegin = $53.75 / (1 + 0.103) = $48.73

55. A firm desires to sell stock to the public. The underwriter charges $0.45 million in fees and offers to buy 6 million shares from the firm at a price of $35 per share. In addition, registration and audit fees total $130,000, and marketing and miscellaneous fees add up to another $75,000. The underwriter expects to earn gross proceeds per share of $38. What is the issuing firm's out of pocket dollar transaction cost to issue the stock? Immediately after the stock was issued, the stock price rose to $40. What is the issuing firm's opportunity cost? What is the total issuance cost, including opportunity costs, as a percentage of the total funds available to the issuing firm? Out of pocket cost = $450,000 + $130,000 + $75,000 = $655,000 Opportunity cost = 6 million shares * ($40 - $35) = $30,000,000 Actual funds available to firm: (6 million * $35) - $655,000 = $209,345,000 Percentage cost = ($30,000,000 + $655,000) / $209,345,000 = 14.64% 58. You own 500 share of common stock in a firm that has 2 million shares outstanding. The firm announces a plan to sell an additional 500,000 shares through a rights offering. a) How many rights to purchase new shares will you receive? b) Suppose that the market price per share is $30, but each right allows you to purchase a share of stock for $27. What should be the value of one right? c) If you sold your rights how much money should you make? a) (500,000 / 2,000,000) * 500 = 125 rights b) [(500 x 30) + (125 x 27)] / (500+125) = 18,375 / 625 = 29.40; 29.40 - 27 = $2.40 c) $2.40 x 125 = $300