© 2000 John Petroff
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© 2000 John Petroff |
Assignments, Cases & Exercises
Research assignments:
R-4.1 Contact six companies engaged in different line of business and ask their credit department what are the conditions for becoming a open account customer. Obtain an application form from each. Inquire what criterion they use for selecting open account customers and how they deal with delinquent accounts. Write a short report on the different approaches to credit and collection, and offer explanations for any differences.
R-4.2 Read a textbook that deals with factoring. Note the industries where it is practiced. Catalogue the different possible arrangements. Discuss the usefulness of factoring to vendors and customers.
R-4.3 Obtain a commercial loan application form from a major bank near you or where you have an account. Inquire from the commercial loan officer what are the procedures for completeness of a loan application, evaluation of loan risk, determination of interest to be charged and loan approval. Summarize your findings and compare them to the outline in the text and that in textbooks on commercial lending.
R-4.4 Read articles on the Savings and Loans Association crisis in the United States. Identify and report the importance of errors made by loan officers in evaluating loan applications.
R-4.5 Read an advanced textbook or article(s) on bank management dealing with bank strategy. Determine the different types of loan portfolios a bank could seek depending on its availability of funds. Report how different banks give preference to certain commercial customers over others.
R-4.6 Read an advanced textbook or article(s) that deals with leasing. Identify the industries where capital leases are most common, and the industries where operating leases are dominant. If possible, obtain a copy of each type of lease and review the clauses in each. List and explain the differences between the different types of leases. Argue how leases are beneficial to both lessee and lessor.
R-4.7 Obtain the prospectus of a pension fund (e.g. yours or that of a close relative) and identify in it the type of bonds the fund is allowed to buy. Find in Moody's or S&P manuals what the criteria set by the fund imply in terms of rating and yield of bonds. Go back to the fund prospectus and verity that the fund actually includes in its bond portfolio only bonds of the type it is allowed to hold.
R-4.8 Read an advanced bond investment textbook or article(s) that deal with duration. Study the conditions, requirements and limitation of immunization. Contact the pension fund involved in R-4.7 above, and inquire if they use immunization, and what proportion of their portfolio is affected. Summarize your findings.
R-4.9 Conduct a detailed analysis of the economic conditions that you anticipate will affect interest rates. Offer a bond trading strategy based on your prediction, and explain the gain that can be expected from it. Go back over periods of significant interest rate changes in earlier years, and trace the causes for such changes. Offer lessons for bond trading strategies.
R-4.10 Obtain historical data on bond yields of different grades of bonds. Verify that the yield spread varies over the business cycle. Offer explanations why that should be so. Study the current economic conditions (i.e. at the time of your reading). Select specific bond issues that we give an above average gain if economic conditions change as you expect. Summarize your reasoning without forgetting the names of the bonds you chose and their characteristics.
R-4.11 Find announcements from Moody's or S&P about bond rating changes. Read the justification for the changes. Study the annual and quarterly reports of the company involved to determine when the causes for the change took place. Investigate if other companies are currently in the similar situations and whether their bond rating should or not also be changed. Offer general comments and conclusions about bond trading strategies based on mispriced securities.
R-4.12 Visit your library and obtain the values of financial ratios by rating category from S&P manuals similar to that in Table T-4.1. Compare the values to those of Table T-4.1, and if differences are noticeable offer possible explanations. See if the S&P criteria for bond rating has also changed compared to the one reported in the text.
R-4.13 Analyze a number of stocks and select one for which you would be willing to buy a call option. Explain why you chose this particular stock and you expect to gain from the transaction. Comment on the potential impact of trends of the overall stock market on your strategy. Report what is the key element of value in your strategy.
R-4.14 Analyze a number of stocks and select one for which you would be willing to write a call option. Explain why you chose this particular stock and you expect to gain from the transaction. Comment on the potential impact of trends of the overall stock market on your strategy. Report what is the key element of value in your strategy
R-4.15 Analyze a number of stocks and select one for which you would be willing to buy a put option. Explain why you chose this particular stock and you expect to gain from the transaction. Comment on the potential impact of trends of the overall stock market on your strategy. Report what is the key element of value in your strategy
R-4.16 Analyze a number of stocks and select one for which you would be willing to write a put option. Explain why you chose this particular stock and you expect to gain from the transaction. Comment on the potential impact of trends of the overall stock market on your strategy. Report what is the key element of value in your strategy
R-4.17 Identify a stock for which you be willing to use a straddle strategy, and explain how the strategy would generate a gain.
R-4.18 Read advanced investment textbooks or articles that deal with derivatives. List the different derivatives other than options that are available and what benefit they offer.
R-4.19 Read literature on technical analysis or visit some of the web sites that promote technical analysis. Note the premises of the approach and its general intent. Draw leading common conclusions.
R-4.20 Obtain the prospecti of different mutual funds (at least four). Read their stated goal and portfolio strategy. Study their past performance compared to the overall market. Trace the causes of possible shortfall in performance.
R-4.21 Read promotional pamphlets of major investment banks and brokers. Determine the importance placed on fundamental analysis for the superiority of their services. Investigate whether actual spending is commensurate with the claim. Inquire from them how the fundamental analysis is passed on to clients. Summarize your findings and suggest which of them is likely to generate the most gain for an investor seeking to trade on the basis of mispriced securities.
R-4.22 Compile a number of published insider trading reports over a period of about six months. Try to correlated the timing of insider trading announcements with significant swings in stock prices. Draw conclusions.
R-4.23 Choose six corporations with a number of subsidiaries varying from one or two to several hundreds. Obtain their annual reports or visit their web sites. Investigate if to what extent decision making is centralized or delegated to the subsidiaries. Determine if corporations that are more centralized, are also less tolerant of minority interests. Offer explanations that shed light on the valuation of affiliates.
R-4.24 Read literature of merger strategies. Record the steps recommended and the elements of value to the acquiring company.
R-4.25 Select six recent mergers of different sizes (i.e. from acquisition of small fraction of the assets of the acquiring company to a major competitor of equal size). For each, catalogue the reasons for the merger and the valuation elements. Draw conclusions about differences in merger strategies.
R-4.26 Read regional development strategies of your city, county, state or province. Note in them the value placed in local businesses by the local governments for regional economic vitality. Record the incentives local governments are willing to offer to retain businesses in their region.
R-4.27 Obtain and study the charter of a regulated industry commission. Note the goals and the methods intended for companies to be regulated. Report on how the societal outcome is supposed to come out of the stated controls.
R-4.28 Find information on a rate case in the press or from publicly available court transcripts. Review the arguments presented on behalf of the state and on behalf of the utility. Record how future benefits to customers are used as aims of arguments on both sides.
R-4.29 Read a textbook on strategic management. Determine the steps of an elaboration of a strategy. Record how dynamic the process of strategy formulation is.
R- 4.30 Report the chronology of budgeting in a company where you or someone close to you work(ed). Show that the budgeting process is future oriented. Link the budgeting process to the process of making major corporate decisions.
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