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**Answer the following questions thoroughly. Two or three line answers are fine as long as all details are covered. No references needed.**

1. Distinguish between a master limited partnership and a private limited partnership

2. Explain the ways in which “leverage” can affect an investment in limited partnerships

3. State some reasons why a careful reading of any partnership agreement is important, especially as it relates to liability concerns and payments to investors

CHAPTER 31

DISCUSSION:

1. Briefly explain what is meant by the terms “letter stock” and “mezzanine financing”

2. Explain why privately-placed debt issues normally provide a higher rate of return than do securities that are traded publicly

3. Discuss how mergers and acquisitions play a role in venture firms

CHAPTER 33

DISCUSSION:

1. Explain why focusing only on the potential for loss in a portfolio is insufficient in explaining what investment risk really is

2. Distinguish between inflation risk and inflation as tax

CHAPTER 34

DISCUSSION:

- Distinguish among the following risk measurement terms: beta, r-squared, covariance, and correlation coefficient

- Define the nature of probability distributions and the two types associated with them

- Discuss the importance of an investment advisor being able to explain to his or her client why a mutual fund characterized by a very low standard deviation could be riskier than a similar type fund with a higher absolute number

- Discuss the problem raised when calculating standard deviation using probability distributions

CHAPTER 37

1. The coupon rate is also known as the stated rate. How is this interest generally paid? Is there any time when no cash flow is received from a bond?

2. Discuss how investors arrive at a desired rate of return for a bond

3. Explain why a bond’s yield-to-maturity is the “effective rate” that the holder of the bond expects to receive

4. Briefly discuss the relationship between the formulas used to calculate (a) the after-tax yield, and (b) the taxable equivalent yield of a bond

CHAPTER 38

- Briefly explain why, in valuing a stock, the variable of cash flow “estimation” may pose a problem when calculating its intrinsic value

2. Distinguish between the terms “capitalized earnings” and “capitalization rate”

3. Describe the relationship between a dividend payout ratio and a retained earnings ratio and determine whether one formula be derived from the other

CHAPTER 39

1. Discuss the progression of the Markowitz portfolio model into the capital market theory (p. 367)

2. Describe what is meant by the security market line being the graphic representation of the capital asset pricing model

3. Contrast the differences between option writing and option buying

- Why isn’t the Black-Scholes option model based upon an American style option?

CHAPTER 41

1. Briefly explain why having similarly correlated assets in a portfolio may actually be more risky than having assets with a low degree of correlation

2. Describe how historical and expected relationships between assets aid in the generation of an “efficient frontier” of potential portfolios for consideration

3. Distinguish between strategic asset allocation and tactical asset allocation

4. Briefly explain how the “January effect” anomaly contradicts the efficient market hypothesis or theory

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