simulation page

Product Overview

In May 1996, a mutual-funds manager at Putnam must decide which of six investment opportunities in preferred stocks to pursue. The decision is structured as three paired choices of increasing challenge. Little or no computation is required of the student. Instead, the student must absorb the outlook and constraints imposed on the decision maker and assess the six opportunities on the basis of various risk-and-return dimensions. The focus on interpretation and decision making (rather than on computation) mirrors the reality of portfolio managers in the modern environment of computerized analytics and instant data retrieval. The case may be used to pursue several objectives: (1) exploring preferred stock: what it is, who issues it, and why; (2) considering "key drivers" of security pricing: term, rating/quality, yield curve, and features specific to an issue such as collars and call protection; (3) exploring detailed features of securities and innovations in security design (e.g., the case permits students to compare "straight" preferred with adjustable-rate preferred securities; it also permits--but does not require--students to compare embedded "straight" preferred with adjustable-rate preferred securities); (4) considering the strategic perspective on security issuance and investing (the case suggests ways in which issuers actively manage their liability structures [e.g., through exercise of call provisions] and motivates students to take risk of early redemption into account; (5) sounding such general themes in finance as the need to think like an investor, to look for arbitrage opportunities, and to focus on economic reality, risk, and return. Having explored a sophisticated investor's viewpoint, the instructor can return to this point later in the course and ask repeatedly, "What would Jeanne Mockard require in this situation?"