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Get college assignment help at uniessay writers Input area: Stock A State Depression Probability -0.107 0.15 rmal 0 135 040 Boom 0.25 0.215 Outout area. Return Squared Stock A Depression Product Product Probability Return Deviation Deviation Recession Normal Boom E(R) 0.0000 Variance 0.00% Standard Deviation

Draw the yield curve described as follows: Interest rates: 3% in year 1, 2.75% in year 2, 2.5% in year 3, and 3% in year 4 Term premiums: 1% for a one-year bond, rising by 0.25% for each additional year of maturity 5 4 3 2 1 4 1 2 3 5 Mark the axes above clearly indicating what the axes measure and what the exact value of the important points are. The yield curve above suggests which of the following is the predominant short to medium-term economic outlook among market participants? (circle the one you think is most appropriate) strong recovery, weak recovery, stable growth, recession LO

To pay for your education. You’ve taken out $25,000 in student loans. If you make monthly payments over 15 years at 7 percent compounded monthly, how much are your monthly student loan payments? How long will it take to pay off a loan of $55,000 at an annual rate of 10 percent compounded monthly if you make monthly payment of $600?

1. (5 points) What does the market expect the 2-year rate will be two years from now? Maturity Rate 3% 1 4% 2 6% 8%

2. (5 points) The growth in dividends of Danvers, Inc. is expected to be 15% per year for the next four years; after that, the growth in dividends is expected to be 4% per year, indefinitely. The required rate of return on Danvers, Inc. is 12%. Last year’s dividends per share were $1.57. What is the stock’s intrinsic value? 2.

3. (5 points) Nebula Corp’s most recent earnings before interest and taxes (EBIT) lion. They increased their net working capital by $5 million and invested $13 million in fixed assets. The firm’s depreciation was $7 million. The firm’s tax rate is 21%. The firm has 75 million shares outstanding and $37 million in long term debt. The firm has $23 million in cash and cash equivalents. What is Nebula’s intrinsic value if we assume a weighted average cost of capital of 10% and their free cash flow to the firm grows at a constant rate of 5%? was $92 mil- 3.

4. (5 points) You sold short 500 shares of common stock at $37.50 per share. The initial margin is 50%. At what stock price would you receive a margin call if the maintenance margin is 30%? 4.

47. Consider a 2 year zero-coupon corporate bond which will default with probability 0.5%. In the event of default, there is a 60% chance bondholders will recoup 50% of the principal and a 40% chance they receive nothing. If the expected 2 year zero rate on this bond is 4.4% pa, what is its price per $100 of face value? $41.290 a. b. $91.427 $59.632 C. d. $77.650 None of the above e.

54. Consider the following two bonds: Bond 1 matures exactly 3 years from today and has a coupon rate of 6.5% pa. It pays semi-annual coupons and is currently priced to yield 8.75% pa. Its market price is $94.173917 per $100 par value. Its duration is 2.765 years Bond 2 matures 4 years and 3 months from today and has a coupon rate of 14% pa. It pays semi-annual coupons and is currently priced to yield 8.75% pa. Its market price is $121.767810 per $100 par value. Its duration is 3.330 years. A portfolio manager has today invested $135 million in Bond 1 and $155 million in Bond 2 The duration of this portfolio (in years) is: 94.173917 121.76781017 2.765 3.330 a. 94.173917 121.767810 94.173917 12 1.767810 155 135 2.765 3.330 94.173917 121.767810. 94.173917 121.767810 94.173917 121.767810 3.330 2.765 C. 135 155 135 155 135 135 2.765 d. 135 155 3.330 135 155 2.765 3.330 e.

55. A bond has a duration of 3.817 years, a yield of 5.985% pa and a price of $109.621614 per $100 par value. If the yield changes to 5.885% pa then the new price per $100 par value will be approximately: $109.5821 a. b. $109.6611 $110.0164 C. d. S113.5696 $114.5921 e.

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improve it, explain how using more debt If a firm’s ROE is low and management wants to might help. 4-6 Give some examples that illustrate how (a) seasonal factors and (b) different growth rates might distort a comparative ratio analysis. How might these problems be alleviated? 4-7 Why is it sometimes misleading to compare a company’s financial ratios with those of other 4-8 firms that operate in the same industry?

Consider the following scenario seen in class Expected Return 8% Standard Dev. Debt Fund 12% Equity Fund Risk-Free 13% 20% 5% Correlation 0.1 Risk Aversion (A) 2 Omega D 0 % MV Utility Omega E Standard Deviation Sharpe Ratio Expected Return 100% 13.00% 20.00% 0.400 9.00% 5% 95% 12.75% 19.07% 0.406 9.11% 10% 90% 12.50% 18.16% 0.413 9.20% 12.25% 17.27 % 15% 85% 0.420 9.27% 80% 16,41% 0.426 9.31% 20% 12.00% 25% 75% 11.75% 15.59% 0.433 9.32% 30% 70% 11.50% 14.80% 0.439 9.31% 35% 65% 11.25% 14.06% 0.445 9.27% 11.00% 0.449 40% 60% 13.36% 9.21% 45% 55% 10.75% 12.73% 0.452 9.13% 50% 50% 10.50% 12.17% 0.452 9.02% 55% 45% 10.25% 11.68% 0.449 8.89% 60% 40% 10.00% 11.29% 0.443 8.73% 65% 35% 9.75% 10.99% 10.80% 0.432 8.54% 30 % 70% 9.50% 0.417 8.33% 75% 25% 9.25% 10.72% 0.396 8.10% 80% 20% 9.00% 10.76% 0.372 7.84% 85% 15% 8.75% 0.344 7.56% 10.92% 90% 10% 8.50% 11.18% 0.313 7.25% 11.54% 95% 5% 8.25% 0.282 6.92% 100% 0% 8.00% 12.00% 0.250 6.56% Use this information to answer questions 3) and 4) 3) Which combination of the Debt Fund (D) and Equity Fund (E) (among the ones illustrated above) generates the minimum variance portfolio? Justify your answer Which combination of the Debt Fund (D) and Equity Fund (E (among the ones illustrated above) generates the most preferred portfolio? Justify your answer 4) Compute the exact composition of the tangency portfolio and its standard deviation

15. Consider a value-weighted market index that includes the following two companies. On Day 1 you form a portfolio to mimic the index. (In other words, to earn the same return as the index.) Company 1 # of Shares Company 2 Company 2 # of Shares Company 1 Price Day Price $10.00 750 $6.62 $7.24 200 1 $10.54 750 200 2 Company 1, and what is the return on the portfolio from Day 1 to What is the portfolio weight Day 2? (Weight %, Return % A) 14%, 5% B) 14%, 6% C) 15%, 6% D) 15%, 7% on

3. Hedging using futures X Suppose a farmer is expecting that her crop of oranges will be ready for 0/1 oint harvest and sale as 150, 000 pounds of orange juice in 3 months time. Suppose each orange juice futures contract is for 15, 000 pounds of orange juice, and the current futures price is Fo 118.65 cents-p Assuming that the farmer has enough cash liquidity to fund any margin calls, what is the risk-free price that she can guarantee herself. Please submit your answer in cents-per-pound rounded to two decimal places. example, if your answer is 123.456, then you should submit an answer of 123. 124.8 Incorrect Deche 5. Call Options Consider a 1-period binomial model with R 1.02, So 100, 0/1 point u 1/d 1.05. Compute the value of a European call option on the stock with strike K 102. The stock does not pay dividends. Please submit your answer rounded to two decimal places. So for example, if your answer is 3.4567 then you should submit an answer of 3.46. 1.76 Incorrect Response 6. Call Options II When you construct the replicating portfolio for the option in the previous question how many dollars do you need to invest in the cash account? 0/1 point Please submit your answer rounded to three decimal places. So for example, if your answer is-43.4567 then you should submit an answer of-43.457. -34.171 *

5. Call Options Consider a 1-period binomial model with R= 1.02, So 100 0/1 -1/d= 1.05. Compute the value of a European call option on the stock point with strike K =102. The stock does not pay dividends. Please submit your answer rounded to two decimal places. So for example, if your answer is 3.4567 then you should submit an answer of 3.46. 1.76 Incorrect Response 6. Call Options I When you construct the replicating portfolio for the option in the previous question ho many dollars do you need to invest in the cash account? 0/1 point Please submit your answer rounded to three decimal places. So for example, if your answer is-43.4567 then you should submit an answer of -43.457 34.171 6. Call Options II nt When you construct the replicating portfolio for the option in the many dollars do you need to invest in the cash account? Please submleyour answer is -43.4567 then you should submit an answer of -43.45 your answer rounded to three decimal places. So fo Enter answer here

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. 5 4 2 Time: Cash flow: $81,200 $122,000 $141,000 -$235,000 $65,800 $84,000 Use the NPV decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) NPV rejected? Should it be accepted or O rejected accepted

Review Which of the following statements about capital structure are correct? Select ALL correct answers. A company needs to consider the current economic climate when making decisions on debt and equity proportions. Having too little debt may increase the risk of default yepayment. A company should always finance its business using as much debt as possible in order to optimize the capital structure. Having too much equity may dilute earnings and the value of the original investors.

MULTIPLE CHOICE Choose the one alternative that best completes the statement or answes the question GOOD LUCK Four heirs (A, B, C, and D) must divide fairly an estate consisting of three items-a house, a cabin and a boat-using the method of sealed bids. The players’ bids (in dollars) are: A House Cabin D 180,000 200,000 60,000 190,000 40.000 185,000 50,000 55.000 Boat 16.000 12,000 18,000 10,000 1) After the initial allocation to each plaver is made, there is a surplus of A) $6000. 1) B) $12,000 9 $24,000. D) 50 2) The original fair share of player B is worth A) $62,500. 2) B) $62,000. D) $64,000 9 565,500. 3) In the initial allocation, player C A) gets $62,000 cash B) gets the cabin and an additional $22,000 from the estate 9 gets the boat and an additional $44.000 from the estate. D) gets the house and pays the estate $128,000 4) In the initial allocation, player B A) gets the boat and an additional $53.500 from the estate. B) gets $65,500 cash ) gets the house and pays the estate $134,.500 D) gets the cabin and an additional $15,500 from the estate. 5) 5) The original fair share of player C is worth A) $62,000. D) $64,000 9 $65,500. B) $18,000. going to divide a cake fairly using the lone divider method. The divider Three players (one divider and two choosers) are cuts the cake into three slices (s1, $2, and s3). 6) Suppose the choosers value the slices as follows: $2 53 51 Chooser 1 30% 40% 30 % Chooser 2 32% 32 % 36 % Which of the following is a fair division of the cake? A) Chooser 1 gets s2; Chooser 2 gets s3; Divider gets s1. B) Chooser 1 gets sa; Chooser 2 gets s2; Divider gets s1. 9 Chooser 1 gets s1; Chooser 2 gets s2; Divider gets s3- D) Chooser 1 gets s2; Chooser 2 gets s1; Divider gets s3. 7) If the choosers declarations are Chooser 1: Is2.s3l and Chooser 2: (s-sgl. which of the folllowingg is not a fair division of the cake? A) Chooser 1 gets s2; Chooser 2 gets s3: Divider gets s1 B) Chooser 1 gets sa: Chooser 2 gets s1; Divider gets s2- 9 Chooser 1 gets s1; Chooser 2 gets s3: Divider gets s2 D) Chooser 1 gets so; Chooser 2 gets sy;Divider gets sg 7) 8) If the choosers’ declarations are Chooser 1: (s2) and Chooser 2: Isal, which of the following is a fair division of the cake? A) Chooser 1 gets sa; Chooser 2 gets s2 ; Divider gets s1- B) Chooser 1 gets s2; Chooser 2 gets sa: Divider gets 51- C) Chooser 1 gets s1; Chooser 2 gets s2; Divider gets 53 D) Chooser 1 gets s2; Chooser 2 gets s1; Divider gets $3- Solve the problem. 9) An election is held among three candidates (A, B, and C) using the Borda count method. There are 20 voters, If candidate A received 37 points and candidate B received 39 points, how many points did candidate C receive? 9) D) none of these C) 38 A) 44 B) 21 10) 10) What is the maximum number of Borda count points any candidate can get? A) D) B) A small country consists of four states. The population of State A is 44,800, the population of State B is 52,200, the population of State C is 49,200, and the population of State D is 53,800. The total number of seats in the legislature is 100 11) 11) Under Hamilton’s method, the apportionments to each state are A) State A: 22 seats; State B: 26 seats; State C: 25 seats; State D: 27 seats B) State A: 22 seats; State B: 26 seats; State C: 24 seats State D: 26 seats. ) State A: 22 seats: State B: 26 seats: State C: 24 seats State D: 28 seats. D) State A: 23 seats; State B: 26 seats; State C: 24 seats; State D: 27 seats 12) 12) The standard quota for State B is B) 26.1. D) 26.9. 9 24.6. A) 25.7 13) The standard quota for State C is B) 25.7 13) 9 26.1. D) 24.6. A) 26.9

A stock is currently selling for RM60. The price of the stock is expected to either increase by 25% or decrease by 20% (with equal probability). The riskless interest rate is 5%. Calculate the price of a European put on the stock with exercise price of RM55. Use the binomial option pricing model. [10 marks]

Stock A Stock B (0.19) Probability State 0.25 0.05 Recession 0.50 0.06 0.14 Normal 0.25 Boom 0.10 0.34 Squared Deviation Return Return Product Deviation Product Stock A Probability Recession Normal Boom 0.0000 E(R) Variance Standard Deviation 0.00% Return Squared Deviation Deviation Stock B Return Product Product Probability Recession Normal Boom E(R) = Variance 0.0000 Standard Deviation 0.00%

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November 3, 2019