BUAD 306 Solutions to Homework 3

BUAD 306 Solutions to Homework 3 - 60 . Rp = .4(.11) +...

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BUAD 306 Solutions to Homework #3 Chapter 12 1. HPR = (P1-Po+D1)/Po = (97-84+2.05)/84 = 17.92% 2. D1/Po = 2.05/84= .0244 = 2.44%, (P1-Po)/Po = 15.48% 3. HPR = (79-84+2.05)/84 = -3.51% 4. (920-940+60)/940 = 4.26%, Dollar return = 60-20 = \$40, R = r+h 4.26% = r + 4% so the real return is .26% a little more than one quarter of one percent. 5. 12.3% Nominal rate , 8.92% real rate 6. 2.62% LT gov’t. bonds, 3.01% corp. bonds 7. Arithmetic return (6+24+13-14+15)/5 = 8.8% for X, For Y (18+39-6-20+47)/5 =15.6% 12. Inflation : Increase inflation and increase nominal interest rates R = r+h (approx.) or Actual (1+R) = (1+r)(1+h). Chapter 13 1. For stock A , 100sharesX\$40/share = \$4000, For B 130X\$22 = \$2,860. The value of the portfolio is \$6860. Weight on A : Wa = 4000/6860 = .58. Weight on B: Wb = 2860/6860 = .42 2. Rp = WaRa + WbRb . Total value of portfolio 2300+3400=\$5700. Stock A : 2300 so weight on A is 2300/5700 = .4 The weight on B: Wb = 3400/5700 = .
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Unformatted text preview: 60 . Rp = .4(.11) + .6(.16) = .14 3. Rp = WxRx + WyRy + WzRz = .5(.10) + .3(.16) + .2(.12) = 12.2% 4. Omit 5. E(Ri) = Prob1(return1) + Prob2(return2) = .3(-.09) + .7(.33) = 20.4% 6. E(Ri) = .25(-.05) +.4(.12) +.35(.25) = 12.3% 11. Bp = WaBa +WbBb+WcBc+WdBd = .25(.75)+.2(1.24)+.15(1.09)+.4(1.42) =1.17 12. Omit. Note: Beta of Rf = zero. 13. Ri = Rf + Bi(Rm-Rf) = .052+1.25(.14-.052) = 16.2% 14. .13 = .045 + B(.07) So Beta = 1.21 15. .10 = .055 + .7(Rm-.055) So Rm = 11.93% Chapter 14 I. Graph a call option see notes. II. Graph a put option see notes III. Differences between Executive Stock Options, Warrants and Call Options ESO Warrants Call Options Long Term Long Term Usually Short Term Not traded Traded Traded No Premium Premium Premium Cause Dilution Cause Dilution if exercised No Dilution Does Not Raise Capital Raise Capital Not Raise Capital IV. Graph profit of a Call option see notes...
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This note was uploaded on 07/21/2009 for the course BUAD 306 taught by Professor Selvili during the Spring '07 term at USC.

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