{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

S07Assg6soln

# S07Assg6soln - Fin 2200 CORPORATION FINANCE Sum 2007...

This preview shows pages 1–4. Sign up to view the full content.

Fin 2200 – CORPORATION FINANCE Sum 2007 Professors A. Dua Assignment #6 key 1. Bell Canada Enterprises (BCE) was priced at \$34 per share one year ago when you bought 300 shares. It just paid a dividend of \$5.50 per share. Your accountant has determined that you received a dollar return of \$2.60 per share on your investment. Determine a) the current price per share. \$ return = dividend return + share price return 2.60 = 5.50 + (P 1 – 34) P 1 = 2.60 – 5.50 + 34 P 1 = \$31.10 b) the percent return on your investment. % return= dividend yield + capital gains (losses) yield = 5.50/34 + (31.10 – 34)/34 = 7.647059% c) what BCE’s risk premium was, if the risk-free rate over the year was 4.5% Risk premium = actual return – risk-free rate = 7.647059% – 4.5% = 3.147059% 2. In the last five years, Canadian Publishers Inc. (CPI) had the following returns: Year 1 2 3 4 5 Return 64% -32% 27% -13% 44% Determine a) the mean (arithmetic average) annual return. % 18 5 % 44 %) 13 ( % 27 %) 32 ( % 64 n R R R R R R 5 4 3 2 1 = + - + + - + = + + + + = b) the 5-year holding period return. % 434565 . 77 1 ) 44 . 1 )( 13 . 1 )( 27 . 1 )( 32 . 1 )( 64 . 1 ( 1 ) R 1 )( R 1 )( R 1 )( R 1 )( R 1 ( R 5 4 3 2 1 H = - - - = - + + + + + =

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Fin 2200 – CORPORATION FINANCE Page 2 of 13 Term 2 2006/2007 Professors A. Dua, J. Falk, A. Paseka, R. Scott Assignment #6 key c) the 5-year holding period return expressed as an effective rate per year. Effective annual R = (1.77434565) 1/5 – 1 = 12.152161% d) which of the above returns best indicates how a 5 year investment in CPI performed. Both b) and c). c) is probably preferred since it is an annual rate as opposed to b) which is a 5-year effective rate. e) the variance of the sample of yearly returns. 15835 . 0 4 6334 . 0 1 5 ) 18 . 0 44 . 0 ( ) 18 . 0 13 . 0 ( ) 18 . 0 27 . 0 ( ) 18 . 0 32 . 0 ( ) 18 . 0 64 . 0 ( 1 n ) R R ( ) R R ( ) R R ( ) R R ( ) R R ( iance var 2 2 2 2 2 2 5 2 4 2 3 2 2 2 1 = = - - + - - + - + - - + - = - - + - + - + - + - = f) the standard deviation of the sample of yearly returns. % 793216 . 39 39793216 . 0 15835 . 0 = = = σ 3. Suppose market returns on Canadian stock and Canadian T-bill returns over the most recent 6-year period are as follows: Year Canadian Common Stock Canadian T-bills 1 -1.43% 6.65% 2 -8.61% 5.31% 3 10.81% 3.44% 4 22.18% 3.18% 5 19.47% 4.09% 6 26.58% 4.33% Current T-bill rates are 3%. Common shares for Mercury Aerospace Limited trade on the TSE, and, because of the risk inherent in the space technology sector, investors expect a 21% return. Determine
Fin 2200 – CORPORATION FINANCE Page 3 of 13 Term 2 2006/2007 Professors A. Dua, J. Falk, A. Paseka, R. Scott Assignment #6 key a) the historical market risk premium. % 5 . 4 6 % 33 . 4 % 09 . 4 % 18 . 3 % 44 . 3 % 31 . 5 % 65 . 6 R % 5 . 11 6 % 58 . 26 % 47 . 19 % 18 . 22 % 81 . 10 % 61 . 8 % 43 . 1 R bills T stocks = + + + + + = = + + + + - - = - Historical risk premium = average stock return – average T-bill return = 11.5% - 4.5% = 7% b) the β of Mercury’s stock. 57 . 2 ) 07 . 0 ( 03 . 0 21 . 0 ) premium risk historical ( R current R Mercury Mercury Mercury f Mercury = β β + = β + = 4. Use the data below to calculate the items indicated.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern