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Memo: Investment Recommendation for Johnson and Johnson
To: Investment Client, Private Investor
Johnson and Johnson (JNJ) is a giant in the pharmaceutical and medical device
industry. The company is a
Homework #7
Chapter 20
1. Options can be used to modify risk in portfolios. A time when options increase
risk is similar to when someone invests in all options portfolio for money options
like stated
Homework #6
Chapter 14
1. a. catastrophe bond a bond that allows issuer to transfer catastrophe risk from
the firm to the capital markets
b. Eurobond a bond that is denominated in one currency, but so
Memo: Valuation of Johnson and Johnson
To: Investment Client, Private Investor
Johnson and Johnsons stock seems like it is a good investment at this time. These are high quality
shares that stem from
Homework #4
Chapter 10
1. Revised estimate = 12% + (1x(5%-3%)+(0.5x(8%-5%) = 15.5%
2. APT factors essentially need to look at areas of risk to investors. Factors that look
at uncertainty in production
Homework #5
Chapter 11
3. The idea is that there are differential risk premiums because there are different
expected rates of return, and this should be across all securities. So not all securities
sh
Homework #3
Chapter 9
2. price of security 50%
expected rate of return 14%
risk free rate is 6%
market risk premium 8.5%
what is price if correlation coefficient with the market portfolio doubles?
Cur
Homework #2
Chapter 6
1. None of the above. A highly risk averse investor would not want higher risk
premiums and would not want assets that have a higher standard deviation, as this
would indicate hi
Homework #1
6.
a. The inflation plus CD is the safer offer between the two CDs. The 1 year conventional
offering of an interest rate of 5% makes the earnings entirely dependent on what the
inflation r
Equity Valuation
Valuation Models
Absolute valuation model (DCF)
Dividend discount model
Free cash flow discount model
Free cash flow to the firm
Free cash flow to equity
EVA model
etc.
Relati
Analysis of Financial
Statements
1
Liquidity Ratios
Liquidity Ratios: Can we make required
payments (short term obligation)?
Current ratio
Current As sets
Current Liabilities
Quick ratio (Acid Test
Analysis of Financial
Statements
1
Liquidity Ratios
Liquidity Ratios: Can we make required
payments (short term obligation)?
Current ratio
Current As sets
Current Liabilities
Quick ratio (Acid Test
Financial Options
1
Option Basics
Call Option
A contract that gives its owner the right (but not
the obligation) to purchase an asset at a fixed
price as some future date
Put Option
A contract tha
Final Exam Guide
Two-hour in-class closed book exam
You will use a school laptop you can bring
your mouse
You can bring a cheat sheet (one-sided, letter
size, hand writing, formulas only)
Violatio