FIN340 HOMEWORK #1
1. After retirement, you expect to live for 25 years. You would like to have $75,000 income each year. How much should you have saved in the retirement to receive this income, if the interest is 9% per year (if payments start one year a

FIN 340
PRACTICE PROBLEM SET 1 DISCOUNTING
Answer all questions, then click on the Check Answers button at the end of the document. To solve this problem set, determine the best answer to each question and click on the appropriate button. Review any quest

FIN340 PRACTICE PROBLEM SET 2 TIME VALUE OF MONEY
1. As winner of a breakfast cereal competition, you can choose one of the following prizes: (A) $100,000 now (B) $180,000 at the end of 5 years. (C) $11,400 a year forever. (D) $19,000 for each of 10 years

FIN340 PRACTICE PROBLEMS 3 INFLATION
Background: Movie Titanic is the top movie in the history of the United States (without adjustment for inflation). In 1997, it generated $600.80 million in revenue. Star Wars is the second all time top movie in the his

FIN340 PRACTICE PROBLEM SET 5 CAPITAL BUDGETING Frequently Asked (Shorter) Questions:
1. In the context of capital budgeting, what is an opportunity cost? An opportunity cost is the most valuable alternative that is foregone if a particular project is und

FIN340 PRACTICE PROBLEM SET 6 BOND VALUATION
1. Suppose that currently 5-year government bonds are selling at a yield of four percent. Please determine the value a 5-year government bond with a 6 percent coupon rate and a face value of 1,000. a. Start by

FIN340 PRACTICE PROBLEM SET 7 STOCK VALUATION
1. After graduation, you become an analyst for a boutique investment banking company specializing in the technology industry. For your first assignment, you are on a team that is putting together an acquisitio

FIN340 PRACTICE PROBLEM SET 8 RISK AND RETURN
1. Bearing market efficiency in mind, how do you respond to the following comments? a. "Efficient markets, my eye! I know lots of investors who do crazy things." An individual can do crazy things, but still no

Set 14:
Capital Structure
Capital Structure
One of the fundamental questions of corporate finance is how a firm
should choose the set of securities it will issue to raise capital from
investors.
This decision determines the firms capital structure. That

Set 5: Valuing Bonds
1-2
Motivation for Studying Bond Valuation
Bond fact: The US bond
market is larger than the
equity market
At year-end 2012, the
equity market cap was
$26.4 trillion while bond
market outstandings
totaled $38.6 trillion
(Sources: Fed

Homework #6 Solutions
FIN340 FALL 2006 Professor Gormley, gormley9wustl.edu Distributed: November 28th, 2006 Due: Tuesday, December 5th, 2006 [in class]
Note: Please show all work and circle your final answer to make grading easier. Homework Assignments m

Homework #5 Solutions
FIN340 FALL 2006 Professor Gormley, gormley@wustl.edu Distributed: November 14th, 2006 Due: Tuesday, November 21st, 2006 [in class]
Note: Please show all work and circle your final answer to make grading easier. Homework Assignments

FIN340 HOMEWORK #5 SOLUTION
1. Leverage Inc. a) Market risk premium is 9% ( = 13% - 4% ). b) The firm's cost of equity is currently 16.6% ( = 4% + 1.4 9% ). c) The portion of the cost of equity attributable to the firm's business risk is given by RA. We t

Homework #1 Solutions
FIN340 FALL 2006 Professor Gormley, gormley@wustl.edu Distributed: September 5th, 2006 Due: Tuesday, September 12th, 2006 [in class]
Note: Please show all work and circle your final answer to make grading easier. Homework Assignments

FIN340 HOMEWORK #2 INVESTMENT DETECTIVE
This homework assignment is based on the Darden Case called "Investment Detective." The purpose of this Darden Case is to practice estimating the value created from taking on different projects and how those values

Homework #2 Solutions
FIN340 FALL 2006 Professor Gormley, gormley@wustl.edu Distributed: September 19th, 2006 Due: Tuesday, September 26th, 2006 [in class]
Note: Please show all work and circle your final answer to make grading easier. Homework Assignment

FIN340 HOMEWORK #3 BOND VALUATION AND MULTIPLES
1. As with most U.S. government bonds, all the bonds in this question pay coupons semiannually. Suppose that the yield curve is flat at 3%. What is the price of a ten-year Treasury bond with a $1000 face val

FIN340 HOMEWORK #3 SOLUTION
1.
If the term structure of interest rates is flat, all yields are the same (at 3% in this problem). In general, the price of a bond is the present value of its future cash flows (coupon payments and principal repayment). Since

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FIN340 FALL 2006 Professor Gormley, gormley@wustl.edu Distributed: October 10th, 2006 2-e3 4-es567, 9ct";e& <=th, ?@A Bi0 c,6ssC
D"te3 Please show all work and circle your final answer to make grading easier. Homework Assignments may

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FIN340 FALL 2006 Professor Gormley, gormley@wustl.edu Distributed: October 24th, 2006 2-e3 4-es567, 9ct";e& <=st, >?@ Ai0 c,6ssB
C"te3 Please show all work and circle your final answer to make grading easier. Homework Assignments may

FIN 340 HOMEWORK #4 VALUATION ASSIGNMENT: ANHEUSER-BUSCH (NYSE:BUD)
Use a discounted cash flow approach to value Anheuser Busch shares. Use the financial data from Value Line and the following assumptions to forecast 10 years of cash flows, 2007-2016, and

FIN340 HOMEWORK #5 WACC AND CAPITAL STRUCTURE
1. Leverage Inc. has $1,200 debt. The cost of debt is 10%. Its current stock price is $4 with 1,200 shares outstanding. The equity has a beta of 1.4. The expected return on the market portfolio is 13% and the

Set 12:
Financial Derivatives
1-2
Financial Derivatives
A financial option is a financial contract between two
parties.
Options have traded publicly on the CBOE since 1973
One of the most actively traded financial assets in global capital
markets
Play