Solutions to Homework 2, FINC-UB.0002.03
Jiacheng Wu
Topic 3: Portfolio Theory with 2 Risky Assets
1. The expected returns and standard deviation of returns for two securities are as follows:
Security Z
Expected Return
15%
Standard Deviation 20%
Security
Return Anomalies and
Market Efficiency
Prof. Alexi Savov
1
Outline
The Efficient Market Hypothesis
Weak Form Efficiency
Random Walk
Return predictability
Semi-strong Form Efficiency
Anomalies
Strong Form Efficiency
Security Analysis
2
Efficient Ma
Solutions for LN2_ProblemSet
Question 1.
(a) 15,750, 4,250, 0.
(b) 100%. This follows from the answer in (a) that the NPV is zero at r = 100%.
Moreover, since C0 is negative and C1 and C2 are both positive the NPV is a downward
sloping function of r, whic
H13
NPV Versus IRR
Foundations of Finance
Prof. Alexi Savov
1. Our favorite project A has the following cash ows: We know that if the cost of capital
0
1
2
3
4
5
-1000
0
0
300
600
900
Year
Cash ow
is 18% we reject the project because the net present value
Solutions to Homework 1, FINC-UB.0002.03
Jiacheng Wu
June 1, 2013
Topic 1: Financial Markets
1. You are among the OTC market makers in the stock of Bio-Engineering, Inc. and quote a bid of 102
1/4 and an ask of 102 1/2. Suppose that you have a zero invent
Foundations of Finance
Homework 2
Prof. Alexi Savov
Due at the start of Class 11
Topic 3: Portfolio Theory with 2 Risky Assets
1. The expected returns and standard deviation of returns for two securities are as follows:
Security Z
Expected Return
15%
Stan
Foundations of Finance
Homework 3
Prof. Alexi Savov
Due at the start of class 21
Topic 6: Equity Valuation
1. Suppose that the consensus forecast of security analysts of your favorite company is that
earnings next year will be E1 = $5.00 per share. Suppos
Solutions to Homework 3 - Part 1
Jiacheng Wu
June 12, 2013
Topic 5: The Capital Asset Pricing Model
1. Assume the risk free rate equals Rf = 4%, and the return on the market portfolio has
expectation E [RM ] = 12% and standard deviation M = 15%.
(a) What
Solutions to Homework 4
Jiacheng Wu
Topic 8: Fixed Income Securities
1. A zero coupon bond with 2.5 years to maturity has a yield to maturity of 25%
per annum. A 3-year maturity annual-pay coupon bond has a face value of
$1000 and a 25% coupon rate. The c
Foundations of Finance
Fall 2013
FINC-UB.0002.01-03
Instructor: Prof. Alexi Savov
Oce
KMC 985
Phone
(212) 998-0311
Email
[email protected]
Website
http:/pages.stern.nyu.edu/asavov
Oce hours M 11:00am12:00pm, W 3:30pm4:30pm, or by appointment
Teaching A
Solutions_LN4_ProblemSet
Question 1.
a, b, d, g, h. Note that f) is not a cash flow: its the tax shield from depreciation, not depreciation itself, that is a cash flow.
Question 2 (all figures in $1,000).
t=0
Sales
t=2
t=3
t=4
t=5
t=6
t=7
t=8
4,200.00
5,3
Corporate Finance - Practice Final
Part 1 Multiple choice questions: Choose the correct alternative
1. Suppose that an asset has no default premium. Then
a)
b)
c)
d)
e)
the beta of equity is zero
debt is risky
the beta of debt is zero
equity is riskless
n
Corporate Finance - Practice Final ANSWER KEY
Part 1 Multiple choice questions: Choose the correct alternative
1. Suppose that an asset has no default premium. Then
a)
b)
c)
d)
e)
the beta of equity is zero
debt is risky
the beta of debt is zero
equity is
Conoco Phillips and Exxon Mobil Case
LIFO vs. FIFO Valuations
Enclosed are the balance sheets, income statements and select footnotes from the 2010 10-K
reports for Exxon Mobil and Conoco Phillips. Both are oil producing and distributing companies.
Fill i
Solutions for LN3_ProblemSet
Question 1.
a) NPV = 30 +
(0.5)(66) + (0.5)(34)
= 15.45.
1.1
b) Lets compute the value of the project assuming we have commissioned the study. We first
solve for the optimal decision (checked) in t = 1 for both scenarios (high
Solutions for LN1_ProblemSet
(If there are slight discrepancies with your solutions due to rounding errors, dont worry.)
Question 1.
150,000 x AF(10yrs, 8%) = 150,000 x 6.71 = 1,006,500.
Question 2.
(a) Y x (1.05)5 = 10,000. Y = 7,835.2.
(b) 12,000 x AF(6
Dear New York Jets,
I am in quite a dilemma. As my third year in university is quickly coming to an
end, I find myself being pulled in two different directions. What stands before me is a
path that I am expected to take: a safe finance career, slaving awa
Profit and Loss
22. Unit Volume (in thousands)
23. Gross Sales
24. Deductions
25. Net Sales
26. Cost of Goods Sold
27. Gross Profit
28. Advertising Expense
29. Selling Expense
30. Gen. And Admin. Cost (SEE BELOW)
31. Research Expense
32. Start-Up Costs
33
Dear Ms. Korson,
I am in quite a dilemma. As my third year in university is quickly coming to an
end, I find myself being pulled in two different directions. What stands before me is a
path that I am expected to take: a safe finance career, slaving away w
Prof. Robert Whitelaw
C15.0002 Foundations of Financial Markets
Session 26: Swaps
C15.0002 Foundations of Financial
Markets
Fall 2010
Assignments
Reading
BKM: Skim Chapters 4, 18 (if you want)
Assignments
Problem Set 6 due next class
1
Prof. Robert Wh
Conoco Phillips and Exxon Mobil Case
LIFO vs. FIFO Valuations
Enclosed are the balance sheets, income statements and select footnotes from the 2010 10-K
reports for Exxon Mobil and Conoco Phillips. Both are oil producing and distributing companies.
Fill i
Solutions_LN5_ProblemSet
Question 1.
Overestimate. If new projects are riskier than the firms average existing projects then the
firm should use a discount rate that is higher than the companys cost of capital in
evaluating new projects. If the firm uses
Solutions_LN6_ProblemSet
Question 1
The expected return on assets before the capital structure change is:
30
50
rA =
(0.08) + (0.16) = 0.13.
80
80
Because the MM assumptions hold, the total value of the firm is independent of its capital
structure. Thus,
Prof. Robert Whitelaw
C15.0002 Foundations of Financial Markets
Session 25: Futures
C15.0002 Foundations of Financial
Markets
Fall 2010
Assignments
Reading
BKM: Chapters 17.6
Problems:
Assignments
Problem Set 6 due in 1 week
1
Prof. Robert Whitelaw
C
Prof. Robert Whitelaw
C15.0002 Foundations of Financial Markets
Session 21: Fixed Income IV
C15.0002 Foundations of Financial
Markets
Fall 2010
Assignments
Reading
BKM: Chapter 15
Problems: 15.4-15.9, 15.11, 15.14, 15.21,
15.23, 15.27, CFA 15.1
Assign
Prof. Robert Whitelaw
C15.0002 Foundations of Financial Markets
Session 22: Options I
C15.0002 Foundations of Financial
Markets
Fall 2010
Assignments
Reading
BKM: Chapters 16.1, 16.2
Problems: 16.1
Assignments
Problem Set 5 due today
1
Prof. Robert W