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
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
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 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
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
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 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
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
Foundations of Finance
Fall 2013
FINC-UB.0002.01-03
Instructor: Prof. Alexi Savov
Oce
KMC 985
Phone
(212) 998-0311
Email
asavov@stern.nyu.edu
Website
http:/pages.stern.nyu.edu/asavov
Oce hours M 11:00am12:00pm, W 3:30pm4:30pm, or by appointment
Teaching A
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
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
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
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
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
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
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
H17
Arbitrage Handout
Foundations of Finance
Prof. Alexi Savov
1
Introuction
Our working denition so far was: Arbitrage is the transaction of selling something at a
high price and simultaneously buying that same thing at a low price, without cash outlay.
H18
Calculating the Annual Return
(Realized Compound Yield)
on a Coupon Bond
Foundations of Finance
Prof. Alexi Savov
Objective
To show that the annual return actually earned on a coupon-bearing bond will equal its yield
to maturity only if you can and do
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,
Solutions_LN7_ProblemSet
Question 1
The market values of debt is D = 0.9 x 75 = $67.5 million. The market value of equity is
the number of shares outstanding times the share price, that is, E = 42 x 2.5 = $105
million. Therefore total value of Federated J
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
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