Finance
Fall 2013
Professor Ishii
Solutions to Problem Set #6
1. According to put-call parity we must have
Stock Price + Put Price = Call Price + PV(exercise price)
Substituting the given prices (and noting that the present value of $100 paid three years
Finance
Fall 2013
Professor Ishii
Problem Set #3
Due: By 3:15 PM on Friday, October 18, 2013 in Lockbox #46
The answers may be either hand-written or typed. If you work in a group, the group
should submit only one solution. Please make sure to write the n
Finance
Fall 2013
Professor Ishii
Problem Set #2
Due: By 3:15 PM on Friday, October 11, 2013 in Lockbox #46
The answers may be either hand-written or typed. If you work in a group, the group should
submit only one solution. Please make sure to write the n
Finance
Fall 2012
Professor Admati
Problem Set #4
1. Brenda Weiss is a portfolio manager managing a portfolio worth $2,000,000. She
typically constructs her portfolio using an S&P fund and a fund that invests in small stocks,
as well as treasury bills. He
Finance
Fall 2012
Professor Admati
Solutions to Problem Set #5
1.
(a) Since there are no taxes, according to Modigliani and Millers results, the
unlevered beta (i.e., the beta of the firms equity if the firm were an all-equity firm) is
equal to the weight
Finance
Winter 2012
Professor Admati
Problem Set #2
Due: Friday, January 27, 2012
1. The Quinby Corporation is a Canadian manufacturing company that is negotiating the
sale of a large printing press to a French company. The sale will actually take place i
Finance
Fall 2013
Professor Ishii
Solutions to Problem Set #4
1. (A) This portfolio has a weight of 1.5 on the market portfolio and 0.5 on the riskless asset.
Thus, Rp = 1.5 Rm 0.5 RF. It follows that E(Rp) = RF +1.5(E(Rm) RF) = 4+1.58 = 16%.
The standard
Finance
Fall 2013
Professor Ishii
Problem Set #6
Due: By 3:15 PM on Friday, November 15, 2013 in Lockbox #46
The answers may be either hand-written or typed. If you work in a group, the group
should submit only one solution. Please make sure to write the
Finance
Session 17
17
Derivative Securities and
Executive Stock Options
November 26, 2012
Professor Admati
Announcements
Review Sessions Wednesday during class time.
Past Finals are on coursework.
Final on Tuesday, December 11, 2012, 3:30-6:30.
For Fr
Finance
Fall 2013
Professor Ishii
Problem Set #4
Due: By 3:15 PM on Friday, October 25, 2013 in Lockbox #46
The answers may be either hand-written or typed. If you work in a group, the group
should submit only one solution. Please make sure to write the n
Finance
Fall 2013
Professor Ishii
Problem Set #5
Due: By 3:15 PM on Friday, November 8, 2013 in Lockbox #46
The answers may be either hand-written or typed. If you work in a group, the group should
submit only one solution. Please make sure to write the n
Finance
Fall 2013
Professor Ishii
Problem Set #1
Due: By 3:15 PM on Friday, October 4, 2013 in GSB Lockbox #46
WAITLISTED STUDENTS: 1. You are not required to turn in problem sets prior to
enrollment in the course. If you choose not to turn in a problem s
Finance
Fall 2013
Professor Ishii
Problem Set #7
Due: By 3:15 PM on Friday, November 22, 2013 in Lockbox #46
The answers may be either hand-written or typed. If you work in a group, the group
should submit only one solution. Please make sure to write the
Finance I
Fall 2012
Professor Admati
Solutions to Problem Set #4
1. The weights in Brenda's portfolio are -500,000/2,000,000 = -0.25 in the riskless asset,
1,000,000/2,000,000 = 0.5 in the S&P fund and the rest, i.e., 1,500,000/2,000,000 = 0.75 in
the sma
Solutions to Sample Final C
1.
(20 points) Assume that the yield curve based on zero-coupon treasury bonds is strictly decreasing,
and that there are no arbitrage opportunities in the bond market. The price of a treasury bill with a
face value of $100 tha
Finance
Winter 2012
Professor Admati
Solutions to Problem Set #2
1.
Lets quote the exchange rates, both spot and forward, according to the number of units of
Euros per Canadian dollar. Let F denote the 9-month forward exchange rate. If the price for the
p
Finance
Fall 2012
Professor Admati
Problem Set #5
1. The Stanford Furniture Company has successfully been in business for 25 years
and grown to have annual sales of $420 million and annual profits of $37 million.
Currently its capital structure is such th
Finance
Fall 2013
Professor Ishii
Solutions to Problem Set #2
1. The price per share should be $106.25. The easiest way to calculate this is to use the fact that if
a firm pays out a fraction a of its earnings, if earnings are growing at constant rate of
Finance
Fall 2013
Professor Ishii
Solutions to Problem Set #5
1. (a) Since there are no taxes, according to Modigliani and Millers theorem, the
unlevered beta (i.e., the beta of the firms equity if the firm were an all-equity
firm) is equal to the weighte
Finance
Fall 2012
Professor Admati
Problem Set #1
1.
You have $100,000 to invest for six years. You can invest this at a rate of 7.67% compounded
annually, at a rate of 7.52% compounded quarterly, or at a rate of 7.35% compounded
monthly. Which of the thr
Finance
Fall 2013
Professor Ishii
Class Assignment for Session 10
This problem concerns the issue of market segmentation. Assume that in the tiny country of
Pertania a small company called Azaka is attempting to raise money by issuing shares in the
Pertan
Finance
Fall 2013
Professor Ishii
Class Assignment for Session 6, Solutions
Part 1: For Cambridge Utilities, dividends grow at a constant rate g = 1%, and so we can
use the formula for the present value of a growing perpetuity. If D1 is the expected
divid
Finance
Fall 2013
Professor Ishii
Assignment for Session 7
1. Adam Bower holds 100 shares of firm X and 300 shares of Firm Y. The current price of firm
X stock is $25 per share, and the current price of firm Y stock is $50 per share. The expected
return o
Finance
Fall 2013
Professor Ishii
Solutions to Class Assignment for Session 7
1. Adam has invested $2,500 in Firm X and $15,000 in Firm Y, for a total of $17,500.
Thus, the weights in his portfolio are 2,500/17,500 = 14.29% in Firm X and
15,000/17,500 = 8
Finance
Fall 2013
Professor Ishii
Solution to Class Assignment for Session 11
1. ABA has common stock with a market value of $200 million and debt with a market
value of $100 million. Assume that the CAPM holds, the riskless rate is 8% and the
expected re
Finance
Fall 2013
Professor Ishii
Class Assignment for Session 8
In the problem below, you are asked to determine whether a particular portfolio (call it the
candidate portfolio) is optimal or mean variance efficient. That is, within the set of
possible r
Finance
Fall 2013
Professors Ishii
Solutions to the Class Assignment for Session 13
(A) The total market value of Marriott Corporations assets will not change following this
announcement. Since it is assumed that the announcement does not change the
asses
Finance
Fall 2013
Professor Ishii
Solutions to the Class Assignment for Session 10
The required rate of return or discount rate that will be applied to Azaka if Azaka issues stock in
Pertania will be determined by the Pertanian security market line (SML).
Finance
Fall 2013
Professor Ishii
Class Assignment for Session 11
1. ABA has common stock with a market value of $200 million and debt with a market
value of $100 million. Assume that the CAPM holds, the riskless rate is 8% and the
expected return on the