Problem Set: Risk and Return
1.
A portfolio is made up of 75% of stock 1, and 25% of stock 2. Stock 1 has a
variance of 0.08, and stock 2 has a variance of 0.035. The covariance between
the stocks is -0.001. Calculate both the variance and the standard de
Problem Set - Capital Budgeting
SOLUTIONS
For simplicity, assume that all operating cash flows occur at year-end. Assume that the tax rate
for capital gain/loss is the marginal tax rate.
1. (Discounted Payback) Suppose Peach Paving, Inc., invests $1 milli
Problem Set - Capital Budgeting
SOLUTIONS
For simplicity, assume that all operating cash flows occur at year-end. Assume that the tax rate
for capital gain/loss is the marginal tax rate.
1. (Discounted Payback) Suppose Peach Paving, Inc., invests $1 milli
Solutions to Wyoming Gas and Electric
Formulas: EPS = NPAT/ # of shares; ROA = NPAT/Assets; ROE = NI/Stockholders Equity
ROE = ROA + (D/E) (ROA-iat )
Questions
1. What is the operating (exclude interest) break-even point for WGE?
2. What is WGEs degree of
DoYouSufferFromDecisionFatigue?
By JOHN TIERNEY
ThreemendoingtimeinIsraeliprisonsrecentlyappearedbeforeaparoleboardconsistingofajudge,acriminologist
andasocialworker.Thethreeprisonershadcompletedatleasttwothirdsoftheirsentences,buttheparoleboard
grantedfr
1
Bond Valuation-Chapter
Organization
A.IntroductiontoBonds
B.Valuation:LevelCouponBonds
C.ValuationwithSemiannualCoupons
D.InterestRatesandBondPrices
E.YieldtoMaturity
F.OtherRelatedIssues
F1. Bond Values Over Time
F2. Maturity and Bond Price Volatility
MEMBA Spring 2015
BA385T Financial Management
Problem Set 1
This assignment is for practice only. It will not be graded and does not have to be turned in.
SECTION A Time Value of Money, Interest Rates, and Bonds
1. For each of the following, compute the p
BONDS, BOND VALUATION, AND INTEREST RATES
1
.
D. J. Masson Inc. recently issued noncallable bonds that mature in 10 years.
They have a par value of $1,000 and an annual coupon of 5.5%. If the current
market interest rate is 7.0%, at what price should the
Investment Decision Rules (NPV, IRR and others)
1
.
Which of the following statements is CORRECT? Assume that the project being considered has
normal cash flows, with one outflow followed by a series of inflows.
a.
b.
c.
d.
If Project A has a higher IRR t
MEMBA Spring 2015
BA385T Financial Management
Problem Set 1 with Answers
This assignment is for practice only. It will not be graded and does not have to be turned in. On certain
questions, calculator answers are provided in addition to the formula based
TIME VALUE OF MONEY
1
.
You plan to analyze the value of a potential investment by calculating the sum of
the present values of its expected cash flows. Which of the following would lower
the calculated value of the investment?
a. The cash flows are in th
MEMBA Spring 2015
BA385T Financial Management
Problem Set 2
This assignment is for practice only. It will not be graded and does not have to be turned in.
SECTION A INVESTMENT DECISION RULES
1.
Suppose a project has conventional cash flows and a positive
Solutions to Stock Valuation Problem on Slide 27
Given:
EPS = $3 next year
Payout = 04
ROE = 20%
R=18%
A. What is the stock price of ABC Corp.?
Solve for growth rate, g
g= (1-payout ratio) x (ROE)
Figure out Div1
Solve for PV
B. What is the PVGO (per shar
Solutions to Bond Valuation Problems on Slide 13
A bond has a maturity of 10 years, par value of $1,000 and a coupon rate of 10%.
Coupon = 10%*1000=$100
T= 10 years
FV=$1,000
A. How much would you be willing to pay for this bond if you require an annual r
FINANCE Fundamentals
Chapter Organization
2
A.
TheFinancialWayofThinking
B.
TheContextforModernFinance
B1. Alternative Economic Systems
B2. Three Major Questions in Corporate
Finance
B3. Taxonomy of Modern Finance
3
A. The Financial Way of
Thinking
Primar
1
Inflation and Capital
Budgeting:
An Example
Inflation, Real, and Nominal Rates
2
The relationship between interest rates and
inflation (the Fisher relationship) is:
(1 + Nominal Rate) = (1 + Real Rate) (1 +
Inflation Rate)
For low inflation rates this i
1
Capital Budgeting
Chapter Organization
2
A. Preliminaries
B. Phases of the Capital Budgeting Process
C. Alternative Investment Evaluation Rules
D. Basic Set-up for a Capital Budgeting Analysis
E. Unequal Lives
F. Inflation
A. Preliminaries
3
Classifying
Financial Management
Fundamentals
Chapter Organization
2
A.WhatisaFirm?
A1. The Firm as a Nexus of Contracts
A2. Comparisons of Corporate Organizational Forms
A3. The Might of the Corporation and related issues
A4. Organization of a Corporation
B.Marketsw
1
Risk and CAPM
Organization
2
A. Measuring Returns and Risk for Individual Securities
B. Expected Returns and Risk for a Portfolio
C. Diversification and Relevant Risk
D. The Capital Asset Pricing Model
E. Other Pricing Frameworks
Appendix 1: Risk-Return
1
Stock Valuation
Chapter Organization
A.Preliminaries
B.BasicsofStockValuation
B1. Valuation in a Single-Period world
B2. Multi-period with constant dividends
B3. Growth
B4. Estimating Growth Rates
B5. A Differential Growth Example
C.UnderstandingGrowtha
1
Long Term Financing (read on
my own)
1. LT Financing Alternatives
Organization
2. Common Stock
3. Preferred Stock
4. Bonds
5. Financing Trends
2
1. Long Term Financing
Alternatives
Common Stock: No preference in dividends or
bankruptcy
Preferred Stock:
Problem Set - Time Value of Money
This assignment is for practice only.
It will not be graded and does not have to be turned in.
1. Investment X offers to pay you $5,500 per year for nine years, whereas Investment Y offers
to pay you $8,000 per year for f