BUS 365: Investments
Solution to Practice Problems
Financial Statement Analysis
1) BRIEFLY explain why the change in Net Working Capital is subtracted in the free cash flow
calculation.
Answer: The FCF calculation begins with NOPAT, which is a measure of
BUS 365: Investments
Solution to Practice Problems
Derivatives
1) Consider the oil market. Suppose that a call option on oil has a strike price of $27.50 and sells
for $2.20. A put option with the same strike price and same expiration date sells for $4.30
BUS 365: Investments
Solution to Practice Problems
Stocks
1) You wish to evaluate Diamond Offshore Drilling using the Comps valuation technique.
Information about Diamond and some of its competitors are listed below.
Company
Diamond
Transocean
Global Sant
BUS 365: Investments
Solution to Practice Problems
Bonds
1) You wish to invest $20,000 today into a portfolio of two U.S. Treasury bonds. In 5 years, you
will liquidate that portfolio and use the funds for a downpayment on a house. One of the bonds
is a 5
BUS 365: Investments
Solution to Practice Problems
Risk and Return
1) For this question, please assume that markets are efficient. BRIEFLY answer the following.
Suppose that a risk-averse investor wants to form a well-diversified portfolio of ten stocks.
BUS 365: Investments
Solution to Practice Problems
Time Value of Money
1) You recently inherited $50,000 and plan to invest that money at 10% interest. You also plan
to save $5,000 per year for each of the next five years. You then plan to spend two years