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FIRST SANITARY LANDFILL, INC.
First Sanitary Landfill, INC., is a company that operates sanitary landfills. A "landfill" is
basically a big hole in the ground where lots of garbage is dumped until the hole is filled
in. First Sanitary
FIRST FINANCIAL MODEL
Sales growth
Current assets/Sales
Current liabilities/Sales
Net fixed assets/Sales
Costs of goods sold/Sales
Depreciation rate
Interest rate on debt
Interest paid on cash and marketable securities
Tax rate
Dividend payout ratio
10%
1
Exercise 1
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Effect on Duration
Current date
Maturity, in years
Maturity date
YTM
Coupon
Face value
Duration
21-May-07
21
21-May-27
15%
4%
1,000
9.03982
Data table: Coupon and duration
9.0398233
0%
20
1%
13.100279
2%
10.837239
3%
UN-new chapter 17, A
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EXPECTED RETURN ON A ONE-YEAR BOND
WITH AN ADJUSTMENT FOR DEFAULT
PROBABILITY
Face value, F
Price, P
Annual coupon rate, Q
Non-default probability,
Recovery percentage,
100
100
15%
65%
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Exercise 1
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VBA Code
#
#
#
#MACRO?
#MACRO?
#MACRO?
Function Exercise1(x)
Exercise1 = x ^ 2 - 3
End Function
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Exercise 2
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#MACRO?
#MACRO?
#MACRO?
#MACRO?
VBA Code
#MACRO? Function Exercise2(x)
Ex
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2
Market cap ($B)
3
Beta
4
5
6 Stock prices
2-Jul-02
7
1-Aug-02
8
3-Sep-02
9
1-Oct-02
10
2-Apr-07
64
1-May-07
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66
1-Jun-07
2-Jul-07
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Intel
I
Orange current stock price is $100. A call on the share with exercise price $92 sells for $10.
a. Graph the profit pattern from buying one share and one call.
b. Graph the profit pattern from buying one share and 3 calls.
c. Graph the profit pattern from
FIRST FINANCIAL MODEL
Sales growth
Current assets/Sales
Current liabilities/Sales
Net fixed assets/Sales
Costs of goods sold/Sales
Depreciation rate
Interest rate on debt
Interest paid on cash and marketable securities
Tax rate
Dividend payout ratio
Year
FIRST SANITARY LANDFILL, INC.
First Sanitary Landfill, INC., is a company that operates sanitary landfills. A "landfill" is
basically a big hole in the ground where lots of garbage is dumped until the hole is filled
in. First Sanitary Landfill, INC.is con
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PORTFOLIO OPTIMIZATION ALLOWING SHORT SALES
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Follows Proposition 1, Chapter 9
Variance-covariance matrix
0.10
0.03
0.03
0.20
-0.08
0.02
0.05
0.03
c
-0.08
0.02
0.30
0.20
Means
8%
9%
PivotTables
Jenny works for a microchip manufacturer and is given monthly actual and predicted sales during 1997 for chip 1, chip 2, and chip3
in Canada, France, and the United States. Jenny is also given the variance (difference, between actual revenues
PivotT ables
Jenny works for a microchip manufacturer and is given monthly actual and predicted sales during 1997 for chip 1, chip 2, and chip3
in Canada, France, and the United States. Jenny is also given the variance (difference, between actual revenues
Exercise 3
Black-Scholes option pricing formula
S
X
r
T
Sigma
50
50
10.00%
0.5
25%
current stock price
exercise price
risk-free rate of interest
time to maturity of option (in years)
stock volatility
d1
d2
0.3712 <-(LN(S/X)+(r+0.5*sigma^2)*T)/(sigma*SQRT(
Exercise 2
Black-Scholes option pricing formula
S
X
r
T
Sigma
50
50
10.00%
0.5
25%
current stock price
exercise price
risk-free rate of interest
time to maturity of option (in years)
stock volatility
d1
d2
0.3712 <-(LN(S/X)+(r+0.5*sigma^2)*T)/(sigma*SQRT(
Exercise 1
Black-Scholes option pricing formula
S
X
r
T
Sigma
50
50
10.00%
0.5
25%
current stock price
exercise price
risk-free rate of interest
time to maturity of option (in years)
stock volatility
d1
d2
0.3712 <- =(LN(B2/B3)+(B4+0.5*B6^2)*B5)/(B6*SQRT(
The Chapter 12 exercise uses VBA routine that requires adding a Solver reference to VBA. Because Solver references in Excel 2007
from those in Excel 2003, we have inserted separate Excel notebooks for each version of Excel.
This issue is further discussed
U.S. Treasury Note
On February 26th 2001, A U.S. Treasury 8.2% note maturing on January 15th 2007 is priced at $103.790 per $100 of face value (this price does not include
the accrued interest). The Treasury note has a face value of $100,000 and was origi
You are thinking of advertising Microsoft prodcuts on Cougars games. As you buy more ads, the price of
each ad drops per quarter as below.
# of Ads
Number of Ads
1
6
11
21
Price Per Ad
$12,000
$11,000
$10,000
$9,000
First quarter
Second quarter
Third quar
A manager has a portfolio that consists of a single asset. The return of the asset is normally distributed
with mean return of 8% and standard deviation of 22%. The value of the portfolio today is $200 million.
1. What is the distribution of the end-of-ye
Discount rate
NPV
IRR
8%
71.01
10.56%
Year
0
1
2
3
4
5
6
7
8
9
10
#MACRO?
#MACRO?
Cash flow
-600
100
100
100
100
100
100
100
100
100
100
Decision: The NPV > 0 and hence you should purchase the asset.
Note that the IRR > discount rate, which leads to the s
ABC CORP.
Current stock price, P0
Current dividend, D0
Dividend growth rate, g
Cost of equity from Gordon model
50
3
5%
11.300%
#MACRO?
UNHEARDOF, INC.
Current dividend, D0
Anticipated dividend growth rate, g
Cost of equity, rE
Gordon model stock price
5
Exercise 1
Black-Scholes option pricing formula
S
X
r
T
Sigma
50 current stock price
50 exercise price
10.00% risk-free rate of interest
0.5 time to maturity of option (in years)
25% stock volatility
d1
d2
0.3712
0.1945
#MACRO?
#MACRO?
N(d1)
N(d2)
0.6448
Exercise 1
Arbitrage:
Today
Buy April Option
-6
Sell Feb. Option
6.375
Net
0.375
The strategy: If the February option is exercised, exercise the April
option to cover; the future cash flow will thus at worst be zero. The
initial cash flow, as shown above,
Exercise 1
Black-Scholes option pricing formula
S
X
r
T
Sigma
50 current stock price
50 exercise price
10.00% risk-free rate of interest
0.5 time to maturity of option (in years)
25% stock volatility
d1
d2
0.3712
0.1945
#MACRO?
#MACRO?
N(d1)
N(d2)
0.6448
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Sigma
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100 Current stock price
90 Exercise price
0.5 Time to maturity of option (in years)
6.00% Risk-free rate of interest
2.00% Dividend yield