Homework #1: Time Value of Money
Solutions
FIN 301, Winter 2015
Problem 1
a) This is a Canadian mortgage so we need to follow two steps. Firstly, find EAR from the semiannually
compounded APR. Then f
Midterm 2, Sample Questions
FIN 301
Multiple Choice Problems
1. Forever Inc. just paid its annual dividend and its stock is currently traded at $50 (after the dividend
payment). Investors expect next
FIN 301
Capital Structure
Capital Structure
A firm can be financed by equity or by a mix of
debt and equity
Equity financed firm: Entire cash flow goes to the
shareholders
Debt and equity financed fir
FIN 301
Winter 2016
Name: _ Student ID Number: _
Exam Format
This is a 65minute exam and it is composed of 25 multiplechoice questions. All multiplechoice questions
can be solved independently.
You
Risk and Return

Expected Return on Stock
o
pi = probability
o
zi = possible outcomes

Standard Deviation

Covariance
o

Positive covariance occurs when X,Y > 0
Correlation Coefficient
o
o
= 0 in
Homework #4: Project Valuation
FIN 301, Winter 2015
Due by 4pm on March 9
Problem 1
You have the following projects available:
Time Period
0
1
2
3
4
5
Project A
$100,000
$70,000
$30,000
$25,000
$10,0
Final Exam, Review Questions
FIN 301
1. If the semistrong form of the efficient market hypothesis holds, then
A. future stock prices can be predicted based on past prices.
B. investors should not inv
Homework #1: Time Value of Money
FIN 301, Winter 2015
Due by 4pm on January 23
Problem 1
Below you find mortgage rate information:
Term
5 year
6 year
7 year
10 year
Fixed Rate Mortgages1
Posted Rate (
Homework #2: Bond Valuation
FIN 301, Winter 2015
Due by 4pm on January 30
Note: If not otherwise stated, assume that:
Yieldtomaturity (YTM) is an APR, semiannually compounded
Bonds have a face va
Homework #5: Risk and Return, Options
Solutions
FIN 301, Winter 2015
Problem 1
a) What is the expected return of a portfolio with 40% of your money in Stock A, 20% in Stock B, and the rest in
Stock C?
Midterm 2, Sample Questions
Solutions
FIN 301
Multiple Choice Problems
1. Forever Inc. just paid its annual dividend and its stock is currently traded at $50 (after the dividend
payment). Investors ex
Homework #6
FIN 301, Fall 2015
Professor Egor Matveyev
Due by 4:00 pm on Friday, December 4
Note: If not otherwise stated, interest rates are expressed as EARs (effective annual rates).
Problem 1
Cons
Homework #2: Bond Valuation
Solutions
FIN 301, Winter 2015
Problem 1
a) Coupon = 0.12 $1,000 / 2 = $60 and r = YTM/2 = 0.12/2 = 0.06. This is an example where coupon rate =
YTM. Thus, without calculat
Homework #5: Risk and Return, Options
FIN 301, Winter 2015
Due by 4pm on March 30
Problem 1
Consider the following information about three stocks:
State of Economy
Boom
Average
Recession
Probability o
Homework #3: Equity Valuation
Solutions
FIN 301, Winter 2015
Problem 1
a) The dividend stream can be divided into a growing annuity (year 1 to year 5) and perpetuity (from year 6 on),
with
1 = $2.2, 5
Homework #3: Equity Valuation
FIN 301, Winter 2015
NEW DUE DATE: 4pm on February 13
Due by 4pm on February 11
Note: If not otherwise stated, assume that:
Firms make annual dividend payments
Stock pr
Chapter 8
1.
How do monetary policy actions made by the Bank of Canada impact interest rates?
The Bank of Canadas mandate is to keep inflation under control and within an established band.
It does thi
FIN 301
Capital Structure
Capital Structure
A firm can be financed by equity or by a mix
of debt and equity
Equity financed firm: Entire cash flow goes to the
shareholders
Debt and equity financed
FIN 301
Project Valuation
Valuation Model
T
CFt
P0
t
t (1 RRR )
0
We need cash flow estimates!
Project types:
Cost Saving (replacement decisions)
Revenue Expansion (new assets)
Both should incre
Risk and Return Questions
FIN 301
1. Consider the following portfolio consisting of three assets (two stocks, one riskfree bond).
Assets
Stock 1
Stock 2
Riskfree bond
a)
b)
c)
Expected return
10%
15
FIN 301
Time Value of Money
Investing for a Single Period
r interest rate (nominal)
P0 $ to be invested today
P1 $ available next period from
investment
P P0 P0 r P0 )
(1 r
1
P
P0 1
(1 r )
2
Inves
Markets
Investors Bet on Facebook Fall; First Day of Options Trades Brings Wave of Skeptics; Shares Off 24%
Since IPO
By Kaitlyn Kiernan
And Jonathan Cheng
1,327 words
29 May 2012
07:25 PM
The Wall St
Extra Problem #1
You want to repay a loan of $1,000 in 4 equal
annual installments (interest and repayment)
over the next 4 years. The first payment is due
in one year and the interest rate is 10 perc
Seminar 5:
Capital Budgeting
Part I
Project Example Information
You are looking at a new project and
you have estimated the following
cash flows:
Year
Year
Year
Year
0:
1:
2:
3:
CF
CF
CF
CF
=
=
=
=

FIN 301
Time Value of Money
Investing for a Single Period
r interest rate (nominal)
P0 $ to be invested today
P1 $ available next period from investment
P = P0 + P0 r = P0 (1 + r )
1
P0 =
P
1
(1 + r
FIN 301
Bond Valuation
Debt
Debt: contract explicitly specifies
What cash flows will be received
When they will be received
Interest payments are
Tax deductible by the firm
Fully taxable by the recipi
FIN 301
Part 1: Multiple Choice Problems
(Total: 30 points; 2 points per question)
1. What is the payback period (in years) of a project that requires an investment of $75,000 today (t=0)
and promises
FIN 301
Final Exam Review  Answers
Put Your Stock in Gold?
Some of golds total risk may be irrelevant
because it can be eliminated through
diversification.
Gold probably has a low correlation with
Solutions to Equity Valuation Questions
FIN 301
Note: If not otherwise stated, interest rates are expressed as APRs with annual compounding.
1. Rearden Steel is expected to pay a $3.00 dividend next y
FIN 301
Equity Valuation
Valuing Equity
Book value of equity
Book value of equity = Assets Liabilities
Backward looking, reflects historical values
Liquidation value of equity
Liquidation value o
What to buy  Capital Budgeting
Assets
Real (tangible, intangible)
Financial
How to pay for it  Capital Structu
Goals of a Financial
Manager
Shareholders benefit if managers
maximize current value
Homework #4: Investment Decision & Project Valuation
FIN 301, Winter 2017
Due by 4pm on March 13
Problem 1
You have the following projects available:
Time Period
0
1
2
3
4
5
Discount Rate
Payback Peri