Time Value of Money (TVM) Exercises
Note: all interest rates are quoted with annual compounding except when stated
otherwise (i.e. except question 11).
(Compound and Simple Interest)
1. You put $1,000
Background
Spark Publishing and Printing House (SPPH) publish, print and distribute academic
literature, technical manuals, religious books and best sellers. SPPH business is sub-divided
in two depart
Practice Questions
Time Value of Money (TVM)
Note: all interest rates are quoted with annual compounding except when stated
otherwise.
1. (Compound and Simple Interest) You put $1,000 in a CD that pay
FIN 502
Fall 2015
Solution - Assignment 3
Due on November 2, by 6pm (A2)
The solution to each question is summarized in this file. The spreadsheet with the calculations is posted online.
Problem 1 [12
Practice Questions
Time Value of Money (TVM)
Note: all interest rates are quoted with annual compounding except when stated
otherwise.
1.
(Compound and Simple Interest) You put $1,000 in a CD that pay
FIN 502
Fall 2015
Homework Assignment 2
Due on October 19 by 6pm (A2)
Problem 1
You must invest $100,000 and the bonds listed below from A to E are the only investments available today (assume that it
Practice Questions with Solutions
Valuing Debt
1.
You must invest $100,000 and the bonds listed below from A to D are the only investments available today
(assume that it is possible to buy a fract
FIN 502
Fall 2015
Solution - Assignment 2
Due on October 19 by 6pm (A2)
Problem 1 [12 points]
You must invest $100,000 and the bonds listed below from A to E are the only investments available today (
FIN 502
Alternative Investment Criteria
Lecturer: Carmen Stefanescu
Investing Criteria
Deciding on taking a project
o NPV
o Profitability Index (PI)
o Internal Rate of Return (IRR)
o Payback rule
A
FIN502
Risk and Return
Portfolio Choice
Lecturer: Carmen Stefanescu
Outline
A first look at risk and return
Measures of risk and return
Probability distributions
Expected mean
Variance and standa
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FIN502
Options
Lecturer: Carmen Stefanescu
Outline
Options
Call options and put options
Option basics
Payoffs and profits
Trading strategies: covered call and protective put
Option pricing
Fact
Practice questions
Midterm
1. Identify and value/calculate the following. By identify I mean tell me whether it is a perpetuity, a growing
perpetuity, an annuity, a growing annuity, a series of uneven
FIN502
Time Value of Money
Lecturer: Carmen Stefanescu
Keypoints
Valuing streams of cash flows (perpetuities and annuities)
Timeline, the linear representation of the timing of cash flows.
Inflows ar
FIN 502
Valuing Debt
Lecturer: Carmen Stefanescu
Debt
Debt contract explicitly spells out:
What cash flows will be received
The maturity of the contract
When cash flows payments will be made
Inte
FIN 502
Fall 2015
Solutions - Assignment 1
Due at the beginning of class on October 5 (A2)
Problem 1 [12 points]
Lottery jackpots are paid out in equal installments with the first installment payable
FIN502
Forwards and Futures
Lecturer: Carmen Stefanescu
Risk Management
Firms convert inputs into goods and services.
output (price)
inputs (price)
Producer
Buyer
Decision making process of corporatio
FIN 502
Capital Budgeting
Lecturer: Carmen Stefanescu
Capital Budgeting
Capital budgeting = the process of analyzing investment
opportunities and deciding which ones to accept
o Projects type: Cost S
FIN 502
Introduction
Lecturer: Carmen Stefanescu
Keypoints
Major types of firms
The corporation
Financial decision making process of corporations
Ownership versus control of corporations
Accounti
Practice questions
Midterm
1. Identify and value/calculate the following. By identify I mean tell me whether it is a perpetuity, a
growing perpetuity, an annuity, a growing annuity, a series of uneven
FIN 502
Equity Valuation (Chapter 9 of the
text book)
Lecturer: Carmen Stefanescu
Equity Valuation
Characteristics
Equity valuation: determine the intrinsic value of common stocks. A
valuation model c
FIN502
Real Options
Lecturer: Carmen Stefanescu
Capital Budgeting:
Discounted Cash Flow and NPV
Using NPV rule in capital budgeting:
Forecast project's expected future cash flows
Discount cash flow
FIN502
Capital Asset Pricing Model
Market Efficiency
Multifactor Models of Risk
Lecturer: Carmen Stefanescu
Outline
Capital Asset Pricing Model (CAPM)
Assumptions
Portfolio theory implications
CAPM
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Practice Questions with Solutions
Risk and Return. Portfolio Choice.
Problem 1
Consider the following information about three assets and the market:
Rate of Return if State Occurs
State of
Economy
B
Practice Questions with solutions
Real Options. Forwards and Futures
Problem 1
Your company considers entering the shoe business and believes there is a very narrow window for entering the business.
Practice Questions with solutions
Options
Problem 1
MyContacts Online Inc. (MCO) stock currently sells for $60 per share. Consider a European put option on MCO stock
with a strike price of $66 and t
Practice Questions with solutions
CAPM
Problem 1
Consider two stocks A and B and the index model regressions (subscript t is suppressed in the notation of the regression
equation: rA r f = + (rM r
Practice Questions
Real Options. Forwards and Futures
Problem 1
Your company considers entering the shoe business and believes there is a very narrow window for entering the business.
The winter hol