FinancialAssets
Chapter1Economics2298
Afinancialassetisapaper(orelectronic)claimtofutureinvestments
o Claimindicatedthereisriskinvolved
o Futureindicatesitmayhappenbutthetimelineisundecided
o PaymentmaybeinvariousformsbutdoesnotmeanactualMoney
Goalofafina
1
Economics 2296:
Problem Set 2: Markets and Elasticity
1. The market for whatnots is given by the following equations;
Price () and income () are measured in dollars.
a) Solve for the original market equilibrium assuming an income level of. Report the pr
ECON 2298: Final Exam Formula Sheet
CFFA = Operating Cash Flow Net Capital Spending Changes in Net Working Capital
1
1 (1 r ) t
PV C
r
(1 r ) t 1
FV C
r
PV
t
C1 1 g
1
r g 1 r
PV
C1
rg
m
APR
EAR 1
1
m
1
1 - (1 r) t
Bond Value C
r
F
t
(1 r)
(1
ECON 2298: Midterm 2
Multiple Choice Question Solutions
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Economics 2298
A short problem on variance and standard deviation
Below you will find the equations and the solutions to the in class problem set.
Keep in mind that the symbol "^" means exponent, or to the power of. Also, to take the square root of someth
Economics 2298
A short problem on variance and standard deviations
State of the world
Probability
1
2
0.25 0.3
0
Return on Stock A (%) 15
10
Return on Stock B (%) 6
3
3
5
12
1) Calculate the expected return, variance and standard deviation of returns on s
Economics 2298
CAPM PS ANSWERS
1. Calculate the expected return, variance, covariance and correlation coefficient of
the following two stocks.
State of the world Good Bad Very Bad
Probability
0.6
0.2
Return on stock A 12% 4% -1%
Return on stock B 6%
8% 4%
Economics 2298
CAPM Problem Set
1. Calculate the expected return, variance, covariance and correlation coefficient of
the following two stocks.
State of the world Good Bad Very Bad
Probability
0.6
0.2
Return on stock A 12% 4% -1%
Return on stock B 6%
8% 4
Economics 2298
Mortgage Practice Problems
1) The bank offers you a 20 year mortgage for $200,000 at an interest rate of 8%. The
term of the mortgage is 5 years.
a) What are your monthly payments?
b) How much of the 30th payment is applied to interest? How
Economics 2298
Mortgage Practice Problems
ANSWERS
1) The bank offers you a 20 year mortgage for $200,000 at an interest rate of 8%. The
term of the mortgage is 5 years.
Remember the rule with mortgages is that they are always quoted as semi-annual
APRs, e
Glendas Bonds
Answers
Four and one half years ago, Glenda purchased 15 - $1000 bonds carrying an 8.5%
coupon and priced to yield 9.8%, compounded semi-annually. At that time the bonds
were to mature in 18 years. The bond market now requires a YTM of 8%, c
Names:_
Economics 2298
Fall 2012
Amortization Problem
Consider a loan (not a mortgage) for $15,000. The interest rate is stated as 9%,
compounded monthly. You make monthly payments, at the start of each month. The
amortization period is 5 years.
1)
a) Wha
Econ 2298
Quiz #2 ANSWERS
September 19, 2012
1. Recall the Varian inter-temporal model. An individual receives an endowment of $25 in
period 1 and $160 in period 2. The individual can borrow and save at 6%.
a. Write out the inter-temporal budget constrain
Econ 2298
Fall 2012
Quiz #1 Answers
Names:_
1. What is a financial asset?
A paper (electronic) claim to future payment.
2. What purpose do financial assets serve in an economy?
Financial assets allow savers (surplus spending units) to transfer their spend
There is a mortgage calculator on the BMO site (and others) that you can use to test your work
with mortgages.
I used our class example modified to only 25 years amortization (the maximum allowed in the
calculation).
Mortgage = $800,000
Rate = 3.09% (curr
Chapter 5 Introduction to Valuation: The Time Value of Money
Notes: We will use calculators when finding present values and future values do NOT worry about
the tables (Tables A.1 and A.2 in Appendix A and Table 5.1 in Chapter 5)
Principal: an initial amo
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Chapter 9 Net Present Value and Other Investment Criteria
Capital Budgeting: planning and managing a firms investment in fixed (long-term) assets
(Strategic Asset Allocation)
This chapter outlines the methods commonly used to assess possible investments
1
Chapter 10 Making Capital Investment Decisions
Sections 10.1, 10.2, 10.3, 10.4
When analyzing capital budgeting decisions, we should focus on the relevant cash flows (those resulting
from the investment being analyzed).
Incremental Cash Flows: the diffe
1
Chapter 11 Project Analysis and Evaluation
Sections 11.1, 11.2
Evaluating NPV Estimates
How good are our estimates of NPV?
Our estimations of cash flow (sales, price, variable and fixed costs, working capital requirements and
salvage value) are all esti
Chapter 1 Introduction to Corporate Finance
The financial manager deals with these types of questions:
1. What line of business? What are the requirements for physical capital (buildings,
machinery, equipment)
2. How will you finance the above? Other owne
Solutions for the assigned problems from the Textbook, Chapter 8
2.
The required return:
or 10.21%
3. Dividend Yield = the annual cash dividend divided by the current price: or 5.21%
The expected capital gains yield:
(The expected growth in the stock pric
Solutions to Problem Set #5 Stock Valuation
1. The following is part of an excerpt from Thu, 07 Feb 2013 10:32:43 GMT | By The Canadian
Press, thecanadianpress.com
BCE adjusted earnings, revenue miss estimates
MONTREAL - BCE Inc. (TSX:BCE) says its divide
Econ 2298:
Solutions for Problem Set 2: Discounted Cash Flow Valuation
1. You have a client who is the victim in a motor vehicle accident and the lawyer of the driver at
fault has offered your client the following settlement: $20,000 immediately, $50,000
Econ 2298:
Solutions for Problem Set 3: Discounted Cash Flow Valuation
1. Your friend has saved $5000 in his savings account and earns 4% compounded annually. He
has decided not to use this account any more for deposits but he will take out $400 each
Dece
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Chapter 12 Lessons from Capital Market History
Understanding the returns and risks from historical market data can help to understand the returns and
risks from investment projects (capital budgeting decisions).
Dollar Returns: returns expressed in doll
Course Code, Number, and Title:
ECON 2298, Economics of Capital Assets and Project Evaluation
Course Format:
Mondays and Wednesdays: 12:30pm to 2:20pm
Credits: 3
Transfer Credit: For information, visit bctransferguide.ca
Course Description, Prerequisites,
ECON 2298: Assignment 1 SOLUTIONS
Due: Monday, January 23 by 12:30pm
Please note that this assignment will be marked for credible completion, not accuracy. You should
show all relevant work to receive credit. Solutions to the question will be made availab
ECON 2298: Midterm 1
Multiple Choice Question Solutions
Version A:
Version B:
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ECON 2298: Assignment 2 SOLUTIONS
Due: Wednesday, February 1 by 12:30pm
In this assignment, I provide you with in-depth explanations on question 2 and 3 to provide you with
some guidance on how to think about these questions, and give you general solution