Week 5 Tutorial Questions
Chapter 20
13. Option payoffs The buyer of the call and the seller of the
put both hope that the stock price will rise. Therefore the two
positions are identical. Is the speaker correct? Illustrate with a
position diagram.
21. Pu
Chapter 24 - The Many Different Kinds of Debt
CHAPTER 24
The Many Different Kinds of Debt
Answers to Problem Sets
1.
a.
b.
c.
d.
e.
High-grade utility bonds
Industrial holding companies
Industrial bonds
Railroads
Asset-backed security.
a.
Decreases
b.
Imp
Week 6 Tutorial Solutions
Chapter 22
9. Real options
Describe each of the following situations in the language of
options:
a.
Drilling rights to undeveloped heavy crude oil in
Northern Alberta. Development and production of the oil
is a negative-NPV endea
Week 4 Tutorial Solutions
Chapter 26
4. Futures prices Calculate the value of a six-month futures
contract on a Treasury bond. You have the following information:
Six-month interest rate: 10% per year, or 4.9% for six months.
Spot price of bond: 95.
The b
Week 5 Tutorial Solutions
Chapter 20
13. Option payoffs The buyer of the call and the seller of the
put both hope that the stock price will rise. Therefore the two
positions are identical. Is the speaker correct? Illustrate with a
position diagram.
While
Refer to the following information:
Stock
1
2
3
0.20
0.10
0.15
E(r)
0.06
0.08
0.15
Correlation Coefficients
1 with 2: -0.10
1 with 3: +0.60
2 with 3: +0.05
A portfolio is formed as follows: sell short $1,000 of Stock 1; buy $1,500 of Stock 2; buy
$1,500 o
Chapter 07 - Introduction to Risk and Return
Chapter 07
Introduction to Risk and Return
Multiple Choice Questions
1. Which of the following portfolios have the least risk?
A. A portfolio of Treasury bills
B. A portfolio of long-term United States Governme
Chapter 10 - Project Analysis
Chapter 10
Project Analysis
Multiple Choice Questions
1. Discounted cash flow (DCF) analysis generally:
I) assumes that firms hold assets passively when it invests in a project
II) considers opportunities to expand a project
Chapter 11 - Investment, Strategy, and Economic Rents
Chapter 11
Investment, Strategy, and Economic Rents
Multiple Choice Questions
1. One way to uncover forecasting errors in NPV estimates is by looking at:
I) Book values
II) Liquidating values
III) Mark
Week 4 Tutorial Questions
Chapter 26
4. Futures prices Calculate the value of a six-month futures
contract on a Treasury bond. You have the following information:
Six-month interest rate: 10% per year, or 4.9% for six months.
Spot price of bond: 95.
The b
Chapter 03 - Valuing Bonds
Chapter 03
Valuing Bonds
Multiple Choice Questions
1. The following entities issue bonds to raise long-term loans except:
A. The federal government
B. State and local governments
C. Companies
D. Individuals
2. The type of bonds
Chapter 06 - Making Investment Decisions with the Net Present Value Rule
Chapter 06
Making Investment Decisions with the Net Present Value Rule
Multiple Choice Questions
1. Important points to remember while estimating cash flows of projects are:
I) only
You are thinking about investing in a mine that will produce $10,000 worth of ore in
the first year. As the ore closest to the surface is removed it will become more
difficult to extract the ore. Therefore, the value of the ore that you mine will decline
Chapter 05 - Net Present Value and Other Investment Criteria
Chapter 05
Net Present Value and Other Investment Criteria
Multiple Choice Questions
1. Which of the following investment rules does not use the time value of the money
concept?
A. Net present v
Chapter 09 - Risk and the Cost of Capital
Chapter 09
Risk and the Cost of Capital
Multiple Choice Questions
1. The company cost of capital is the appropriate discount rate for a firm's:
A. low risk projects
B. high risk projects
C. average-risk projects
D
You are thinking about investing in a mine that will produce $10,000 worth of ore in the first
year. As the ore closest to the surface is removed it will become more difficult to extract the
ore. Therefore, the value of the ore that you mine will decline
Chapter 13 - Efficient Markets and Behavioral Finance
Chapter 13
Efficient Markets and Behavioral Finance
Multiple Choice Questions
1. A small business is receiving a five-year $1,000,000 loan at a subsidized rate of 3% per
year. The firm will pay 3% annu
Chapter 08 - Portfolio Theory and the Capital Asset Pricing Model
Chapter 08
Portfolio Theory and the Capital Asset Pricing Model
Multiple Choice Questions
1. Portfolio Theory was first developed by:
A. Merton Miller
B. Richard Brealey
C. Franco Modiglian
Valuing Government Bonds
& Risky Bonds
Spot Interest & Other Rates,
Inflation, Term Structure,
Default Risk
Topics Covered
Interest Rates, Nominal and Real Rates
The Term Structure and YTM
Interest Rate Changes, Bond Prices &
Duration
Allowing for the
Chapter 7(consultation time: Eastern
Ave 310 Tue 10-11)
Morden portfolio theory: 1952 harry maekowitz estabilished MPT,
use quantitative methods to assess assets and construct portfolio.
13. Risk and diversification: Lonesome Gulch Mines has a
standard de
Chapters 20 & 26: Introduction to futures,
forwards and options
BUSINESS
SCHOOL
Lecture outline
1. Introduction
a) Managing risk
2. Forward and futures contracts
a)
Forward contracts
b)
Futures contracts
c)
Homemade forward rate contracts
3. Options (basi
Dividend
Dividend Policy
Policy
Imputation
Topics Covered
What is dividend policy
How Are Dividends Paid
How Do Companies Decide on
Dividend Payments?
Information in Dividends
Dividend Policy and Value
The Rightists
Taxes and the Radical Left
The M
Week 7 Questions
Chapter 17
19. Leverage and the cost of capital Archimedes Levers is
financed by a mixture of debt and equity. You have the following
information about its cost of capital:
r E=?
E =1.5
r f =10
r D=12
D =?
r m 18
r A =?
A=?
D/V =0.5
Ca
Week 2 Solutions
Chapter 7
13. Risk and diversification: Lonesome Gulch Mines has a
standard deviation of 42% per year and a beta of +0.10.
Amalgamated Copper has a standard deviation of 31% a year
and a beta of +0.66. Explain why Lonesome Gulch is the sa
Corporate Finance II
Lecture 4:
Contingent Claims II: Valuation
Admin
A reminder, your technical questions should go
to your tutor first. You should feel comfortable to
ask questions related to tutorial questions or
textbook during tutorial class or tuto
BUSINESS SCHOOL
Unit of Study Outline
Unit Code FINC2012
Unit Title Corporate Finance II
Semester 2, 2016
Pre-requisite Units: FINC2011 or FINC2001
Co-requisite Units:
Prohibited Units: FINC2002
Assumed Knowledge and/or Skills: You are assumed to be famil
INPUTS
EXERCISE PRICE
Share Price
sigma (SD) per period
r
t
OUTPUTS
PV(EX)
P/PV(EX)
sigma x sqrt(t)
d1
d2
d1
d2
N(d1)
N(d2)
Call Value
900
467
0.35
0.1
3
= EX / e^(rt)
= log[P/PV(EX)]/[sigma x sqrt(t)] + [sigma x sqrt(t)/2]
= d1-sigma x sqrt(t)
= cfw_log[
FINC2012 List of Topics Learning Guide
1) Portfolio Theory
a. Calculating Returns: simple and geometric
b. Calculating Risk: Standard dev, Co-variance, Beta
c. Building Portfolios:
i. Diversification
ii. Systematic risk
iii. Company specific risk
2) CAPM