Chapter 13 Return, Risk, And the Security Market Line
Expected Returns: the return on a risky asset expected in the future (weighted against
probability of future economy)
Projected Risk Premium = Expected Return Risk free rate
Variance = Sum ([return dev
FE Chapter 11: Project Analysis and Evaluation
Sensitivity Analysis investigation of what happens to NPV when only one
variable is changed
The greater the deviation from the original NPV or IRR, the more
sensitive the variable is
Scenario Analysis the de
Problem 1-3
Please read the paper by Covas and Haan. The Cyclical Behavior of Debt and Equity Finance. The America
1.What is a research question?
2.What is the motivation of the paper?
3.What approaches do authors apply to explore debt and equity behaviou
1.
net income =
ending essets=
payout ratio =
SH Equity=
liability =
account payable increase by
48400
501800
9.50%
296800
120200
9600
additions to equity =
Ending SH Equity =
ending total liability =
ending total liability and equity =
Net financing =
43
1.
Stock
Golden Seas
Jacobs and Jacobs
MAG
PDJB
Golden Seas
Jacobs and Jacobs
MAG
PDJB
2.
Market Excess return
Beta
Beta b
a.
Stock excess return
Price/ShareNumber of shares outstanding (millions)
#of shares
13
1.47
19.11
24
1.59
38.16
46
25.06 1152.76
7
1.
F return
L return
F portfolio
L portfolio
Expected return
2.
total investment
GF
MH
VA
New
GF
MH
VA
a.
# of shares
GF
MH
VA
P=
b.
Return=
c.
Pw for GF
Pw for MH
Pw for VA
3.
total investment
16%
22%
44%
56%
19.3600%
400000
68%
18%
14%
1
2
3
16
83
8
w2
FE 323 FINAL EXAM FORMULAS
Returns
Single Period Return1 =
2015
Div1 P1 P0
P0
P0
Annualized Return (4 quarters) =
(1 R1 )(1 R2 )(1 R3 )(1 R4 ) 1
Average Return (T years) =
Variance and standard deviation of Returns (R)
Note: T is # of periods
Standard Dev
FE 323 Final Study Guide
At the end of chapter 11, you should:
-know how to calculate total periodic return as the sum of the dividend yield and capital gain
yield
-know how to calculate annual return from quarterly returns
-know how to calculate the aver
FE 323 FINAL EXAM FORMULAS
Returns
Single Period Return1 =
2015
Div1 P1 P0
P0
P0
Annualized Return (4 quarters) = (1 R1 )(1 R2 )(1 R3 )(1 R4 ) 1
Average Return (T years) =
Variance and standard deviation of Returns (R)
Note: T is # of periods
Standard Dev
Chapter 12 Some Lessons From Capital Market History
Returns: gain/loss from investment
-income component: cash received directly from investment
-capital gain/loss: change in value of assets from when one buys investment to one sells
-capital gains should
Chapter 10: Making Capital Investment Decisions
Relevant Cash Flows
The cash flows that should be included in a capital budgeting analysis are those that will only occur if the
project is accepted
Incremental Cash Flows
The stand-alone principal allows
Chapter 9: Net Present Value and Other Investment Criteria
NPV Decision Rule
If the NPV is positive, accept the project
Positive NPV means that the project is expected to add value to the firm and will therefore
increase the wealth of the owners
Our go
Chapter 8: Stock Valuation
Constant Dividend
No growth
The firm will pay a constant dividend forever
The price is computed using the perpetuity formula
Price decreases when the rate of return increases
Example: Preferred Stock
D
P=
R
Constant Dividen
Chapter 7: Interest Rates and Bond Valuation
Bond an interest-only loan
Par Value the principal amount of a bond that is repaid at the end of the term
Face Value
Coupon Rate the annual coupon divided by the face value of a bond
Coupon Payment the stated
A.
0
1
2 Years
$100 Cash Flow
0
1
2
$100
$100
0
1
2
($50)
$100
$75
3 Years
$100 Cash Flow
3 Years
$50 Cash Flow
b. 1.
FV3
$133.10
b.2.
PV
($75.13)
c.
RATE
8%
d.
Years
3.8017840169
e.
This is an ordinary annuity. To be an annuity due the each payment shoul
A.
Production Opportunities
Time Preference for consumption
Risk
Inflation
B.
Real risk free rate is
the rate that would exist on a riskless security in a world where no
inflation was ex
Nominal risk free rate is the real risk free rate (r*) plus the infl
Assignment 3
a.
b.
Par Value
Coupon Rate
Years for the maturity
Called provisions
Defualt Risk
Issue Date
A call provision that gives the issuer the right to call the bonds for redemption. The call provision generally state
issuer must pay the bondholders
Assignment 4
a.1.
T Bill does not depend on the state of the economy. T-Bills is considered risk-free because it is guaranteed by the
default. T-Bills are not guaranteed to have a the risk free rate. Risk fee rate equals real risk free rate + inflation. S
Assignment 5
a
b.
Common stock holders have the capacity to elect directors for the company
Common stock holders can purchase additional stocks sold by the company
P D1 D 2 D3 . D
0
(1 rs )1 (1 rs ) 2 (1 rs ) 3
(1 rs )
Constant growth stocks are the stoc
Great post Carmel. I left some comments below.
Artificial intelligence is everywhere. There are advantages and disadvantages in
artificial intelligence (AI). One of the main disadvantages is the cost involved in
AI. The cost incurred for developing, maint
FE822 M1
Saumil Bhansali
Investment Date: March 17, 2015
Portfolio securities: US Treasury Notes and Bonds
Number of securities: 05 (Five)
Investment amount: $636,020,923
Market Value Weighted Average Yield: 1.7968%
Transaction cost: $386,719
Face Value: