Hand in Problem Set 1
GE
All numbers except share price are in thousands
Values as of
02/11/12
1b
Current Stock
Price
Market cap. rate
Dividend
21.31
9%
0.68
2a
Return of Equity
11%
2b
Payout Ratio
52%
3
Growth next 5
yrs
11%
1a
Dividend Discount
Method
5
FM212: extra questions: sketch solutions
1. A stock has a beta of 1.2 and an expected return of 16%. The risk-free asset
currently earns 5%.
(a) The expected return on an equally weighted portfolio is;
E(RP ) = 0.5E(RStock ) + 0.5Rf = 10.5%
(b) A portfoli
Class 1
1. Mr. Smith has an income of $40,000 this year and $60,000 next year. He can invest in a
project that costs $30,000 this year, which generates an income of $36,000 next year. The
market interest rate is 10%. What will be his consumption next year
Class 1
1.
Consumption next year = [40,000 - 30,000 - 50,000]*1.1 + (60,000 + 36,000) = 52,000.
2.
Consumption vs saving:
a. Let x = the amount that Casper should invest now. Then ($200,000 x) is the amount he
will consume now, and (1.08x) is the amount h
Currency markets: 30th April 2014
GBP
CHF
LIBOR rates: 30 April 2014
1 year forward rate
Spot rate
1.4867 CHF per GBP
0.673 GBP per CHF
GBP 12m
0.92%
12m FWD
1.4753 CHF per GBP
0.678 GBP per CHF
CHF 12m
0.20%
No-arbitrage forward rate
F
0.677
Close, but n
London School of Economics
Principles of Finance FM212
Summer Term 13/14
Class 1 (Week2)
Revision of Michaelmas Term Reading Material: This class assignment is intended to
help you review your required reading from Michaelmas term. Note that this
assignme
FM212 Summer 2011 Solution Sketch
1
True, False, or Uncertain
(A)
True. The efficient markets hypothesis assumes that commodities are
storable. Non-storable commodities can have predictable prices, since there
is no way of exploiting the predictability. (
LSE Revision Lecture
LSE Revision Lecture
Rich Payne
Cass Business School
May 2, 2014
Rich Payne (Cass Business School)
LSE Revision Lecture
May 2, 2014
1 / 32
LSE Revision Lecture
Topics to be covered
I was asked to clarify;
Interest rates: converting a
FM212: extra questions
1. A stock has a beta of 1.2 and an expected return of 16%. The risk-free asset
currently earns 5%.
(a) What is the expected return on a portfolio that is equally invested in the
two assets?
(b) If a portfolio of the two assets has
FM212 Principles of Finance
LT Problem Set
Class 5
13. You are a consultant who was hired to evaluate a new product line for Markum Enterprises. The
upfront investment required to launch the product line is $10 million. The product will generate free
cash