Finance 4720
Class Homework #1
Professor Joel Rentzler
To keep things simple, assume that all prices are continuous and that any size order may
be filled if an action (trigger) price is hit.
1. The current price per ounce for a gold futures contract is $4
Real
Estate
Valuation
(RES 3300)
Chapter 18 Risk Analysis
What is Risk?
Probability that events (assumptions) will not occur as expected
How much actually happens as planned?
RE Valuation Chapter 18
2
Causes of Risk
Information
and Analysis
Unforeseen
Cha
Real
Estate
Valuation
(RES 3300)
Chapter 13 Site Valuation
Review
Sales Comparison Approach
Value estimated by comparing subject property to recent sales of
similar properties
Basic model for understanding real estate valuation
Proposition that an informe
Real
Estate
Valuation
(RES 3300)
Chapter 6 Cash Flow Forecasting
Real Estate Valuations
Assume the hypothetical sale of the property
View the behavior of the property through the eyes of normal or
typical potential buyers
Premise that value is present val
CORPORATE VALUATIONS - Public Companies
METHOD #1 - Using the Stock Price / Dividend Yield
Starwood Hotels & Resorts Worldwide Inc. (HOT)
General
Information
Stock
Price
(as of 10/15/14)
Common Shares Outstanding (000's)
Market Capitalization (Equity Valu
Real
Estate
Valuation
(RES 3300)
Chapter 11 Highest and Best Use Analysis: Applications
Highest and Best Use
The foundation for real estate appraisal
As if vacant
As improved (existing improvements)
Must calculate both
Highest and best use as if vacant ma
As the son of the Macedonian court physician, Aristotle developed an early interest in biology
that probably contributed to his characteristic philosophical method of identifying, defining, and
demonstrating the nature of the essential components of his s
Real
Estate
Valuation
(RES 3300)
Chapter 14 The Cost Approach
The Cost Approach
Proposes that informed purchases will pay no more than the cost of
producing a substitute property with the same utility as subject
property
Substitution
Used when property is
CORPORATE VALUATIONS - Public Companies
METHOD #1 - Using the Stock Price / Dividend Yield
Starwood Hotels & Resorts Worldwide Inc. (HOT)
General
Information
Stock
Price
(as of 10/15/14)
Common Shares Outstanding (000's)
Market Capitalization (Equity Valu
Real
Estate
Valuation
(RES 3300)
Chapter 20 Reconciliation and Validation Tests
Reconciliation and Validation
Need to assess quality of data in analysis and applicability of
methodology
If, for example, many comparables that are very similar to subject pr
One and Two-STAGE BINOMIAL OPTION PRICING MODEL - Method 2
INPUT
OUTPUT
Example I - Single Stage (Call Option)
FORMULAS
PERIOD 0
PERIOD 1
Su = S . u
Sd = S . d
S = $ 45.00
u=
1.10x
d=
0.90x
X = $ 40.00
i=
5.00%
Freq=
1
Stages=
1
Su=
S=
Cu=
0.75
0.25
C=
6.
2-STAGE BINOMIAL OPTION PRICING MODEL
INPUT
OUTPUT
Example I (Call option w/ no Dividends)
FORMULAS
PERIOD 0
PERIOD 1
PERIOD 2
Su^2=
Su = S . u
54.45
Cu^2=
14.45
Sd = S . d
S = $ 45.00
u=
1.10x
d=
0.90x
X = $ 40.00
i=
5.00%
Freq=
1
Stages=
2
Su^2 = S . u^
8/28/13
1.
Assignment Print View
award:
10.00points
SupposeyoupurchaseaJuly2011cocoafuturescontractonMarch29,2011,atthelastpriceoftheday.
UseTable23.1.
What will your profit or loss be if cocoa prices turn out to be $3,033 per metric ton at expiration? (I
8/28/13
1.
Assignment Print View
award:
10.00points
Dark Day, Inc., has declared a $5.10 per share dividend. Suppose capital gains are not taxed, but
dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the
div
8/28/13
1.
Assignment Print View
award:
10.00points
Indicate the impact of the following corporate actions on cash, using the letter I for an increase, D for a
decrease,orNwhennochangeoccurs:
a. Adividendispaidwithfundsreceivedfromasaleofdebt.
N
b. Real
8/28/13
1.
Assignment Print View
award:
10.00points
Tbillscurrentlyyield4.3percent.StockinNinaManufacturingiscurrentlysellingfor$67pershare.There
isnopossibilitythatthestockwillbeworthlessthan$60pershareinoneyear.
a1 What is the value of a call option wit
8/28/13
1.
Assignment Print View
award:
10.00points
Pendergast, Inc., has no debt outstanding and a total market value of $180,000. Earnings before interest
and taxes, EBIT, are projected to be $23,000 if economic conditions are normal. If there is strong
8/28/13
1.
Assignment Print View
award:
10.00points
If you have $1,900 today, how much will it be worth in eight years at 7 percent per year compounded
continuously?(Roundyouranswerto2decimalplaces.(e.g.,32.16)
FV
$
3,326.280.1%
Explanation:
Withcontinuo
Monmouth Inc. Case Study
Executive Summary
Monmouth, Inc. is one of the leaders in engine and massive compressor production.
These products are used by energy companies around the world to draw resources from the
ground into accessible plants and factorie