ACTSC 372 Additional remarks on midterms
Q1Blue (Q3 Pink is similar) You can check that both the FTE and APV approaches would get
the same NPV, using the correct B = 3, 331, 184.53.
For FTE, we have
N P V = (12, 000, 000 B) +
(3 106 0.07B) 0.65
rs
where r
Assignment 1
ACTSC 372
Fall 2014
Due on Thursday October 2, 2014 by the end of the class.
Note: You will have to use Excel in this assignment. You will not be required to submit
your le online; instead, you will submit the printout of the spreadsheet(s) w
Assignment 3
ACTSC 372
Fall 2014
Due on Thursday December 4, 2014, in the drop box outside MC 4066.
1. Suppose you are an expected utility maximizer with utility of wealth u(w) = log(w),
w > 0. What is the maximum amount you are willing to pay to particip
Final Review
ACTSC 372
Fall 2014
Instructor: Fan Yang
Return Statistics
The history of capital market returns can be summarized by
describing the
average return
( R1 + + RT )
R=
T
the standard deviation of those returns
( R1 R ) 2 + ( R2 R) 2 + ( RT R)
Final Review
ACTSC 372
Fall 2014
Instructor: Fan Yang
Return Statistics
The history of capital market returns can be summarized by
describing the
average return
R=
( R1 +
+ RT )
T
the standard deviation of those returns
( R1 R ) 2 + ( R2 R) 2 +
SD = VA
Chapter 11
Determining Portfolio Weights
11.1 What are the portfolio weights for a portfolio that has 95 shares of stock A that sell for $53 per
share and 120 shares of stock B that sell for $29 per share?
Portfolio Expected Return
11.2 You own a portfoli
Chapter 10
10.1 Suppose a stock had an initial price of $92 per share, paid a dividend of $1.45 per share during the
year, and had an ending share price of $104. Compute the percentage total return.
10.2
Rework Problem 10.1 assuming the ending share price
Practice 1 Solution
ACTSC 372
Fall 2014
1. You bought a stock one year ago at a price of $30 per share and it just paid a dividend
of $2.25 per share. The stocks price today is $35 per share.
(a) What is the capital gains yield?
Solution:
35 30
= 16.67%.
gel ail (oi/1 .
Nﬁdterrn 2
ACTSC 372 Fall 2014
Department of Statistics and Actuarial Science, University of Waterloo
Last Name: First Name:
I.D. #:
Instructions:
0 There are 4 questions on this exam.
0 Please write your answers legibly and clearly. Clari
TFow
c
(was GA in'Pmk paper)
1. [12 points] Stock A has a mean return of 12% and standard deviation 0.3, While Stock B has a
mean return of 20% and standard deviation 0.35. The returns of Stock A and Stock B have a
correlation of 0.2. '
(a) Assume tha
ACTSC 372 Assignment 2 due on June 24, 2011
1. [8 points] P&P Inc. is a rm with an equity beta of 0.85. Its long-term debt currently has a yieldto-maturity of 5%. The current debt-to-equity ratio of the rm is 0.38 and the current corporate tax
rate is 35%
ACTSC 372 Assignment 3 due on July 25, 2011
1. [10 points] You own 100 shares of Remko Inc., which will pay a dividend of $2.50 per share at
the end of each year for the next two years. Three years from now, Remko Inc. will close and the
liquidating value
ACTSC 372 Assignment 1 Due on May 27th at 2:30pm
1- Shape of the ecient set [8 points] In the case of N = 2 assets:
(a) Prove that when = 1 the relationship between R and R is linear.
(b) Prove that when = 1, it is possible to nd weights w1 and w2 such th
2
P (wB B ) 2 (wS S ) 2 2(w B B )(w S S ) BS
1
1
Var ( P ) = var( X ) + (1- ) cov( X )
N
N
i
Cov( Ri , RM )
2
( RM )
R i RF i ( R M RF )
degreeofoperatingleverage:
Change in EBIT
Sales
DOL
EBIT
Change in Sales
S
B
rWACC
rS
rB (1 TC )
S B
S B
ACTSC 372 Assignment 3 Solutions
1. [10 points] You own 100 shares of Remko Inc., which will pay a dividend of $2.50 per share at
the end of each year for the next two years. Three years from now, Remko Inc. will close and the
liquidating value returned t
ACTSC 372 Midterm 2(A) Spring 2011 Solutions
1. [11 points] XYZ, a natural gas provider, is considering a project in the solar panel industry requiring
a $12 million initial outlay. The project is expected to generate EBIT cash-ows of $3 million per
year
ACTSC 372 Spring 2011
Part III Investment Decision Making under Uncertainty and
Utility Maximization
Outline
1
Introduction (EV principle; St. Petersburg Paradox)
2
Axioms of Cardinal Utility and von Neumann-Morgenstern Expected
Utility Representation
3
I
Midterm Review
ACTSC 372
Fall 2014
Chapter 16
Management is appointed by the shareholders and
hence should attempt to maximize shareholders
interests.
Financial leverage increases the risk of equity.
Modigliani & Miller (MM) Proposition I (no taxes):
V