FM212 MT Class Assignments
Class 3
7. NoGrowth Corporation currently pays a dividend of $0.5 per quarter, and it will continue to
pay this dividend forever. What is the ex-dividend price per share if its equity cost of capital
is 15% per year?
8. Crecimie
FM212 MT Class Assignments
Class 2
4. Mike Polanski is 30 years of age and his salary next year will be $40,000. Mike forecasts that
his salary will increase at the steady rate of 5 percent per annum until his retirement at age 60.
a. If the discount rate
FM212 MT Class Assignments
Class Assignments (Michaelmas Term)
Each class assignment in Part 1 consists of 3 questions. Students should attempt written answers
to the questions before the respective class.
Class 1
1. A parcel of land costs $500,000. For a
FM212 MT Class Assignments
Class 10
28. Yesterday you sold six-month futures on the German DAX stock market index at a price of
6,260. Today the DAX closed at 6,250 and DAX futures closed at 6,268. You get a call
from your broker, who reminds you that you
FM212 MT Class Assignments
Class 9
25. You have estimated spot rates as follows:
Year
1
2
3
4
5
Spot Rate
0.25%
0.50%
0.75%
1.00%
1.25%
a. What are the forward rates for each period?
b. Calculate the PVs of the following government bonds. Assume annual
co
FM212 MT Class Assignments
Class 8
22. CH4 trading stock price is $100 and in each 3 month period will either increase by 25 percent
or fall by 20 percent. A 6-month call on CH4 stock has an exercise price of $90. The risk-free
3-months interest rate is 1
FM212 MT Class Assignments
Class 7
19. The following table lists prices of options on IBM stock.
Stock
IBM
Time to Exercise
(months)
1
Exercise
Price
120
Stock
Price
126.36
Put Price
1.27
Call
Price
8.1
a. Using the information above derive the implied mo
FM212 MT Class Assignments
Class 4
10. Answer the following questions:
a. Briefly explain the difference between beta as a measure of risk and variance as a
measure of risk.
b. What is the correlation coefficient between two stocks that gives the maximum
FM212 MT Class Assignments
Class 5
13. The Treasury bill rate is 4 percent, and the expected return on the market portfolio is 12
percent. Using the capital asset pricing model:
a. Draw a security market line.
b. What is the risk premium on the market?
c.
FM212 MT Class Assignments
Class 6
16. Which of the following observations appear to indicate market inefficiency? Explain whether
the observation appears to contradict the weak, semi-strong or strong form of the market
efficiency hypothesis.
a. Tax-exemp