The different types of business organizations are proprietorships, partnerships,
and corporations.
A proprietorship is an unincorporated business owned by one person. It
has many advantages such as: subjected to very few government regulations, it is
easi
You can't just judge investment performance based on return. You also have to look
at the risks. So it's not clear who out-performed who.
In any case-a pub is not a good place to discuss a sobering topic like investments!
A corporate bond is riskier than
Black Option Pricing Model
c = e-rT [FN(d1) - KN(d2)]
Monday, March 23, 2015
p = e-rT [KN(-d2) - FN(-d1)]
Futures Price = F
Strike = K
Time to expiry (% of year) = T
Int. Rate = r
Volatility =
Call Premium
Call Delta = e-rt N(d1)
Call Gamma
Call Vega
Cal
A
1
2
3
4
5
6
Year
0
8
1
9
2
10
3
11
12
13 Internal rate of return
14
15 NPV of cash saved
16
17
18 Borrowing the money
20
21
22
23
C
D
E
BUYING A CAR
List price of car
Downpayment
Cash cost of car
Bank rate of interest
7
19
B
Year
0
1
2
3
11,000.00
5,000
John's coin flip
Cost of game
Event
heads
tails
Expected return
Standard deviation of return
Mary's die toss
Cost of game
Event
1
2
3
4
5
6
Expected return
Standard deviation of return
0.8
Probability Winnings
0.5
3
0.5
-1
Return
275.00% <- =C6/$B$3-1
-22
WACC Calculation
D
E
rD
200,000
300,000
TC
40%
rE
13%
V=D+E
WACC
7.5%
500,000 <- =B3+B2
9.60% <- =(B6*(B3/B8)+(B4*(1-B5)*(B2/B8)
Finding the Cost of Equity
rD
5%
TC
25%
2,500,000
1,000,000
10%
D
E
WACC
Cost of Equity
V=D+E
rE
3,500,000
26% <- =(B6-B2*(1-B
VaR Homework
#1
2.520%
If the Annual Volatility of Stock XYZ = 40%, then what is the daily volatility?
Annual Volatility =
Daily Volatility = Annual Volatility (1/252 ) = 40% 0.062994 =
#2
$120,000,000
3. If you are holding a $300,000,000 ($300 million) p
FINANCE CHAPTER 6
Nga Nguyen (Moon)
Question 1
a. Risk is the exposure to the chance of an unfavorable event.
Stand-alone risk is the risk that an investor takes by holding only one asset.
Probability distribution is a listing, chart, or graph of all poss
HOMEWORK CHAPTER 1 PAGE 47
Question 1
a.
Proprietorship: Unincorporated business owned by one individual
Partnership: A legal arrangement between two or more people
Corporation: A legal entity created under state laws and is separate and distinct from its
FINANCIAL MANAGEMENT CHAPTER 5
Nga Nguyen (Moon)
Question 1
a. A bond is a long-term contract under which a borrower agrees to make payments of interest and
principal, on specific dates, to the holders of the bond.
Treasury bonds are issued by the U.S. fe
Demand for the
company's product
Weak
Below average
Average
Above average
Strong
Expected Return (r hat)
Standard deviation
Probability of this
Rate of Return if this
demand occuring
demand occurs (%)
0.1
-50%
0.2
-5%
0.4
16%
0.2
25%
0.1
60%
0.114
0.26691
FINANCE CHAPTER 7
Nga Nguyen (Moon)
Question 1
a. A proxy is a document that gives one person a power to act for another, typically the power to vote
shares of common stock.
A proxy fight occurs when an outside group solicits stockholders proxies in an ef
Ch. 7
Coupon Rate: Annual Interest = MV x Coupon Rate Bonds with low coupon rates are most sensitive.
Required Rate of Return: if a bond is risky then you require a higher rate of return & vice versa.
All bond have a coupon rate = 10%, Maturity value = $1
5 Years till college
Graduation 4 years later
Cost is $20,000 per year, with an increase of 4 % annually. (Inflation)
Requires 6 payments each year starting today.
Alicia has 7500 in account that pays 7.5%
N
I
PV
PMT
FV
Year 5 cost
5
4
20,000
0
CPT
FV= 24
INTEREST RATES
1.
Which of the following factors would be most likely to lead to an increase in nominal interest rates?
a. Households reduce their consumption and increase their savings.
b. A new technology like the Internet has just been introduced, and
FI515 Lecture Example - Cash Flow Analysis for Capital Budgeting
Inputs
Equipment cost
Shipping
Installation
Increase in working capital
Salvage value, equipment, Year 4
Opportunity cost
Externalities (cannibalization)
Units sold per year
Annual change in
Time Value of Money Examples
1. Suppose your bank bays 3% interest compounded monthly on its 12-month CD. Another bank offers
the same CD only with interest compounded semi-annually. What nominal (quoted) interest rate must the
other bank set in order for
(2-6) Statement of Retained Earnings
In its most recent financial statements, Newhouse Inc. reported $50 million of net income and $810 million of retained
earnings. The previous retained earnings were $780 million. How much in dividends was paid to share
13- 6 Value of Operations
Brooks Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years,
respectively; after the second year, FCF is expected to grow at a constant rate of 8%. The companys weight
11-4 Replacement Analysis
The Chen Company is considering the purchase of a new machine to replace an obsolete one. The machine
being used for the operation has both a book value and a market value of zero; it is in good working order,
however, and will l
9-5 Cost of Equity: DCF
Summerdahl Resorts common stock is currently trading at $36 a share. The stock is expected to pay a dividend of $3.00 a
share at the end of the year (D1 = $3.00), and the dividend is expected to grow at a constant rate of 5% a year
Nancy Gomez
Week 4 Homework FIN515
CHAPTER 6
pp. 258-259
6-1
An individual has $35,000 invested in a stock with a beta of 0.8 and another $40,000 invested in a stock
with a beta of 1.4. If these are the only two investments in her portfolio, what is her p
5-1 Bond Valuation with Annual Payments
Jackson Corporations bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000
par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the