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MBA570_Homework_6

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Question;Instructions: Either type or;write your answers directly on this document and submit the completed;assignment to your ESO. Show your work;for the calculations. If you use additional documents for the calculations;label them with your name and course number (MBA 570) and submit them as well.;Each question is worth 10 points.;1.;35;30;25;20;15;10;5;0;The;figure below shows the one-year return distribution for RCS stock;A B C D E;A;-30% return;B;-10% return;C;0% return;D;10% return;E;30% return;Note: Make sure;to round all intermediate calculations to at least five decimal places;a.;The;expected return is __________%. (Round to;two decimal places.);b.;The;standard deviation is __________%. (Round;to two decimal places.);2.;You;bought a stock one year ago for $50.77 per share and sold it today for $56.73;per share. It paid a $1.14 per share dividend today.;a.;Your;realized rate of return was __________%. (Round;to two decimal places.);b.;How;much of the return came from dividend yield and how much came from capital gain?;The return that came from dividend yield is __________%. (Round to two decimal places.);The return that came from capital gain;is __________%. (Round to two decimal;places.);3.;Using;the data in the table below, calculate the return for investing in the stock;from January 2, 2003, to January 2, 2004, assuming all dividends are reinvested;in the stock immediately.;Date;Price;Dividend;1/2/03;$34.58;2/5/03;$30.59;$0.22;5/14/03;$29.94;$0.21;8/13/03;$31.24;$0.20;11/12/03;$38.88;$0.18;1/2/04;$41.32;The return for;the entire period is __________%. (Round;to two decimal places.);4.;The;last for yours of returns are as follows;1;3;3;4;- 2.4%;28.5%;11.5%;3.9%;a.;The;average annual return is __________%. (Round;to two decimal places.);b.;The;variance of the stock?s returns is __________%. (Round to five decimal places.);c.;The;standard deviation of the stock?s returns is __________%. (Round to two decimal places.);5.;Consider;an investment with the following returns over four years;Year;1;3;3;4;Return;19%;9%;16%;13%;a.;The;compound annual growth rate (CAGR) for this investment over the four years is __________%.;(Round to two decimal places.);b.;The;average annual return for this investment over the four years is __________%. (Round to two decimal places.);c.;Which;is a better measurement of the investment?s performance? If the investment?s;returns are independent and identically distributed, which is a better measure;of the investment?s expected return next year?CAGR / arithmetic average (select one) is a better measurement of;the investment?s performance while CAGR;/ arithmetic average (select one);is a better measure of the investment?s expected return next year.;6.;Consider;two local banks. Bank A has 89 loans outstanding, each for $1.0 million that it;expects will be repaid today. Each loan has a 5% probability of default, in;which case the bank is not repaid anything. The chance of default is;independent across all loans. Bank B has only one loan of $89 million;outstanding, which it also expects will be repaid today. It also has a 5%;probability of not being repaid. Calculate the following;a.;The;expected payoff of Bank A is $__________ million. (Round to the nearest million.);b.;The;expected payoff of Bank B is $__________ million. (Round to the nearest million.);c.;The;standard deviation of the overall payoff of Bank A is $__________ million. (Round to four decimal places.);d.;The;standard deviation of the overall payoff of Bank B is $__________ million. (Round to four decimal places.);7.;Suppose;the market premium is 4% and the risk-free interest rate is 3%. Using the data;in the table below, calculate the expected return of investing in each;company?s stock.;Starbucks;Hershey;Autodesk;Beta;1.04;0.19;2.31;The expected;return of Starbuck?s stock is __________ %. (Round;to two decimal places.);The expected;return of Hershey?s stock is __________ %. (Round;to two decimal places.);The expected;return of Autodesk?s stock is __________ %. (Round;to two decimal places.);Why don?t all;investors hold Autodesk?s stock rather than Hershey?s stock?;A.;Hershey?s;stock has less market risk, so investors don?t need as high an expected return;to hold it.;B.;They;would if the numbers in the table were reliable. The problem is that they are;just estimates, so investors cannot rely on them.;C.;Investors;make mistakes, nobody should hold Hershey.;D.;Investors;care about other things besides return, for example, the company?s profits.;8.;Suppose;all possible investment opportunities in the world are limited to the five;stocks listed in the table below. What does the market portfolio consist of;(what are the portfolio weights)?;Stock;Price/Share ($);Number of;Shares Outstanding (millions);A;6;10;B;15;12;C;8;3;D;42;1;E;43;20;Enter;the percentage that each stock makes up of the total portfolio. (Round to two decimal places.);Stock;Portfolio;Weight;A;%;B;%;C;%;D;%;E;%;9.;In;June 2009, Cisco Systems had a market capitalization of $135 billion. It had;A-rated debt of $5 billion as well as cash and short-term investments of $28;billion, and its estimated equity at the time was 1.18.;a.;Cisco?s;enterprise value is $__________ billion. (Round;to the nearest integer.);b.;Assuming;Cisco?s debt has a beta of zero, the beta of Cisco?s underlying business;enterprise is __________. (Round to two;decimal places.);10.;Unida;Systems has 43 million shares outstanding trading for $9 per share. In;addition, Unida has $97 million in outstanding debt. Suppose Unida?s equity;cost of capital is 17%, its debt cost of capital is 9%, and the corporate tax;rate is 33%.;a.;Unida?s;unlevered cost of capital is __________%. (Round;to one decimal place.);b.;Unida?s;after-tax debt cost of capital is __________%. (Round to one decimal place.);c.;Unida?s;weighted average cost of capital is __________%. (Round to one decimal place.)

 

Paper#48071 | Written in 18-Jul-2015

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