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FIN500 Week 1-5 Homework Assignment




Question;Southern New Hampshire UniversityFin500 Module 1;Homework Assignment;Notes: Work should be done individually.Word-process;your solutions within this template and show all steps used in arriving at the;final answers. Incomplete solutions will receive partial credit. Copy and paste;all necessary data and create tables as needed.;1.Discuss the three forms of business organization in the United States.2.Suppose the real risk-free rate, r*, is 2% and investors expect;inflation to be 4% next year, 5% the following year, and 7% per year;thereafter. Assume the MRP is zero for Year 1 and increases by 0.1% each year.;Compute the quoted, or risk-free, rate of return for Year 8.3.What is a firm?s fundamental or intrinsic value? What might cause a;firm?s intrinsic value to be different than its actual market value?1.Which of the following would be most likely to lead to higher;interest rates on all debt securities in the economy?;a.;Households start saving a larger percentage of their income.;b.;The economy moves from a boom to a recession.;c.;The level of inflation begins to decline.;d. Corporations step up their expansion plans and thus;increase their demand for capital.;e.;The Federal Reserve uses monetary policy in an attempt to stimulate;the economy.;2.;The most;widely accepted objective of the firm is to;a.;minimize risk;b.;maximize profits;c. maximize shareholder wealth;d.;maximize earnings per share;3.Who was responsible for the financial crisis of 2007-2009?;a.;The U.S. Federal Reserve, for its policy of easy money.;b.;The U.S. government, for pushing banks to expand credit;for low-income housing;c.;Bankers, who aggressively promoted and resold subprime;mortgages;d. All of these;FIN500;WeekTwo HomeworkAssignment;Notes:Work should be done individually.Word-process your solutions;within this template and show all steps used in arriving at the final answers.;Incomplete solutions will receive partial credit. Copy and paste all necessary data;and create tables as needed.;1.Suppose a;company has $350,000 in current assets. The company?s current ratio is 1.25.;Compute the company?s current liabilities.;1.;What is the market price of a share of stock for a firm that pays;dividends of $1.20 per share, has a price-earnings ratio (P/E) of 14, and a;dividend payout ratio of 0.4?1.A;firm's price to earnings ratio (P/E) is 8 and its market to book ratio is 2. If;its earnings per share are $4.00, what is the book value per share?1.Assume a;company had a profit margin of 5.25%, a total assets turnover of 1.5, and an;equity multiplier of 1.8. What was the;firm's ROE?1.Suppose a;company had sales last year of $415,000, and its year-end total assets were;$355,000. The average firm in the industry has a total assets turnover ratio (TATO);of 2.4. Bonner's new CFO believes the;firm has excess assets that can be sold so as to bring the TATO down to the;industry average without affecting sales.;By how much must the assets be reduced to bring the TATO to the industry;average, holding sales constant?FIN500;Week Three;Homework Assignment;Work should be done individually. Word-process your;solutions within this template and show all steps used in arriving at the final;answers. Incomplete solutions will receive partial credit. Copy and paste all necessary;data and create tables as needed.;1.;The;expected returns earned from investment in the stock of two companies, Company;A and Company B, are shown in the following table. Use the table to complete;parts (a) through (c) below.;Demand;for Product;Probability of;Demand;Expected;Return: Stock A;Expected;Return: Stock B;Strong;0.3;40%;20%;Normal;0.45;20%;5%;Weak;0.25;0%;(5%);(a);Compute;the expected rates of return for each stock.;(a);Compute;the standard deviations for each stock.;(a);Compute;the coefficient of variation for each stock. Based on the coefficient of;variation, which stock has the higher risk for investment?1.;The;expected returns earned from investment in the stock of two companies, Company;A and Company B, are shown in the following table. Assume a two-stock portfolio;with $25,000 in Company A and $75,000 in Company B. Compute the expected return;on the portfolio.;Demand;for Product;Probability of;Demand;Expected;Return: Stock A;Expected;Return: Stock B;Strong;0.3;40%;20%;Normal;0.45;20%;5%;Weak;0.25;0%;(5%);1.;Suppose;you have a portfolio consisting of three stocks. You invest a total of $200,000;in the stocks. The investments and beta for the stocks are shown in the;following table. Use the table to complete parts (a) through (c) below.;Stock;Investment;Beta;1;$60,000;1.25;2;$40,000;(0.5);3;$100,000;1.5;(b)Compute;the portfolio beta.;(C)Find the portfolio?s required rate of;return, assuming the same risk-free rate and expected return for the market as;in part (a).FIN 500 Week Four;Homework;Work;should be done individually. Word-process your solutions within this template and;show all steps used in arriving at the final answers. Incomplete solutions will receive partial credit.;Copy and paste all necessary data and create tables if needed.;Problem 1;Compute;the future value of $1000 at 8% compounded annually for 5 years.;Problem 2;Compute;the present value of $1000 due after 5 years at 12%, compounded semiannually.Problem 3;Compute the future value of a 8%, 10-year;ordinary annuity that pays $500 each year.;Problem 4;Suppose the U.S.;Treasury offers to sell you a bond for $676.84.;No payments will be made until the bond matures 8 years from now, at;which time it will be redeemed for $1,000.;What interest rate would you earn if you bought this bond at the offer;price?;Problem 5;Master Card and;other credit card issuers must by law print the Annual Percentage Rate (APR) on;their monthly statements. If the APR is;stated to be 15.00%, with interest paid monthly, what is the card's EFF%?;FIN;500 Week Five HomeworkQuestions;Problem 1;Suppose a;corporation?s bonds have 8 years remaining to maturity. In addition, suppose;the bonds have a $1000 face value, and the coupon interest rate is 7%. The;bonds have a yield to maturity of 10%. Compute;the market price of the bonds if interest is paid semiannually.;Problem2;A company?s bonds;currently sell for $1,150. They have a;6-year maturity, an annual coupon of $85, and a par value of $1,000. What is their current yield?;Problem 3;Assume that;a bond currently sell for $1,280 and have a par value of $1,000. The bond pays a $135 annual coupon and has a;15-year maturity, but they can be called in 5 years at $1,050. What is the yield to call (YTC)?;Problem 4;Consider some bonds with an;annual coupon payment of 7.25%. The bonds have a par value of $1,000, a;current price of $1,125, and they will mature in 13 years. What is the yield to maturity on these bonds?;FIN 500: Case Study 1 Assignment;Notes;Your first case assignment deals with the concepts of;risk and return. Please read the case questions through and give some thought;to your answers before you commence. Answer all parts of the ten (10) questions;presented below. Your report should be well-organized, type-written/word;processed, and independently prepared. Each student's report must;be his/her own original work and the write-up must also be individually;prepared.;1. Buxton Corporation is planning to invest in a security that has several;potential rates of return. Using the following probability distribution of returns;during different states of the economy, what is the expected rate of return on;this investment? In addition, compute the standard deviation of the returns;(?). Finally, briefly explain what these numbers represent.;Probability;Expected Return;0.10;-10%;0.20;5%;0.30;10%;0.40;25%;2. Using the capital asset pricing model (CAPM), estimate the appropriate;required rate of return for the following three stocks, assuming that the;risk-free rate (rRF) is 5 percent and the expected return for the;market (rM) is 17 percent.;Stock;Beta (?);A;0.75;B;0.90;C;1.40;3. Based on the following table of actual (or ex post) returns for both;Inquiry Corporation and the market from 2007 through 2010, calculate the;average return and the standard deviation for both Inquiry and the market (keep;in mind that this data is historical and not based on a probability;distribution, so be sure to use the correct formulas).;Year;Inquiry Corporation;Market;2007;4%;2%;2008;6%;3%;2009;0%;1%;2010;2%;-1%;4.;(a) Derive the expected return (rP) and beta (?P) for;a portfolio based on the following information;Stock;Percentage of Portfolio;Beta (?);Expected Return;1;40%;1.00;12%;2;25%;0.75;11%;3;35%;1.30;15%;(a) Given the information in the table above, present the equation for the;security market line and explain where the return for this specific portfolio;would lie (plot) relative to the SML (i.e., below or above the line). Assume;that the risk-free rate (rRF) is 8 percent and that the expected;return on the market portfolio (rM) is 12 percent.;5;Reliable Printing is evaluating a security. One-year;Treasury bills (rRF) are currently paying 3.1 percent. Calculate the;following investment?s expected return and its standard deviation (?). Should;Reliable Printing invest in this security? Briefly explain.;Probability;Expected Return;0.15;-1%;0.30;2%;0.40;3%;0.15;8%;6.;You have researched the common stock of two companies (A;and B) and have compiled the following information;COMPANY;A COMPANY;B;Probability;Return;Probability;Return;0.20;-2%;0.10;4%;0.50;18%;0.30;6%;0.30;27%;0.40;10%;0.20;15%;Calculate the;expected return, standard deviation (?), and the coefficient of variation (CV);for each stock and, based on the CV, which stock should you invest in? Briefly;explain.;7.;Assume you own a portfolio consisting of the following;stocks;Stock;Percentage of Portfolio;Beta (?);Expected Return;1;20%;1.00;16%;2;30%;0.85;14%;3;15%;1.20;20%;4;25%;0.60;12%;5;10%;1.60;24%;(a);Determine the expected return on your portfolio.;(b);Determine the portfolio beta (?P).;(c);Given the portfolio beta and the assumptions that the;risk-free rate (rRF) is 7 percent and the expected return on the;market portfolio (rMKT) is 15.5 percent, present the equation for;the security market line (SML).;(d);Based on your equation for the SML and the expected;returns from the data in the table, which stocks appear to be winners (i.e.;underpriced) and which stocks appear to be losers (i.e., overpriced)?;8.;The common stock for a particular company is known to;have a beta (?) of 1.20. The expected return on the market (rM) is 9;percent and the risk-free rate (rRF) is 5 percent.;(a);Compute a fair rate of return based on this information.;(b);What would be a fair rate of return if the beta were;0.85?;(c);What would be a fair rate of return if the expected;return on the market increased to 12 percent and the beta remained at 0.85?;9 The expected return for the general market (rMKT);is 12.8 percent, and the market risk premium (i.e., RPM) is 4.3 percent.;Moe, Larry, and Curley have betas of 0.82, 0.57, and 0.68, respectively. What;are the required rates of return for the three securities?;10;Hickory Stick?s common stock has a beta (?) of 0.95. The;expected return for the market (rM) is 7 percent and the risk-free;rate (rRF) is 4;(a);What is the required rate of return based on this information?;(b);What would be the required rate of return if the beta;were 1.25?;11;An exhaustive financial analysis has produced the;following returns on two investments under three different scenarios;Expected;Returns;Scenario;Probability;Stock X;Stock Y;S1;0.3;10%;8%;S2;0.4;16%;15%;S3;0.3;12%;20%;(a);Calculate the expected return on each investment.;(b);Calculate the standard deviations (?) for both X and Y.;(c);Calculate the coefficient of variation (CV) for both X;and Y.;(d);If you were to create a portfolio consisting of 67% of;Stock X and 33% of Stock Y, what will be the expected return (rP);and the standard deviation (?P) for your portfolio?


Paper#51328 | Written in 18-Jul-2015

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