One year ago, you purchased 1,200 shares of Berry, Mayell, and Wheeler (BMW) stock for $21.20 per share. You have received dividend payments equal to $0.60 per share. Today, you sold all of your shares for $22.20 per share. What is your total return (dollar and percent) on this investment? (4 points) [pic]

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Castella, Norwood, and Ngoc (CNN) stock had returns of 8%, -2%, 4%, and 16% over the past four years. What are the mean and standard deviation of this stock for the past four years? (6 points) [pic]

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The long term inflation rate average was 3.2% and you invested in long term corporate bonds over the same period which earned 6.1%. What was the average risk premium you earned? (3 points)[pic] Use the following information to answer questions 11 and 12. You purchased one of Fan, Igli, Sherrill, Harper, Evans, and Rashid (FISHER) Corp’s 8% coupon bonds one year ago for $1,028.50. These bonds make annual payments and mature six years for now. Suppose you decide to sell your bond today, when the required return on the bond is 7%. The inflation rate was 4.8% over the past year. What would be your total (i.e., nominal) rate of return on the investment? (7 points) To find the return on the coupon bond, you first need to find the price today. The bond now has six years to maturity, so the price today is: [pic] You received the coupon payments on the bond, so the nominal return was: [pic] What would be your real rate of return on the investment? (4 points) And using the Fisher equation to find the real return, we get [pic] Return and Risk: Statistics and CAPM (various points each) If the covariance of Caroline and Oberkrom (CO) Inc. stock with Van, Aleksandra, and Richter (VAR) Co. stock is0.0065, then what is the covariance of VAR Co. stock with CO Inc. stock? (3 points) Answer: -0.0065 Suppose the risk-free rate is 6.3% and the market risk premium is 8.5%. The market portfolio has a variance of 0.0498. Blagg, Elizabeth, Tendler, and April (BETA)...

...its intrinsic value is smaller than its market value.
* The income statement shows us the firm’s financial situation over a period of time.
* Last year, Blanda Brothers had positive cash flow from operation; however, cash on its balance sheet decreased.which explain this? Answ:The company purchased a lot of new fixed assets.
* Company A and Company B have the same total assets, Return on Assets (ROA), and profit margin. However, Company A has higher debt ratio...

...CH10 The government debt totaled 27% of total credit market debt although this number has risen since that time.Mortgages comprised 28%, Corporate and Foreign Bonds 22% and Municipal Bonds 5% of total credit market debt in the third quarter of 2008. The issuing company may choose to call the bond and require the bondholder to turn in the bond in exchange for receiving the bond's call price. A callable bond gives the issuing company the right to call in the bond by paying the bondholder the...

...Accrued Interest = x Nominal Return = Real Return = – 1 Real rate of return Compounding = rnominal-inflation rate
Current yield = The invoice price is the reported price plus accrued interest The ask price is 101.125 percent of par, so the invoice price is: $1,011.25 + (1/2 $50) = $1,036.25
Effective annual rate on a three-month T-bill: Optimal capital allocation: Y= E(rp)- Rf / A(std)^2portfilio
– 1 = (1.02412)4 – 1 = 0.1000 = 10%
Effective annual interest...

...1. There is a 20% probability that a particular stock will earn an 18% return and an 80% probability that it will earn 13%. What is the risk premium on this stock if the risk-free rate is 3.5%? E(R) = (.20 × .18) + (.80 × .13) = .036 + .104 = .14 = 14.00%. Risk premium = 14.00% − 3.5% = 10.50%
2. Fruity Soft Drinks just announced that their quarterly earnings will be $0.20 less than the prior quarter. This announcement will cause their stock price to. e. increase, decrease, or remain...

...FORMULA SHEET – for student reference only
Perpetuity:
The value of a perpetuity of $RM1 per year is:
Equivalent Annual Cost:
If an asset has a life of ‘t’ years, the equivalent annual cost is:
Annuity:
The value of an annuity of $RM1 per period for t years (t-year annuity factor) is:
Measures of Risk:
Variance of returns = σ2
= expected value of
Standard deviation of returns, σ =
Covariance...

...Assignment 1
NPV: = -PF + FV /(1+r)
PV = FV/(1+r) or
PV = C1/1-r + C2/(1-r)2 + .. + CT/(1-r)T
Rate of return: R=(Vf-Vi)/Vf
Rate r compounded m times a year:
FV = C(1+r/m)mt
10% semiannually = 10.25% annually, Hence 10.25 is said to be the Effective Annual Yield (EAY)
1+EAY = (1+r/m)mt
Assignment 2
Perpetuity
The value of D received each year, forever: PV = D/r
Annuity
The value of D received each year for T years:
PV = (D/r)*[1 – 1/(1+r)T]
Growing Perpetuity
PV = D/(R-g)...

...Fin 3322
Cost of Capital Homework
1. Suppose Garageband.com has a 28% cost of equity capital and a 10% cost of debt capital. The firm’s debt-to-equity ratio is 1.5. Garageband is interested in investing in a telecomm project that will cost $1,000,000 and will provide $600,000 annually for the next 4 years. Given the project is an extension of their current operations, what is the net present value of the this project if the corporate tax rate is 35.
D/E = 1.5, D/V = 1.5/2.5, E/V =...

...704.96 Discount on Bond Payable $ Cash $ Bond Issue Expense Bond Issue Cost $416.67
704.96 5,000.00
$416.67
Amortization is the bond issue cost divided the years it will be amortized Financial statement effects of all of the above
Balance Sheet decrese in cash Bond Retirement on Dec 31 2007 & decrease in bond payable decrease in cash & decrease in equity decrese in cash & decrease in bond payable Income Statement Gain on bond buy back decrease in net income due to...