UNIVERSITY OF TEXAS AT DALLAS SCHOOL OF MANAGEMENT FIN6310: INVESTMENT MANAGEMENT SOLUTIONS TO REVIEW QUIZ PROF. ARZU OZOGUZ SPRING 2013

Make, but state clearly, all the assumptions that you feel are necessary to answer any particular question. To obtain partial credit, make sure you show all your work. Please make sure you sign the Honor Pledge: I have neither given nor received any aid on this examination.________________

1. Given an interest rate of 7.3 percent per year, what is the value at date t = 7 of a perpetual stream of $2,100 annual payments that begins at date t = 15?

2100 0.073

1 1.073

17,567.03

2. You’ve just joined the investment banking firm of Dewey, Cheatum, Howe. They’ve offered you two different salary arrangements. You can have $90,000 per year for the next two years and or you can have $65,000 per year for the next two years, along with a $45,000 signing bonus today. The bonus is paid immediately, and the salary is paid at the end of each year. If the interest rate is 10%, compounded monthly, which do you prefer? 1 Option 1 90,000 1.1047 Option 2 45,000 65,000 1.1047 65,000 1.1047 157,102.4 90,000 1.1047 155,218.6 0.10 12 1 10.47%

3. Hughes Co. is growing quickly. Dividends are expected to grow at a 25 percent rate for the next three years, with the growth rate falling off to a constant 7 percent after that. If the required rate of return is 12%, and the company has just paid a $2.40 dividend, what is the current share price? 1 2 3 4 3 1.12 3.75 1.12 2.40 1.25 3 3 1.25 3.75 3.75 1.25 4.69 4.69 1.07 5.02 5.02 0.12 0.07 1 1.12 80.5

4.69 1.12

4. The Morgan Corporation has two different bonds currently outstanding. Bond M has a face value of $20,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $800 every six months over the...

...This is because cash is the financial asset and it becomes is a liability of the government upon the time you found the cash. So, the taxpayers will have to make up for the government liability.
2. The average rate of return on investment in large stocks has outpaced that on investments in T-Bills by about 8% since 1926 in US. Why, then, does anyone invest in T-Bills?
Answer:
This is because T-bill is regarded as an almost risk...

...1. You are offered a T-note that pays $1,000 in 9 months (or 270 days) for $910. You have $910 in a bank that pays a 5% nominal rate, with 365 daily compounding. You plan to leave the money in the bank if you don’t buy the risk-free T-note.
Which investment should you choose? Use the following all three solution methods to verify your answer.
Greatest future wealth: FV
Figure out FV of $910 left in a bank with 9 months, and then compare with T-note’s FV=$1,000...

...geometric return.
B. average period return.
C. current yield.
D. total return.
2.
The expected return on a security in the market context is:
A. a negative function of execs security risk.
B. a positive function of the beta.
C. a negative function of the beta.
D. a positive function of the excess security risk.
E. independent of beta.
3.
A capital gain occurs when:
A. the selling price is...

...Introduction
An investment is an exposure of cash that has the objective of producing cash inflows in the future. The worthiness of an investment is measured by how much cash the investment is expected to generate.
The analysis of Return on Investment (ROI) is a financial forecasting tool that assists the business manager in evaluating whether a proposed investment opportunity is worthwhile within the...

...
ROI Project: Phase #1
Return on Investment (ROI): An examination of ROI financial analysis and its historical roots with the DuPont Company
Return on Investment (ROI): An examination of ROI financial analysis and its historical roots with the DuPont Company
Like it or not, with the current state of the economy, as well as, enforced implications of the Affordable Care Act, a...

...how/why an investment actually rises in value. When you see that your investment account went up over any period of time, it's because one of three things happened. Those three things are: income was paid on the investment in the form of bond interest or a stock dividend, there was a realized gain (meaning investments were sold after they appreciated in value), or there was an unrealized gain (investments that you are...

...a difference between the interest rates on AAA corporate bonds and
U.S. Treasury notes?
3. Your father is about to retire. His firm has given him the option of retiring with a
lump sum of $50,000 in ten years or an annuity of $8,000 for ten years. Which is
worth more now, if the discount rate is (a) 6% (b) 19%?
4. Suppose you open a saving account with $1,800 earned in a summer job. The
account's stated interest rate is 11%. Calculate effective...

...Sharpe’s Portfolio
Student Assignment
1. Returns and Risk
Estimate and compare the returns and variability (i.e. annual standard deviation over the past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to be riskiest? Reynolds appears to be the riskiest stock based on the returns and variability alone currently holding the highest average return out of two at 1.87%. With their higher...

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