Unit Return computation with cash purchase vs. margin purchase
|
|
- Calvin Cross
- 8 years ago
- Views:
Transcription
1 FCS 5510 Formula Sheet *Note: The formulas I expect you to know are colored in Red. They are either more conceptually based, or are more commonly used than the others. You need to have a passing familiarity with the rest of the formulas, but I do not expect you to memorize them. If you see these formulas you do need to know in general what they are used for. Note present value (PV) and future value (FV) formulas are not here because I assume you learned them somewhere else in one of the prerequisite classes. You do need to understand the setup of those formulas. Unit Return computation with cash purchase vs. margin purchase P0= the purchase price of the security P1= the selling price of the security M=margin n = number of shares Return with cash purchase = ( P1 *n - P0 *n)/ (P0 * n) Return with margin purchase = (P1 *n - P0 *n ) / (P0 * M *n) If commission/transaction costs C are involved, then Return with cash purchase = ( ( P1 *n - P0 *n) C)/ (P0 * n) Return with margin purchase =( (P1 *n - P0 *n ) C) / (P0 * M *n) Unit 02
2 1. Tax owed or saved Tax owed or saved = Taxable amount * marginal tax rate 2. Expected Return E(r)= the expected return E(D)= the expected dividend or interest income P= the price of the asset E(g)=the expected growth in the value of the asset E( D) E ( r) = + E( g) P 3. Realized Return (Note this formula is pretty much the same as the expected return except the numbers in expected returns are expected instead of real) r= the realized return D= the realized dividend or interest income P= the price of the asset g=the realized growth in the value of the asset D r = + P 4. A Portfolio Standard Deviation (SDP) of Two Assets Notations: SA = Standard Deviation of asset A SB = Standard Deviation of asset B WA = Portfolio weight of asset A WB = Portfolio weight of asset B rab=correlation coefficient of assets A & B. Portfolio SDP of assets A and B is SD = W S + W S + 2W W P 2 A 2 A 2 B 2 B g A B S A S B r AB 5. Beta Coefficient Beta coefficient is an index of volatility of an asset relative to the volatility of the market. Notation:
3 Unit 03 βi = Beta of asset i σi = Standard Deviation of return on asset i σm = Standard Deviation of return on the market rim=correlation coefficient between the return on asset i and the return on the market σ i β = σ i M r im 1. Net Asset Value NAV Total Assets Total Liability = Number of Shares Outs tan ding 2. The Jensen Index (Also called Alpha) 3. The Treynor Index 4. The Sharpe Index Unit 04: 1. Dividend Valuation Model Assuming No Growth in Dividends Over Time
4 V=Valuation D=Dividends k=discount rate=required return V = D k 2. Dividend Valuation Model-Dividend grows at rate g V=Valuation D0=Initial dividend (first year) k=required return g=dividends annual growth rate V = D 0 (1 + g) ( k g) 3. Required Return (k) in some other occasions the notation is rs rf = the risk free rate (i.e.treasure Bill rate) rm = the return on the market β = the stock's beta K=rf + (rm - rf)β 4. Price to Earnings Ratio 5. PEG Ratio 6. Stock Valuation Using P/E Ratio m = the appropriate P/E ratio EPS = earnings per share
5 P = (m)(eps) 7. P/B Ratio 8. Adjusted PEG Ratio 9. Return on Equity 10. Profit Margin 11. Price Weighted Average *Could add any number of stock prices to the equation. 12. Value Weighted Average *Could add any number of stock prices to the equation 13. Equal Weighted Average *Could add any number of stock prices to equation. Also assumes an equal dollar amount is invested in each stock
6 14. Geometric Average *Can add any number of stock prices to the equation. N = the total number of stocks included Geometric average = (Price of Stock A * Price of Stock B)^(1/n) 1P Holding Period Return (HPR) P0 = purchase price P1 = sell price D = dividend P + D P HPR = 16. Dollar Weighted Rate of Return (True Annualized Rate of Return or Internal Rate of Return) D1 P0 = (1 + r) Dn (1 + r) n + P1 (1 + r) n Unit 05: 1. Payout Ratio
7 2. Retention Ratio = 1- Payout Ratio or 3. Growth Rate ROE = return on equity RR = retention ratio Growth Rate g = ROE x RR 4.. Gross Domestic Product GDP C = personal consumption I = gross private domestic investment G = government spending E = net exports GDP = C + I + G + E Unit 06: 1. Current Ratio 2. The Quick Ratio 3. Inventory Turnover 4. Average Collection Period
8 5. Receivable Turnover 6. Fixed Asset Turnover 7. Gross Profit Margin 8. Operating Profit Margin 9. Net Profit Margin 10. Return on Assets 11. Return on Equity 12. Return on Common Equity
9 13. DuPont System Return on Equity Net Profit Margin Total Asset Turnover An equity multiplier that indicates the firm s use of leverage. 14. Debt to Equity Ratio 15. Debt to Total Asset Ratio (Debt Ratio) 16. Times Interest Earned Ratio 17. Expanded Coverage Ratio 18. Payout Ratio
10 Unit 07: Fixed Income Securities: Bond Market and Valuation of Fixed-Income Securities 1. Price of a Perpetual Security: PMT = annual interest payment i = discount rate P = PMT i 2. Price of a Bond PMT = Interest Payments Each Year FV = Final Principal Payment i = annual discount rate n = number of years to maturity P = PMT x 1-1 (1 + i) i n + FV x 1 (1 + i) n 3. Price of a Zero Coupon Bond FV = Final Principal Payment i = annual discount rate n = number of years to maturity
11 P = FV (1 + i) n 4. Current Yield Current Yield = Annual Interest Payment Price of the Bond 5. Duration D = Duration PV = Present Value t = time (from 1 to m where m is maturity time) CFt = cash flow for year t D = m t = 1 PVCF x t t P B 6. Simplified Formula for Duration Computation c = annual coupon (as a percentage) n = number of years to maturity y = the yield to maturity (reinvestment rate) D = 1 + y y - (1 + y) + n(c y) n c[ (1 + y) - 1] + y
12 Unit 08: Government Securities 1. Discount Yield Discount Yield = Par Value - Price Par Value x 360 Days to Maturity 2. Yield to Maturity Discount Yield = Par Value - Price Par Value x 365 Days to Maturity 3. Par Value n = days to maturity/365 Par Value = Price x (1+ r) n 4. Compound Yield Compound Yield r = ( Par Value ) 1/n - 1 Price 5. Determining equivalent yields on tax exempt and non-exempt bonds lc = yield on non-exempt bonds lm = yield on municipal bonds (exempt) tf = federal marginal tax rate ts = state marginal tax rate im = ic(1 tf ts) Unit 09: Options
13 1. Market Price of a call Market price of a call = intrinsic value + time premium 2. Time Value of a Put Time Value of a put = price of the put intrinsic value of the put Unit 11: Portfolio Management 1. Net Worth Net Worth = Total Assets Total Liabilities
Chapter 9. The Valuation of Common Stock. 1.The Expected Return (Copied from Unit02, slide 39)
Readings Chapters 9 and 10 Chapter 9. The Valuation of Common Stock 1. The investor s expected return 2. Valuation as the Present Value (PV) of dividends and the growth of dividends 3. The investor s required
More informationChapter 9. The Valuation of Common Stock. 1.The Expected Return (Copied from Unit02, slide 36)
Readings Chapters 9 and 10 Chapter 9. The Valuation of Common Stock 1. The investor s expected return 2. Valuation as the Present Value (PV) of dividends and the growth of dividends 3. The investor s required
More informationPractice Questions for Midterm II
Finance 333 Investments Practice Questions for Midterm II Winter 2004 Professor Yan 1. The market portfolio has a beta of a. 0. *b. 1. c. -1. d. 0.5. By definition, the beta of the market portfolio is
More informationCHAPTER 8 STOCK VALUATION
CHAPTER 8 STOCK VALUATION Answers to Concepts Review and Critical Thinking Questions 5. The common stock probably has a higher price because the dividend can grow, whereas it is fixed on the preferred.
More informationFINC 3630: Advanced Business Finance Additional Practice Problems
FINC 3630: Advanced Business Finance Additional Practice Problems Accounting For Financial Management 1. Calculate free cash flow for Home Depot for the fiscal year-ended February 1, 2015 (the 2014 fiscal
More informationYou just paid $350,000 for a policy that will pay you and your heirs $12,000 a year forever. What rate of return are you earning on this policy?
1 You estimate that you will have $24,500 in student loans by the time you graduate. The interest rate is 6.5%. If you want to have this debt paid in full within five years, how much must you pay each
More informationFinal Exam MØA 155 Financial Economics Fall 2009 Permitted Material: Calculator
University of Stavanger (UiS) Stavanger Masters Program Final Exam MØA 155 Financial Economics Fall 2009 Permitted Material: Calculator The number in brackets is the weight for each problem. The weights
More informationHow To Calculate The Cost Of Capital Of A Firm
Sample Problems Chapter 10 Title: Cost of Debt 1. Costly Corporation plans a new issue of bonds with a par value of $1,000, a maturity of 28 years, and an annual coupon rate of 16.0%. Flotation costs associated
More informationKEY EQUATIONS APPENDIX CHAPTER 2 CHAPTER 3
KEY EQUATIONS B CHAPTER 2 1. The balance sheet identity or equation: Assets Liabilities Shareholders equity [2.1] 2. The income statement equation: Revenues Expenses Income [2.2] 3.The cash flow identity:
More informationExecutive Summary of Finance 430 Professor Vissing-Jørgensen Finance 430-62/63/64, Winter 2011
Executive Summary of Finance 430 Professor Vissing-Jørgensen Finance 430-62/63/64, Winter 2011 Weekly Topics: 1. Present and Future Values, Annuities and Perpetuities 2. More on NPV 3. Capital Budgeting
More informationCHAPTER 5 HOW TO VALUE STOCKS AND BONDS
CHAPTER 5 HOW TO VALUE STOCKS AND BONDS Answers to Concepts Review and Critical Thinking Questions 1. Bond issuers look at outstanding bonds of similar maturity and risk. The yields on such bonds are used
More informationKey Concepts and Skills Chapter 8 Stock Valuation
Key Concepts and Skills Chapter 8 Stock Valuation Konan Chan Financial Management, Spring 2016 Understand how stock prices depend on future dividends and dividend growth Be able to compute stock prices
More informationBond Valuation. What is a bond?
Lecture: III 1 What is a bond? Bond Valuation When a corporation wishes to borrow money from the public on a long-term basis, it usually does so by issuing or selling debt securities called bonds. A bond
More informationBUSINESS FINANCE (FIN 312) Spring 2008
BUSINESS FINANCE (FIN 312) Spring 2008 Assignment 3 Instructions: please read carefully You can either do the assignment by yourself or work in a group of no more than two. You should show your work how
More informationFinance 3130 Corporate Finiance Sample Final Exam Spring 2012
Finance 3130 Corporate Finiance Sample Final Exam Spring 2012 True/False Indicate whether the statement is true or falsewith A for true and B for false. 1. Interest paid by a corporation is a tax deduction
More informationFinancial Statement and Cash Flow Analysis
Chapter 2 Financial Statement and Cash Flow Analysis Answers to Concept Review Questions 1. What role do the FASB and SEC play with regard to GAAP? The FASB is a nongovernmental, professional standards
More informationIncome Measurement and Profitability Analysis
PROFITABILITY ANALYSIS The following financial statements for Spencer Company will be used to demonstrate the calculation of the various ratios in profitability analysis. Spencer Company Comparative Balance
More informationOften stock is split to lower the price per share so it is more accessible to investors. The stock split is not taxable.
Reading: Chapter 8 Chapter 8. Stock: Introduction 1. Rights of stockholders 2. Cash dividends 3. Stock dividends 4. The stock split 5. Stock repurchases and liquidations 6. Preferred stock 7. Analysis
More informationVALUATION OF DEBT CONTRACTS AND THEIR PRICE VOLATILITY CHARACTERISTICS QUESTIONS See answers below
VALUATION OF DEBT CONTRACTS AND THEIR PRICE VOLATILITY CHARACTERISTICS QUESTIONS See answers below 1. Determine the value of the following risk-free debt instrument, which promises to make the respective
More informationCHAPTER 8 INTEREST RATES AND BOND VALUATION
CHAPTER 8 INTEREST RATES AND BOND VALUATION Solutions to Questions and Problems 1. The price of a pure discount (zero coupon) bond is the present value of the par value. Remember, even though there are
More informationFixed Income: Practice Problems with Solutions
Fixed Income: Practice Problems with Solutions Directions: Unless otherwise stated, assume semi-annual payment on bonds.. A 6.0 percent bond matures in exactly 8 years and has a par value of 000 dollars.
More informationReview for Exam 3. Instructions: Please read carefully
Review for Exam 3 Instructions: Please read carefully The exam will have 25 multiple choice questions and 5 work problems. You are not responsible for any topics that are not covered in the lecture note
More informationAchievement of Market-Friendly Initiatives and Results Program (AMIR 2.0 Program) Funded by U.S. Agency for International Development
Achievement of Market-Friendly Initiatives and Results Program (AMIR 2.0 Program) Funded by U.S. Agency for International Development Equity Analysis, Portfolio Management, and Real Estate Practice Quizzes
More informationHow To Calculate Financial Leverage Ratio
What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? HOCK international - 2004 1 HOCK international - 2004 2 How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? HOCK
More informationGoals. Stock Valuation. Dividend Discount Model Constant Dividends. Dividend Discount Model Constant Dividends
Stock Valuation Economics 71a: Spring 2007 Mayo 11 Malkiel, 5, 6 (136-144), 8 Lecture notes 4.2 Goals Dividend valuation model dividend discount model Forecasting earnings, dividends, and prices Ratio
More informationChapter 17: Financial Statement Analysis
FIN 301 Class Notes Chapter 17: Financial Statement Analysis INTRODUCTION Financial ratio: is a relationship between different accounting items that tells something about the firm s activities. Purpose
More informationCHAPTER 3 LONG-TERM FINANCIAL PLANNING AND GROWTH
CHAPTER 3 LONG-TERM FINANCIAL PLANNING AND GROWTH Answers to Concepts Review and Critical Thinking Questions 5. The sustainable growth rate is greater than 20 percent, because at a 20 percent growth rate
More informationPortfolio Management FMI Skema Paris campus Contrôle continu 2 2 April 2014 O. Williams
Portfolio Management FMI Skema Paris campus Contrôle continu 2 2 April 2014 O. Williams 1. The comparisons with which ratios should be made include the following, except: a. The firm's own past performance
More informationPrimary Market - Place where the sale of new stock first occurs. Initial Public Offering (IPO) - First offering of stock to the general public.
Stock Valuation Primary Market - Place where the sale of new stock first occurs. Initial Public Offering (IPO) - First offering of stock to the general public. Seasoned Issue - Sale of new shares by a
More informationExam 1 Morning Session
91. A high yield bond fund states that through active management, the fund s return has outperformed an index of Treasury securities by 4% on average over the past five years. As a performance benchmark
More informationFINANCIAL PLANNING ASSOCIATION OF MALAYSIA
FINANCIAL PLANNING ASSOCIATION OF MALAYSIA MODULE 4 INVESTMENT PLANNING Course Objectives To understand the concepts of risk and return, the financial markets and the various financial instruments available,
More information1. What are the three types of business organizations? Define them
Written Exam Ticket 1 1. What is Finance? What do financial managers try to maximize, and what is their second objective? 2. How do you compare cash flows at different points in time? 3. Write the formulas
More informationSecurity Analysis and Portfolio Management FIN-321-TE
Security Analysis and Portfolio Management FIN-321-TE This TECEP is an introduction to investment alternatives, security analysis, and portfolio construction. Topics include: the environment in which investment
More informationCHAPTER 11 INTRODUCTION TO SECURITY VALUATION TRUE/FALSE QUESTIONS
1 CHAPTER 11 INTRODUCTION TO SECURITY VALUATION TRUE/FALSE QUESTIONS (f) 1 The three step valuation process consists of 1) analysis of alternative economies and markets, 2) analysis of alternative industries
More informationQ3: What is the quarterly equivalent of a continuous rate of 3%?
SESSION 1: Pre-requisites: a reminder Time value of money, annuities Q1: You wish to buy a new house but would need to borrow part of the required amount. In view of your revenues you have been able to
More information] (3.3) ] (1 + r)t (3.4)
Present value = future value after t periods (3.1) (1 + r) t PV of perpetuity = C = cash payment (3.2) r interest rate Present value of t-year annuity = C [ 1 1 ] (3.3) r r(1 + r) t Future value of annuity
More informationTIME VALUE OF MONEY PROBLEM #5: ZERO COUPON BOND
TIME VALUE OF MONEY PROBLEM #5: ZERO COUPON BOND Professor Peter Harris Mathematics by Dr. Sharon Petrushka Introduction This assignment will focus on using the TI - 83 to calculate the price of a Zero
More informationSTUDENT CAN HAVE ONE LETTER SIZE FORMULA SHEET PREPARED BY STUDENT HIM/HERSELF. FINANCIAL CALCULATOR/TI-83 OR THEIR EQUIVALENCES ARE ALLOWED.
Test III-FINN3120-090 Fall 2009 (2.5 PTS PER QUESTION. MAX 100 PTS) Type A Name ID PRINT YOUR NAME AND ID ON THE TEST, ANSWER SHEET AND FORMULA SHEET. TURN IN THE TEST, OPSCAN ANSWER SHEET AND FORMULA
More informationFinancial Markets and Valuation - Tutorial 1: SOLUTIONS. Present and Future Values, Annuities and Perpetuities
Financial Markets and Valuation - Tutorial 1: SOLUTIONS Present and Future Values, Annuities and Perpetuities (*) denotes those problems to be covered in detail during the tutorial session (*) Problem
More informationEquity Analysis and Capital Structure. A New Venture s Perspective
Equity Analysis and Capital Structure A New Venture s Perspective 1 Venture s Capital Structure ASSETS Short- term Assets Cash A/R Inventories Long- term Assets Plant and Equipment Intellectual Property
More informationBASKET A collection of securities. The underlying securities within an ETF are often collectively referred to as a basket
Glossary: The ETF Portfolio Challenge Glossary is designed to help familiarize our participants with concepts and terminology closely associated with Exchange- Traded Products. For more educational offerings,
More informationTIME VALUE OF MONEY #6: TREASURY BOND. Professor Peter Harris Mathematics by Dr. Sharon Petrushka. Introduction
TIME VALUE OF MONEY #6: TREASURY BOND Professor Peter Harris Mathematics by Dr. Sharon Petrushka Introduction This problem assumes that you have mastered problems 1-5, which are prerequisites. In this
More informationChapter 7 Stocks, Stock Valuation, and Stock Market Equilibrium ANSWERS TO END-OF-CHAPTER QUESTIONS
Chapter 7 Stocks, Stock Valuation, and Stock Market Equilibrium ANSWERS TO END-OF-CHAPTER QUESTIONS 7-1 a. A proxy is a document giving one person the authority to act for another, typically the power
More informationNUS Business School. FIN2004 Finance. Semester II 2013/2014
NUS Business School FIN2004 Finance Semester II 2013/2014 COURSE DESCRIPTION This course provides students with the foundations to understand the key concepts and tools used in Finance. It offers a broad
More informationChapter 5: Valuing Bonds
FIN 302 Class Notes Chapter 5: Valuing Bonds What is a bond? A long-term debt instrument A contract where a borrower agrees to make interest and principal payments on specific dates Corporate Bond Quotations
More informationThe cost of capital. A reading prepared by Pamela Peterson Drake. 1. Introduction
The cost of capital A reading prepared by Pamela Peterson Drake O U T L I N E 1. Introduction... 1 2. Determining the proportions of each source of capital that will be raised... 3 3. Estimating the marginal
More informationAn Introduction to Institutions, Management, & Investments
An Introduction to Institutions, Management, & Investments TEMTH EBITIQM HERBERT B. MAYO The College of New Jersey *\ SOUTH-WESTERN t% CENGAGE Learning- Australia Brazil Japan Korea Mexico Singapore Spain
More informationThings to Absorb, Read, and Do
Things to Absorb, Read, and Do Things to absorb - Everything, plus remember some material from previous chapters. This chapter applies Chapter s 6, 7, and 12, Risk and Return concepts to the market value
More informationUNIVERSITY OF WAH Department of Management Sciences
BBA-330: FINANCIAL MANAGEMENT UNIVERSITY OF WAH COURSE DESCRIPTION/OBJECTIVES The module aims at building competence in corporate finance further by extending the coverage in Business Finance module to
More informationEquity Valuation. Lecture Notes # 8. 3 Choice of the Appropriate Discount Rate 2. 4 Future Cash Flows: the Dividend Discount Model (DDM) 3
Equity Valuation Lecture Notes # 8 Contents About Valuation 2 2 Present-Values 2 3 Choice of the Appropriate Discount Rate 2 4 Future Cash Flows: the Dividend Discount Model (DDM) 3 5 The Two-Stage Dividend-Growth
More informationFinance Master. Winter 2015/16. Jprof. Narly Dwarkasing University of Bonn, IFS
Finance Master Winter 2015/16 Jprof. Narly Dwarkasing University of Bonn, IFS Chapter 2 Outline 2.1 Firms Disclosure of Financial Information 2.2 The Balance Sheet 2.3 The Income Statement 2.4 The Statement
More informationAdvanced Placement (AP) Accounting
Advanced Placement (AP) Accounting The Advanced Placement (AP) Accounting Course is a full academic year course. The course is based on high school teachers having 120 contact hours with students from
More informationa) The Dividend Growth Model Approach: Recall the constant dividend growth model for the price of a rm s stock:
Cost of Capital Chapter 14 A) The Cost of Capital: Some Preliminaries: The Security market line (SML) and capital asset pricing model (CAPM) describe the relationship between systematic risk and expected
More informationTopics in Chapter. Key features of bonds Bond valuation Measuring yield Assessing risk
Bond Valuation 1 Topics in Chapter Key features of bonds Bond valuation Measuring yield Assessing risk 2 Determinants of Intrinsic Value: The Cost of Debt Net operating profit after taxes Free cash flow
More informationUnit01. Introduction, Creation of Financial Assets, and Security Markets
FCS 5510 Concept Review Notes: Midterm Review Notes Unit01. Introduction, Creation of Financial Assets, and Security Markets Chapter 01. Definition of investment Portfolio Primary and secondary markets
More informationRatio Analysis CBDC, NB. Presented by ACSBE. February, 2008. Copyright 2007 ACSBE. All Rights Reserved.
Ratio Analysis CBDC, NB February, 2008 Presented by ACSBE Financial Analysis What is Financial Analysis? What Can Financial Ratios Tell? 7 Categories of Financial Ratios Significance of Using Ratios Industry
More informationTrade Date The date of the previous trading day. Recent Price is the closing price taken from this day.
Definition of Terms Price & Volume Share Related Institutional Holding Ratios Definitions for items in the Price & Volume section Recent Price The closing price on the previous trading day. Trade Date
More informationLong-Term Debt. Objectives: simple present value calculations. Understand the terminology of long-term debt Par value Discount vs.
Objectives: Long-Term Debt! Extend our understanding of valuation methods beyond simple present value calculations. Understand the terminology of long-term debt Par value Discount vs. Premium Mortgages!
More informationStock valuation. Price of a First period's dividends Second period's dividends Third period's dividends = + + +... share of stock
Stock valuation A reading prepared by Pamela Peterson Drake O U T L I N E. Valuation of common stock. Returns on stock. Summary. Valuation of common stock "[A] stock is worth the present value of all the
More informationFinance 3130 Sample Exam 1B Spring 2012
Finance 3130 Sample Exam 1B Spring 2012 True/False Indicate whether the statement is true or false. 1. A firm s income statement provides information as of a point in time, and represents how management
More informationChapter 11 The Cost of Capital ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS
Chapter 11 The Cost of Capital ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS 11-1 a. The weighted average cost of capital, WACC, is the weighted average of the after-tax component costs of capital -debt,
More informationAnswers to Selected Problems
Answers to Selected Problems Chapter 1 1. (1.9) a. The bank loan is a financial liability for Lanni. Lanni's IOU is the bank's financial asset. The cash Lanni receives is a financial asset. The new financial
More informationFeatures of Common Stock. The Stock Markets. Features of Preferred Stock. Valuation of Securities: Stocks
Valuation of Securities: Stocks Econ 422: Investment, Capital & Finance University of Washington Eric Zivot Fall 27 January 31, 27 Features of Common Stock Voting rights (Cumulative vs. Straight) Proxy
More informationLecture Notes 11. Equity Valuation. VI. DDM, Investment Opportunities, and Payout Policy
Prof. Alex Shapiro Lecture Notes Equity aluation I. Readings and Suggested Practice Problems II. aluation and its Uses III. Present alue Models I. Approaches to Expected Return etermination. Constant Growth
More informationMGT201 Solved MCQs(500) By
MGT201 Solved MCQs(500) By http://www.vustudents.net Why companies invest in projects with negative NPV? Because there is hidden value in each project Because there may be chance of rapid growth Because
More informationFORMULA SHEET [3.2] 63
FORMULA SHEET Assets = Liabilities + Shareholders equity [2.1] 26 Revenues - Expenses = Income [2.2] 30 Cash flow from assets = Cash flow to bondholders + Cash flow to shareholders [2.3] 32 Current ratio
More informationChapter. How Well Am I Doing? Financial Statement Analysis
Chapter 17 How Well Am I Doing? Financial Statement Analysis 17-2 LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Explain the need for and limitations of financial statement
More informationUnderstanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions
Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions Chapter 3 Interpreting Financial Ratios Concept Check 3.1 1. What are the different motivations that
More informationTIP If you do not understand something,
Valuing common stocks Application of the DCF approach TIP If you do not understand something, ask me! The plan of the lecture Review what we have accomplished in the last lecture Some terms about stocks
More informationChapter 8. Step 2: Find prices of the bonds today: n i PV FV PMT Result Coupon = 4% 29.5 5? 100 4 84.74 Zero coupon 29.5 5? 100 0 23.
Chapter 8 Bond Valuation with a Flat Term Structure 1. Suppose you want to know the price of a 10-year 7% coupon Treasury bond that pays interest annually. a. You have been told that the yield to maturity
More informationMultiple Choice Questions (45%)
Multiple Choice Questions (45%) Choose the Correct Answer 1. The following information was taken from XYZ Company s accounting records for the year ended December 31, 2014: Increase in raw materials inventory
More informationM.I.T. Spring 1999 Sloan School of Management 15.415. First Half Summary
M.I.T. Spring 1999 Sloan School of Management 15.415 First Half Summary Present Values Basic Idea: We should discount future cash flows. The appropriate discount rate is the opportunity cost of capital.
More informationBF 6701 : Financial Management Comprehensive Examination Guideline
BF 6701 : Financial Management Comprehensive Examination Guideline 1) There will be 5 essay questions and 5 calculation questions to be completed in 1-hour exam. 2) The topics included in those essay and
More information( ) ( )( ) ( ) 2 ( ) 3. n n = 100 000 1+ 0.10 = 100 000 1.331 = 133100
Mariusz Próchniak Chair of Economics II Warsaw School of Economics CAPITAL BUDGETING Managerial Economics 1 2 1 Future value (FV) r annual interest rate B the amount of money held today Interest is compounded
More informationChapter 10 Risk and Capital Budgeting
Chapter 10 Risk and Capital Budgeting MULTIPLE CHOICE 1. Operating leverage describes the relationship between... a. EBIT and sales b. taxes and sales c. debt and equity d. fixed costs and variable costs
More information6. Debt Valuation and the Cost of Capital
6. Debt Valuation and the Cost of Capital Introduction Firms rarely finance capital projects by equity alone. They utilise long and short term funds from a variety of sources at a variety of costs. No
More informationChapter 9 The Cost of Capital ANSWERS TO SELEECTED END-OF-CHAPTER QUESTIONS
Chapter 9 The Cost of Capital ANSWERS TO SELEECTED END-OF-CHAPTER QUESTIONS 9-1 a. The weighted average cost of capital, WACC, is the weighted average of the after-tax component costs of capital -debt,
More informationCorporate Finance: Final Exam
Corporate Finance: Final Exam Answer all questions and show necessary work. Please be brief. This is an open books, open notes exam. For partial credit, when discounting, please show the discount rate
More informationUnit06 Sample Homework Problems CHAPTER 10. INVESTMENT RETURNS AND AGGREGATE MEASURES OF STOCK MARKETS
Unit06 Sample Homework Problems CHAPTER 10. INVESTMENT RETURNS AND AGGREGATE MEASURES OF STOCK MARKETS 1. You buy a stock for $40. After a year the price rises to $50 but falls back to $40 at the end of
More informationReview for Exam 3. Instructions: Please read carefully
Review for Exam 3 Instructions: Please read carefully The exam will have 25 multiple choice questions and 5 work problems. Questions in the multiple choice section will be either concept or calculation
More informationIntroduction to Risk, Return and the Historical Record
Introduction to Risk, Return and the Historical Record Rates of return Investors pay attention to the rate at which their fund have grown during the period The holding period returns (HDR) measure the
More informationExpected default frequency
KM Model Expected default frequency Expected default frequency (EDF) is a forward-looking measure of actual probability of default. EDF is firm specific. KM model is based on the structural approach to
More informationSuggested Answers to Discussion Questions
Suggested Answers to Discussion Questions 1. Arguments for Mutual Fund Ownership Greater level of diversification Professional management Establish an investment program with a limited amount of capital
More informationSAMPLE FACT EXAM (You must score 70% to successfully clear FACT)
SAMPLE FACT EXAM (You must score 70% to successfully clear FACT) 1. What is the present value (PV) of $100,000 received five years from now, assuming the interest rate is 8% per year? a. $600,000.00 b.
More informationCommon Stock Valuation & Performance Measurement
Module 4 Common Stock Valuation & Performance Measurement by Jason G. Hovde, CIMA, CFP, APMA 7350 This publication may not be duplicated in any way without the express written consent of the publisher.
More informationChapter 9 Bonds and Their Valuation ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS
Chapter 9 Bonds and Their Valuation ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS 9-1 a. A bond is a promissory note issued by a business or a governmental unit. Treasury bonds, sometimes referred to as
More informationMcGraw-Hill s Financial Analyst
Platform: Windows Requires: 4 MB hard disk space; includes the Mathcad Engine Available for ground shipment The power of MathSoft's Mathcad engine has been added to the 201 top financial tools contained
More informationChapter 6. Learning Objectives Principles Used in This Chapter 1. Annuities 2. Perpetuities 3. Complex Cash Flow Streams
Chapter 6 Learning Objectives Principles Used in This Chapter 1. Annuities 2. Perpetuities 3. Complex Cash Flow Streams 1. Distinguish between an ordinary annuity and an annuity due, and calculate present
More informationCertified Personal Financial Advisor (CPFA) for Examination
NATIONAL INSTITUTE OF SECURITIES MARKETS Certified Personal Financial Advisor (CPFA) for Examination Test Objectives 1. Concept of Financial Planning 1.1 Understand what financial planning constitutes
More informationI. Readings and Suggested Practice Problems. II. Risks Associated with Default-Free Bonds
Prof. Alex Shapiro Lecture Notes 13 Bond Portfolio Management I. Readings and Suggested Practice Problems II. Risks Associated with Default-Free Bonds III. Duration: Details and Examples IV. Immunization
More informationPrinciples of Financial Accounting ACC-101-TE. TECEP Test Description
Principles of Financial Accounting ACC-101-TE TECEP Test Description This TECEP is an introduction to the field of financial accounting. It covers the accounting cycle, merchandising concerns, and financial
More information2. Determine the appropriate discount rate based on the risk of the security
Fixed Income Instruments III Intro to the Valuation of Debt Securities LOS 64.a Explain the steps in the bond valuation process 1. Estimate the cash flows coupons and return of principal 2. Determine the
More informationFIN 3710. First (Practice) Midterm Exam 03/09/06
FIN 3710 Investment Analysis Zicklin School of Business Baruch College Spring 2006 FIN 3710 First (Practice) Midterm Exam 03/09/06 NAME: (Please print your name here) PLEDGE: (Sign your name here) Instructions:
More informationMBA 8230 Corporation Finance (Part II) Practice Final Exam #2
MBA 8230 Corporation Finance (Part II) Practice Final Exam #2 1. Which of the following input factors, if increased, would result in a decrease in the value of a call option? a. the volatility of the company's
More informationMBA (3rd Sem) 2013-14 MBA/29/FM-302/T/ODD/13-14
Full Marks : 70 MBA/29/FM-302/T/ODD/13-14 2013-14 MBA (3rd Sem) Paper Name : Corporate Finance Paper Code : FM-302 Time : 3 Hours The figures in the right-hand margin indicate marks. Candidates are required
More informationModule 1: Corporate Finance and the Role of Venture Capital Financing TABLE OF CONTENTS
1.0 ALTERNATIVE SOURCES OF FINANCE Module 1: Corporate Finance and the Role of Venture Capital Financing Alternative Sources of Finance TABLE OF CONTENTS 1.1 Short-Term Debt (Short-Term Loans, Line of
More informationPractice Set #2 and Solutions.
FIN-672 Securities Analysis & Portfolio Management Professor Michel A. Robe Practice Set #2 and Solutions. What to do with this practice set? To help MBA students prepare for the assignment and the exams,
More informationRISKS IN MUTUAL FUND INVESTMENTS
RISKS IN MUTUAL FUND INVESTMENTS Classification of Investors Investors can be classified based on their Risk Tolerance Levels : Low Risk Tolerance Moderate Risk Tolerance High Risk Tolerance Fund Classification
More information