Fundamentals of Finance for Fashion HW Set 2
.xlsx
keyboard_arrow_up
School
Montgomery College *
*We aren’t endorsed by this school
Course
247
Subject
Finance
Date
May 17, 2024
Type
xlsx
Pages
13
Uploaded by EarlBat4365 on coursehero.com
Chapter 6:
Interest Rates and Bond Valuation
Questions:
3,7,11,17
Chapter 7:
Equity Markets and Stock Valuation
Questions:
5,9,13,17
UNIT 5 – CAPITAL BUDGETING
Chapter 8:
Net Present Value and Other Investment Criteria
Questions:
5,9,13,17
Chapter 9:
Making Capital Investment Decisions
Questions:
5,9,13,17
p 541- p 544
3
7
11
17
YTM is 3.2 percent, what is the current bond price in euros?
payments. If these bonds currently sell for 97 percent of par value, what is the YTM?
does Janice believe the inflation rate will be over the next year?
2.7 percent and the bonds have a par value of $5,000. What is the dollar price of the bonds?
YTM
3.20%
27
36
1000
Coupon Rate
Payment
5.60%
46
56
-970
Nominal
Real
11.70%
9%
2.70%
YTM
2.70%
32
145
5000
Annual payment = rate x par (1000*.036)
current value = x
# of periods (years)
coupon payment
Par/Face Value (Euros)
# of periods (semiannual)
Current Selling Price
Real return = 9%
Inflation rate = x
Inflation Rate
YTM = 2.7%
Current value = x
# of periods (years)
coupon payment
Par/Face Value (Euros)
$1,071.60
Par Value
YTM
1000
5.79%
$5,212.47
Current Bond Price
Current Bond Price
5,9,13,17
p. 614 - p. 616
5
9
13
17
years >
dividends >
yield of 5.3 percent, what is the required return on the company’s stock?
Divident yield: 5.3%
return = x
election; how much will it cost you to buy a seat now?
4 seats
1/4 of total stocks + 1 = 1/5
you consider appropriate? What if the benchmark PE were 21?
Benchmark 2 = 21
stock price = x?
the stock is 10.3 percent, what is the current share price?
Required return = 10.3%
current share price=x
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Related Questions
Question 1Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items.
Question 2 Using the data generated in the previous question (Question 1)a) Plot the Security Market Line b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML?d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph
arrow_forward
D3
Finance
(d) The moving VWAP (MVWAP) is an indicator for long-term investment. Compare the moving VWAP and Moving Average in terms of their similarity and dissimilarity.
arrow_forward
Which of the following methods of methods of capital budgeting is based
cashflows:
6.
A
Payback
B
NPV
Profitability Index
All of the above
C
7.
Debentures carry:
Voting rights and dividend
Interest and voting rights
A
B
C
Interest and dividend
Interest only
8.
Capital gearing refers to the relationship between equity and:
Short term debt
Long term debt
Retained earnings
А
B
Goodwill
arrow_forward
13. Strategy 4 - Asset allocation
Asset allocation is the proportion of your overall investment portfolio that you have invested in various categories of assets. Typical asset categories include, for example, equities (stocks or stock mutual funds), bonds (or bond funds), and cash (or cash equivalents such as Treasury bills).
The following table illustrates several model portfolios that you can use as a basis for your own investment plan, depending on various factors, such as your time horizon, your risk tolerance, and your investment philosophy:
Risk Tolerance/Investment Philosophy
Asset Allocation and Time Horizons
0–5 Years
6–10 Years
11+ Years
10% Cash
20% Bonds
100% Equities
High Risk/Aggressive
30% Bonds
80% Equities
60% Equities
20% Cash
10% Cash
20% Bonds
Moderate Risk/Moderate
40% Bonds
30% Bonds
80% Equities
40% Equities
60% Equities
35% Cash
20% Cash
10% Cash
Low Risk/Conservative
40% Bonds
40% Bonds…
arrow_forward
What is the investment objective for the following investments:
1. PRMX fund
2. VWELX fund
3. SPY ETF
4. MC.PA company
5. MSFT company
arrow_forward
Q15
The rate which considers the riskiness and available returns on the investments is known as
a.
Constant Dividend
b.
Maximum rate of return
c.
Minimum acceptable rate of return
d.
Constant Yield
arrow_forward
Compute the unlevered market (asset) beta for Whirlpool.
Current Levered Market Beta - Unlevered Market Beta x [1+(1-Income Tax Rate) x (Current Market Value of Debt/Current Market Value of
Equity)]
a
b
Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.
1.44
3.52
Total assets
Interest-bearing debt
Average pretax borrowing cost
Common equity.
C 2.27
Book value
Market value
Income tax rate
Market equity beta
Whirlpool
$13,532
$ 2,597
6.1%
$ 3,006
$ 2,959
35.0%
227
arrow_forward
Match the words with the term.
Question 6 options:
12345
financial need
12345
risk capital
12345
internal source
12345
external sources
12345
financing requirement
1.
working capital
2.
subordinated debt
3.
lenders
4.
short-term debt
5.
retained earnings
arrow_forward
Question #2: Asset Allocation
Suppose an investor has a choice between two assets: Janus Balanced Mutual Fund (a risky asset) and 30-
day treasury bills (a risk-free asset).
Investment
Expected Return
Standard Deviation (6) Portfolio Weight
[E(r)]
Janus Balanced Fund
8.58%
8.67%
30 day T-bill
0.26%
1-y
(a) Calculate the expected return and standard deviation of the overall portfolio---a portfolio consisting of
a mixture of the risky asset and risk-free asset. [Hint: Your answers will be expressed as a function of y]
(b) Use your answer from Part (a) to draw the capital allocation line (CAL). Be sure to label your axes.
Indicate the portfolio that consists only of the risk-free asset on your CAL as Point "A". Indicate the
portfolio that consists only of the risky asset on your CAL as Point "B".
(c) Calculate the slope of the Capital Allocation Line.
(d) Suppose that the investor chooses a portfolio weight of y = 1.5. Find the expected return and
standard deviation of the overall…
arrow_forward
Which of the following statements are correct?
Preferred equities are separate form common equities
Opportunity cost should not be included in the capital budgeting decision
Retained earnings are important in calculating the WACC
Weights for equity in the WACC calculation are always on book values
Cash from net working capital for each year is defined as NWCn- NWCn-1
arrow_forward
Investment Alternatives
Corn Belt (1)
Central Valley (2)
Great Plains (3)
Exp. Return
ri =0.14
r2=0.12
r3=0.07
Std. Dev.
01=0.08
02=0.05
03=0.01
Weight in Portfolio
Wi=1/3
W2=1/3
W3=1/3
Correlation Among Investment
1 and 2 (p12)= 0.30
1 and 3 (p13) = -0.40
2 and 3 (p23) = -0.10
%3D
Portfolio Data for Financial Servicing Analysis Under Risk
a. Calculate the expected return of the portfolio.
b. Calculate the variance and the standard deviation of the portfolio.
c. Calculate the variance and standard deviation of the portfolio assuming that the
correlation among the investments is all equal to 0.
arrow_forward
Review the table below listing performance metrics for selected assets. The metrics are defined in the same way as in CAPM
Return
risk
beta
riskless asset
4%
0%
0
Market Portfolio
9%
24%
1
Fund A
8%
33%
0.4
Fund B
11%
30%
1.5
arrow_forward
Question 3 of 22
Which option is an efficiency ratio?
Select an answer:
total asset turnover ratio
debt-to-equity ratio
profit margin
current ratio
Previous
arrow_forward
QUESTION 7
1. In which phase(s) of a closed-ended fund's lifecycle is capital committed?
a. Investment
C b. Formation
c. Management
- d. Extension
arrow_forward
Explain three (3) assumptions of the Capital Assets Pricing Model (CAPM) and how will the relaxation of these assumptions affect the Capital Assets Pricing Model (CAPM) equation. B. Explain two (2) of the option valuation capital budgeting techniques as it relates to investment projects
arrow_forward
4. Explain what the Capital Asset Pricing Model (CAPM) is and calculate
and explain the result of the CAPM based on the following data.
a. Expected Return: 8%
b. Risk-free rate: 4%
c. Beta of the investment: 1.2
ER=Rf+B(ERm - Rf)
where:
ER = expected return of investment
Rf risk-free rate
B;= beta of the investment
-
(ERm - Rf) = market risk premium
arrow_forward
Capital Asset Pricing Model (CAPM) - Based on Market Risk Premium
Risk free rate (Rf)*
3.00%
Beta (B)*
Market risk premium*
Expected return (ER)
1.50
10.00%
arrow_forward
Suppose the HomeNet's Cost of Capital is12%, use NPV, IRR, MIRR, PI, PP and DPPinvestment appraisal methods to analyse thisforecasted FCFs. Interpret your investment decisions madeaccording to the rules mentioned
arrow_forward
The output below e penerted from regreseing Fund As exess returns on
wkets excees retume (8AP S00).
Kiatimate
Glet
Pavelue
intercept
L0.000
o.0077 1.2767
0.2066
Market index
1.3258
0.2157 6.1451
0.0000
Adj Reg
lObservatione
o.3830
so
How well does CAPM explain the retume on Fund A?
O Expleine over 30% of the variation in Fund A's excess returns
O Explains over 60% ofr the variation in Fund A's excess returns
O Explains below 20% of the varlation in Fund A's excess returns
O Explains below 30% of the variation in Fund A's excess returns
arrow_forward
What is the most commonly used capital budgeting procedures?
Select one:
a.
IRR
b.
Payback period
c.
Discounted Payback period
d.
NPV
e.
Profitability Index
arrow_forward
Excel Questions
1) What would happen to the contribution of asset allocation to overall performance if the actual weights had been 75/12/13 instead of 70/7/23? Explain your result.
2) What would happen to the contribution of security selection to overall performance if the actual return on the equity portfolio had been 8.28% instead of 7.28% and the return on the bond portfolio had been .89% instead of 1.89%? Explain your result.
arrow_forward
Q11. n is the number of periods of an investment,
PV is the starting value,
FVn is the future value n periods ahead, and
^ means 'to the power of'.
What is the correct formula for calculating return?
Group of answer choices
1. (FVn/PV)^n - 1
2. (FVn/PV)^n
3. (PV/FVn)^n - 1
4. 1 - (FVn/PV)^n
arrow_forward
42. For the ratio Return on Capital Employed, which of the following best describes capital employed?
A. Share capital
B. Share capital + reserves
C. Share capital + reserves + long-term capital
D. Share capital + reserves + long-term capital + current liabilities
arrow_forward
Q44
Cost of the capital is the minimum required rate of earnings or the cut-off rate of capital expenditure, is defined by
a.
William and Donaldson
b.
John J. Hampton
c.
Solomon Ezra
d.
James C. Van Horne
arrow_forward
SEE MORE QUESTIONS
Recommended textbooks for you
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning
Related Questions
- Question 1Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Question 2 Using the data generated in the previous question (Question 1)a) Plot the Security Market Line b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML?d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the grapharrow_forwardD3 Finance (d) The moving VWAP (MVWAP) is an indicator for long-term investment. Compare the moving VWAP and Moving Average in terms of their similarity and dissimilarity.arrow_forwardWhich of the following methods of methods of capital budgeting is based cashflows: 6. A Payback B NPV Profitability Index All of the above C 7. Debentures carry: Voting rights and dividend Interest and voting rights A B C Interest and dividend Interest only 8. Capital gearing refers to the relationship between equity and: Short term debt Long term debt Retained earnings А B Goodwillarrow_forward
- 13. Strategy 4 - Asset allocation Asset allocation is the proportion of your overall investment portfolio that you have invested in various categories of assets. Typical asset categories include, for example, equities (stocks or stock mutual funds), bonds (or bond funds), and cash (or cash equivalents such as Treasury bills). The following table illustrates several model portfolios that you can use as a basis for your own investment plan, depending on various factors, such as your time horizon, your risk tolerance, and your investment philosophy: Risk Tolerance/Investment Philosophy Asset Allocation and Time Horizons 0–5 Years 6–10 Years 11+ Years 10% Cash 20% Bonds 100% Equities High Risk/Aggressive 30% Bonds 80% Equities 60% Equities 20% Cash 10% Cash 20% Bonds Moderate Risk/Moderate 40% Bonds 30% Bonds 80% Equities 40% Equities 60% Equities 35% Cash 20% Cash 10% Cash Low Risk/Conservative 40% Bonds 40% Bonds…arrow_forwardWhat is the investment objective for the following investments: 1. PRMX fund 2. VWELX fund 3. SPY ETF 4. MC.PA company 5. MSFT companyarrow_forwardQ15 The rate which considers the riskiness and available returns on the investments is known as a. Constant Dividend b. Maximum rate of return c. Minimum acceptable rate of return d. Constant Yieldarrow_forward
- Compute the unlevered market (asset) beta for Whirlpool. Current Levered Market Beta - Unlevered Market Beta x [1+(1-Income Tax Rate) x (Current Market Value of Debt/Current Market Value of Equity)] a b Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. 1.44 3.52 Total assets Interest-bearing debt Average pretax borrowing cost Common equity. C 2.27 Book value Market value Income tax rate Market equity beta Whirlpool $13,532 $ 2,597 6.1% $ 3,006 $ 2,959 35.0% 227arrow_forwardMatch the words with the term. Question 6 options: 12345 financial need 12345 risk capital 12345 internal source 12345 external sources 12345 financing requirement 1. working capital 2. subordinated debt 3. lenders 4. short-term debt 5. retained earningsarrow_forwardQuestion #2: Asset Allocation Suppose an investor has a choice between two assets: Janus Balanced Mutual Fund (a risky asset) and 30- day treasury bills (a risk-free asset). Investment Expected Return Standard Deviation (6) Portfolio Weight [E(r)] Janus Balanced Fund 8.58% 8.67% 30 day T-bill 0.26% 1-y (a) Calculate the expected return and standard deviation of the overall portfolio---a portfolio consisting of a mixture of the risky asset and risk-free asset. [Hint: Your answers will be expressed as a function of y] (b) Use your answer from Part (a) to draw the capital allocation line (CAL). Be sure to label your axes. Indicate the portfolio that consists only of the risk-free asset on your CAL as Point "A". Indicate the portfolio that consists only of the risky asset on your CAL as Point "B". (c) Calculate the slope of the Capital Allocation Line. (d) Suppose that the investor chooses a portfolio weight of y = 1.5. Find the expected return and standard deviation of the overall…arrow_forward
- Which of the following statements are correct? Preferred equities are separate form common equities Opportunity cost should not be included in the capital budgeting decision Retained earnings are important in calculating the WACC Weights for equity in the WACC calculation are always on book values Cash from net working capital for each year is defined as NWCn- NWCn-1arrow_forwardInvestment Alternatives Corn Belt (1) Central Valley (2) Great Plains (3) Exp. Return ri =0.14 r2=0.12 r3=0.07 Std. Dev. 01=0.08 02=0.05 03=0.01 Weight in Portfolio Wi=1/3 W2=1/3 W3=1/3 Correlation Among Investment 1 and 2 (p12)= 0.30 1 and 3 (p13) = -0.40 2 and 3 (p23) = -0.10 %3D Portfolio Data for Financial Servicing Analysis Under Risk a. Calculate the expected return of the portfolio. b. Calculate the variance and the standard deviation of the portfolio. c. Calculate the variance and standard deviation of the portfolio assuming that the correlation among the investments is all equal to 0.arrow_forwardReview the table below listing performance metrics for selected assets. The metrics are defined in the same way as in CAPM Return risk beta riskless asset 4% 0% 0 Market Portfolio 9% 24% 1 Fund A 8% 33% 0.4 Fund B 11% 30% 1.5arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning