FIN 4305 Test 1 HW
What would have been Mike's ROIC if he invested in the stock without using margin? Round intermediate steps to four decimals.
-.0333 (87-90)/90 = -.0333
Find Mike's ROIC. Round intermediate steps and your final answer to four decimals. Enter your answer in decimal format (EX: .XXXX).
-.1179 [(87*1000)-(.07*.45*90000)-(90000)]/(.55*90000) = -.1179
A French company (CDE) purchased 50,000 euros worth of an American company's (JKL Corp.) stock. At the time of purchase, JKL traded for $50/share and the exchange rate was $2/€. CDE received $5 dividend/share over the life of the investment, which the company exchanged at a rate of €.6/$. Find CDE's percentage return in terms of euros if the company sold all its shares of JKL when the stock traded at $40/share and the exchange rate was €.4/$. Round intermediate steps to four decimals.
-.24 shares purchased: (50000*2)/50 = 2000 dividends received: (2000*5)*.6 = 6000 euros Selling price: (2000*40)*.4 = 32000 euros return: (32000+6000-50000)/50000 = -.24
You invested $2000 in a stock that cost $40/share at the time you opened your position. Over the course of the year, the stock paid a $4 dividend per share. Find your HPR if you sold all your shares for $32/share. Round intermediate steps and your final answer to four decimals. Enter your answer in decimal format (EX: .XXXX).
-0.1 HPR= [(32*50)+(4*50)-2000]/2000
You invested $50,000 in Stock X, which has a beta of -.9 and $25,000 in stock Y, which has a beta of 1.2. Find the beta of your portfolio.
-0.2 (50/75)(-.9)+(25/75)(1.2)
Find the standard deviation of your portfolio. Assume the correlation coefficient is -.7559. Round intermediate steps to five decimals and your final answer to four decimals. Enter your answer in decimal format (EX: .XXXX).
.0107 Answer range +/- 0.0031 (0.0100 - 0.0162 )
Find the percentage return of an equally weighted portfolio from 2/4-2/5. Round intermediate steps to four decimals.
.0109 .0436/4 = .0109
Use the following information to answer the next four questions. You invested $12,000 in Stock P and $18,000 in Stock Q in 2013. Year Stock P's Return Stock Q's Return 2017 -.10 -.17 2016 .12 .09 2015 .15 -.05 2014 -.06 .13 2013 .19 -.10 Find your portfolio's average return. Round intermediate steps and your final answer to four decimals and enter it in decimal format (EX: .XXXX).
.0120 Average return for P=.06 Average return for Q= -.02 Portfolio return=(12/30)(.06)+(18/30)(-.02)
Use the following information to answer the next two questions. Stock 2/3/XX Price 2/4/XX Price 2/5/XX Price P* 36 20 22 Q 50 52 48 R 90 88 94 S** 40 42 160 *2:1 split after close on 2/3. **1:4 split after close on 2/4. Find the percentage return on an equally weighted index consisting of the stocks shown in the table above from 2/3-2/4. Round intermediate steps and your final answer to four decimals
.0447 HPR P: (20/18)-1=.1111 HPR Q: (52/50)-1=.04 HPR R: (88/90)-1= -.0222 HPR S: (42/40)-1=.05 Return= (.1111+.04-.0222+.05)/4 = (.1789)/4 = .0447
Use the following table that shows returns for two stocks to answer the next 4 questions. Year Stock A Returns Stock B returns 2017 -.10 .18 2016 .12 .25 2015 .16 -.3 2014 .06 .07 Find the average return for Stock B. Round intermediate steps and your final answer to four decimals and enter your answer in decimal format (EX: .XXXX).
.05 (.18+.25-.3+.07)/4
Find the percentage change in the value of the index from 3/3-3/4. Round intermediate steps to four decimals.
.0515 3/3 index value: 80 new divisor: 80=[(60+70(3/5)+150+40(7/5)+80]/X; X=4.85 3/4 index value: (65+40+160+61+82)/4.85=84.1237 percentage change=.0515
Find A's average return. Round intermediate steps and your final answer to four decimals.
.06
Use the following table, which shows the historical returns of two stocks, to answer the next four questions. Assume you invested 10% of your funds in Franklin and 90% in Smith. Year Franklin Returns Smith Returns 2016 .14 .06 2015 -.01 .08 2014 .11 .04 Find your portfolio's return. Round intermediate steps and your final answer to four decimals and enter it in decimal format (EX:.XXXX).
.062 .08(.1)+.06(.9)
Find the percentage change in the value of the index from 3/4 to 3/5. Round intermediate steps and your final answer to four decimals and enter your answer in decimal format (ex: .XXXX).
.0635 3/4 index value: 84.1237 new divisor: 84.1237=[(65(1/2)+40+160(3/8)+61+82]/X; X=3.2749 3/5 index value: (34+38+70+66+85)/3.2749=89.4684 percentage change=.0635
Carlson Tech's stock has a beta of 1.15 and a 10.5% required rate of return. The return on the market portfolio is 10%. Find the risk-free rate. Round intermediate steps and your final answer to four decimals and enter it in decimal format (EX: .XXXX).
.0667
The beta for a given stock is .9 and its required return is 8%. The risk-free rate is 2%. Find the market risk premium.
.0667
Find Franklin's standard deviation. Round intermediate steps to four decimals.
.0794 [{(.06)^2+(-.09)^2+(.03)^2}/2]^.5
Find the standard deviation of your portfolio. Assume the correlation coefficient between stocks P and Q is -.0075. Round intermediate steps to four decimals.
.0922
Find the percentage return for a value-weighted index from 1/3-1/4. Round intermediate steps to four decimals.
.0952 [(300*18)+(700*21)+(500*35)+(1000*36)]/[(300*20)+(700*16)+(500*40)+(1000*30)] = .0952
Find the standard deviation of A's return. Round intermediate steps and your final answer to four decimals and enter your answer in decimal format (EX: .XXXX).
.1143
You invested 28% of your funds in stock H, 50% in stock I, and the remainder in stock J. The betas for stock H, I and J are 1.1, .75, and -.25, respectively. Treasury bills provide a 4% rate of return and the S&P 500's return is 16%. Find the required return of your portfolio. Round intermediate steps and your final answer to four decimals and enter it in decimal format (EX:.XXXX).
.1154 portfolio's beta: (.28*1.1)+(.5*.75)+(.22*-.25)=.628 required return=.04+.628(.12)
Find the standard deviation of stock Q's returns. Round intermediate steps and your final answer to four decimals. Enter your answer in decimal format (ex: .XXXX).
.1269
Find the standard deviation of stock P's returns. Round intermediate steps and your final answer to four decimals. Enter your answer in decimal format (ex: .XXXX).
.1310
Oscar Inc.'s beta is 1.35. The returns on the market portfolio and treasury bills are 12% and 3%, respectively. Find the required return on Oscar Inc.'s stock.
.1515 .03+1.35(.12-.03)
An asset had annual returns of 13, 10, -14, 3, and 36 percent, respectively, for the past five years. What is the standard deviation of these returns?
.1809 average return=.096 standard deviation= [{(.034)^2+(.004)^2+...+(.264)^2}/4]^.5
Use the following table which shows the cash flows of three independent projects to answer the next three questions. Year Cash Flows: Project A Cash Flows: Project B Cash Flows: Project C 0 -50 -75 -60 1 25 40 30 2 10 50 10 3 40 10 50 Cost of capital for each project is 15% Find project A's internal rate of return. Round your final answer to four decimals.
.2108
Find your ROIC. Round intermediate steps to four decimals.
.2338 [(2000*30)-(.04*.3*2000*30*.25)-(25*2000)]/(30*2000*.7) = .2338
Find Stock B's standard deviation. Round intermediate steps to four decimals.
.2448
Find the standard deviation of Smith's returns. Round intermediate steps and your final answer to four decimals. Enter your answer in decimal format (EX: .XXXX).
0.02
Use the following to answer the next three questions Stock Shares outstanding 1/3/XX Price 1/4/XX Price 1/5/XX Price W 300 20 18 16 X 700 16 21 19 Y 500 40 35 38 Z 1000 30 36 40 Find the percentage change in a value weighted index from 1/4-1/5 consisting of the stocks shown in the table above. Round intermediate steps and your final answer to four decimals and enter your answer in decimal format (EX:.XXXX).
0.0476 [(300*16)+(700*19)+(500*38)+(1000*40)]/[(300*18)+(700*21)+(500*35)+(1000*36)]-1 = .0476
Find the percentage change of an equally weighted index consisting of the four stocks shown in the previous question from 1/3-1/4. Round intermediate steps and your final answer to four decimals and enter your answer in decimal format (ex: .XXXX).
0.0719 (-.1+.3125-.125+.2)/4 = .0719
A US mutual fund purchased 150,000 shares of BBC Corp.'s (British firm) stock. At the time the mutual fund opened their position, BBC was trading for £65 and the exchange rate was £.8/$. Find the fund's percentage return (in terms of dollars) if the fund closes its position when BBC trades for £80 and the exchange rate is $1.5/£. Round intermediate steps and your final answer to four decimals and enter your answer in decimal format (EX: .XXXX).
0.4769 Purchase price per share: 65/.8 = 81.25 Selling price per share: 80*1.5 = 120 Return= [120-81.25)]/(81.25) = .4769
You are considering buying a $500,000 house. You plan on making a 25% down payment and financing the rest using a 30 year, 4% loan. Find the minimum monthly payment on your loan. Round intermediate steps to four decimals.
1,790.31
Quantas Industries' stock sells for $125/share, but you believe the stock will decline in the near future. You have $120,000 of your own funds to invest and you've decided to create a short position on Quantas stock. What is the maximum number of shares that you can short, given that the initial and maintenance margins are 75% and 35%, respectively. Round intermediate steps to four decimals and your final answer to the nearest whole share.
1280 (120,000/.75)/125 = 1280
You purchased 1000 shares of stock at a price of $60/share with a margin account. The initial and maintenance margins were 70% and 20%, respectively. What was your debit balance on the day you opened your position? Do not use the dollar sign when entering your response.
18,000 60*1000*.3 = 18,000
Use the following information to answer the next three questions. Three months ago, you shorted 2000 shares of Jones stock on 70% margin. At the time you created your short position, Jones was trading at $30/share. Your broker set your maintenance margin level at 45% and charges you a 4% annual interest rate on borrowed funds. You decide to close your position today when Jones sells for $25/share. Find your debit balance the day that you create your short position.
18000 .3*2000*30 = 18,000
You want to buy your dream car 12 months from now. The car costs $30,000 today, but you believe its value will increase by 5% once you're ready to buy it. You plan on investing each month in an account that provides a 12% annual return to purchase the car. How much money must you invest each month to be able to buy the car entirely with cash next year? Round intermediate steps to four decimals and your final answer to two decimals. Do not use the dollar sign when entering your response.
2483.74
You expect that you will need $50,000 ten years from today in order to pay for your daughter's college expenses. You want cover these expenses by making a deposit in an account today that provides a 6% annual return. How much must you invest today to accomplish your goal? Round your final answer to two decimals and do not use the dollar sign when entering your answer.
27,919.74 N=10 I=6 PMT=0 FV=50000 PV=27919.74
Victor Industries is evaluating a project that will cost $400,000. If the company accepts the project, they anticipate the following cash flows (in order) over the next 4 years: -$200,000, $100,000, $500,000, $500,000. Find the NPV of the project if the required rate of return is 20%.
33,256.17
Find the critical price per share for your short sale. Round your final answer to two decimals.
35.17 {[(.7*2000*30)+(2000*30)]/2000}/1.45 = 35.17
A price-weighted index consists of stocks X, Y, and Z which are priced at $50, $90, and $80 per share, respectively. The current index divisor is 3.2. What will the new index divisor be if stock Z undergoes a 1:2 stock split? Round intermediate steps to four decimals.
4.3636 Old index value: (50+90+80)/3.2=68.75 New divisor: 68.75=(50+90+160)/X
How much would you pay for 1400 shares?
44390 300(31.15)+(400*31.5)+(500*32.05)+(200*32.1)
You just sold Dexter Industries stock for $50/share. You received a $2/share dividend over the time that you held the stock. How much did you pay for the stock if your HPR is 10%? Round intermediate steps to four decimals and your final answer to two decimals. Do not use the dollar sign when entering your response.
47.27 .1=(50+2-X)/X
You just bought a $60,000 car. You made a 10% down payment and financed the rest using a 3%, 72 month loan. Find the amount of interest you'd pay over the life of the loan if you made the minimum monthly payment over the life of the loan. Round intermediate steps to four decimals. Do not use the dollar sign when entering your answer.
5,073.01
Use the following order book to answer the next two questions. Buy Orders Sell Orders Shares Price Shares Price 700 30.12 300 31.15 500 30.10 400 31.50 800 29.95 500 32.05 600 29.90 800 32.10 How much would you receive for selling 1800 shares? Do not use the dollar sign when entering your answer.
54104 (700*30.12)+(500*30.1)+(600*29.95) = 54104
Find project C's NPV. Round your final answer to two decimals. Do not use the dollar sign when entering your answer.
6.52
What is the lowest possible price that the stock can trade for before a margin call is issued?
67.5 [(.45*90000)/1000]/(1-.4) = 67.5
Anne is wants to retire in 35 years. She believes that she will need to save $2 million to live comfortably in her retirement years. Assuming that she plans to invest $1000 at the beginning of each month, find the annual rate of return the account must provide for Anne to reach her goal.
7.41%
The following table shows the price movements of five stocks that comprise a price-weighted index. Use this table to answer the next four questions. Stock 3/3/XX Price 3/4/XX Price 3/5/XX Price Alpha 60 65*** 34 Beta 70* 40 38 Chi 150 160**** 70 Delta 40** 61 66 Epsilon 80 82 85 *5:3 split after close on 3/3 **5:7 split after close on 3/3 ***2:1 split after close on 3/4 ****8:3 split after close on 3/4 Find the closing value of the index on 3/3. Round intermediate steps and your final answer to four decimals.
80 (60+70+150+40+80)/5
Theta Inc. is considering a project that has an upfront cost of $500,000 and is expected to produce a cash flow of $800,000 in five years. Find the project's IRR.
9.86%
Which project(s) would you choose based on IRR?
A,B,C
Which of the following is a disadvantage to short selling?
All of the above
Suppose that Stock L has a historical return of 12% and the standard deviation of its historical return is 6%. Stock M also has a historical return of 12%, but the standard deviation of its historical return is 8%. Which of the following statements must be true?
Cannot be determined.
The following table shows the average return and standard deviation of four well diversified portfolios over the last five years. Portfolio Average Return Standard Deviation A .16 .06 B .10 .08 C .11 .12 D .13 .17 Which of the following portfolios would all risk-averse investors prefer if they had to invest in it today?
Cannot be determined.
A car manufacturer offers either $6,000 cash back or zero percent financing for 6 years. A rational consumer will always take the cash back because money received today is worth more than money received in the future.
False
A project that has a rate of return exactly equal to its discount rate should be avoided since it doesn't add value to the corporation.
False
All primary market transactions must be registered with the SEC.
False
As you add randomly selected stocks to a portfolio, the portfolio's standard deviation will decrease at an increasing rate.
False
Most brokerage firms negotiate the commissions they charge to all their clientele.
False
SIPC protects investors against brokers churning their accounts.
False
The SEC prevents a corporation's stock from being listed on multiple exchanges simultaneously.
False
The bid price represents the broker's buying price for a security.
False
The correlation coefficient between stocks X and Y is 1. This means that if X increases by 5%, Y must also increase by 5%.
False
Value-weighted indices are biased toward high book value stocks.
False
You purchased 300 shares of Victor stock today on margin when the stock price was $40/share. Your broker charges you a 3% rate on borrowed funds and set your initial and maintenance margin requirements at 60% and 30%, respectively. If the stock trades for $35 tomorrow, you will receive a margin call.
False
Which of the following statements is true regarding systematic risk?
It remains constant as the number of randomly selected securities in a portfolio increases.
ABC Corp. went public 3 years ago, but the company needs an infusion of cash to invest in a new project. The company decides to issue 500,000 new shares, which will trade on NASDAQ, to finance their project. Which of the following statements is true regarding this situation?
None of the above
At the beginning of the trading day, John places a limit sell order for 500 shares of DEF stock at $75/share while DEF is trading at $72/share. Throughout the course of the day, DEF trades between a range of $71-$74 per share. Which of the following could occur with John's brokerage account if his order was a day order?
None of the above
Use the following to answer the next four questions One year ago today, Mike bought 1000 shares of Umbrella stock for $90/share on 55% margin. Mike's broker charged a 7% annual interest rate on borrowed funds and set the maintenance margin level at 40%. Today, Mike closed his position when the stock sold for $87/share. How much equity did Mike have to place into his account the day he opened it?
None of the above 90*1000*.55 = 49500
DEF Corp. plans to issue new shares that will trade on the NYSE next month. If you buy a portion of these shares as soon as they're made available to the public, which of the following markets will you be participating in?
Primary
You are going to incorporate one of the following three projects in a well-diversified portfolio. Project 1 Probability Return Standard Deviation Beta 30% Chance 22% 15% .8 70% Chance -4% Project 2 Probability Return Standard Deviation Beta 20% Chance 15% 16% .7 20% Chance 11% 60% Chance -2% Project 3 Probability Return Standard Deviation Beta 12% Chance 30% 18% -.6 50% Chance 10% 38% Chance -12% If you are a risk averse investor, which one should you choose?
Project 3 Project 3 has the highest expected return and the lowest beta.
You just placed a stop limit order to sell 900 shares at $50 stop, $47 limit. Which one of the following statements is correct concerning this order if the current market price is $48?
The broker will attempt to sell the stock at the current market price. The broker will only attempt to sell the stock once it reaches $50.
Suppose that a project provides a 9% nominal rate of return. Expected inflation over the project's life is 4% and your company's investors require a real return of 7%. Which of the following statements is true?
The project should be rejected using IRR analysis.
A limit buy order for $25/share ensures the investor that they will never pay more than $25/share for their stock, barring commissions and/or fees.
True
A risk-free asset would have a standard deviation equal to zero.
True
All else being equal, an increase in the initial margin requirement typically will decrease the potential returns earned from buying stocks on margin.
True
As a person's risk aversion increases, their required return will increase for a given level of risk.
True
Beta measures how a particular asset or portfolio's return is expected to respond to changes in the market portfolio's return.
True
Changes in the investment tax code is an example of market risk.
True
Correlation coefficient measures how two variables move together over time.
True
Designated market makers buy or sell securities to keep dealer markets running efficiently.
True
Firm commitment underwriters typically pay less than the perceived market value for the securities they underwrite as compensation for their services.
True
If you place a market buy order for 375 shares, your order will consist of 3 round lots and one odd lot.
True
Margin calls occur when an investor's margin account falls below the maintenance margin requirement.
True
One goal of secondary markets is to provide liquidity for financial assets.
True
Standard deviation can be used to measure the volatility associated with holding a security in isolation.
True
Street name registration allows brokers to lend out shares to short sellers.
True
This index suggests that the market was bullish from 3/3-3/5
True
Suppose that over the course of the last 6 months, ABC stock increased from $35/share to $40/share. Assuming that your broker charges a 2% interest rate on borrowed funds and no margin calls occured, which of the following statements is correct?
Your rate of return would have been higher if you purchased ABC six months ago on margin than if you purchased ABC six months ago with a cash account.
If you want to purchase 1000 shares of Gamma stock immediately at the best available price, you should place a
market buy order