...Chapter 4 – Bond Price Volatility Extra Questions 1. Be sure you understand all the relationships shown in Exhibit 4-11 2. The price of a bond can be written as either as the sum of series of discounted CFs (Equation 4.1, page 63) or as the sum of the PV of an annuity and the discounted maturity value (Equation 4.9, page 67). Note that the PV of an annuity formula used in Equation 4.9 is derived from the difference between a perpetuity starting at time zero and a perpetuity starting at time n. The difference is an annuity starting at time 0 and ending at time n. Equation 4.3 is the first derivative of price w.r.t. yield (∂P/∂y) using equation 4.1. The numerator of equation 4.10 is first derivative of the price w.r.t. yield using equation 4.9. Consider either equation 4.3 or the numerator of 4.9. Determine only the sign of following second derivative and mixed partial derivatives: * ∂2P/∂y2 * ∂2P/∂y∂C * ∂2P/∂y∂n (a) Does duration increase or decrease as the initial yield increases?(decrease) (b) Does duration increase or decrease as the coupon increases?(decrease) (c) Does duration increase or decrease as the maturity increases?(increase) 3. (This is questions 2 and 4 from the text.) Consider semi-annual bonds A and B. | Bond A | Bond B | Coupon | 8% | 9% | Yield to maturity | 8% | 8% | Maturity (years) | 2 | 5 | Par | $100.00 | $100.00 | Price | $100.00 | $104.055 | Produce an Excel...
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...Introduction to Mathematics in Finance – HW 4 Swarna Ramineni sr3121 Answer 1) Value at risk: It is a statistical technique to measure the amount of potential loss, the probability of the loss, and the time frame. Value at risk is used by risk managers in order to measure and control the level of risk which the firm undertakes. The risk manager's job is to ensure that risks are not taken beyond the level at which the firm can absorb the losses of a probable worst outcome. For example, a financial firm may determine that it has a 5% one month value at risk of $100 million. This means that there is a 5% chance that the firm could lose more than $100 million in any given month. Conditional value at risk on the other hand is an extension of value at risk. It is derived by taking weighted average between the value at risk and losses exceeding the value at risk. The VaR model does allow managers to limit the likelihood of incurring losses caused by certain types of risk - but not all risks. The problem with relying solely on the VaR model is that the scope of risk assessed is limited, since the tail end of the distribution of loss is not typically assessed. Therefore, if losses are incurred, the amount of the losses will be substantial in value. Conditional value at risk does a better job at assessing the tail VaR and hence is a very useful tool for risk managers. Answer 2) NAV as of Nov 1, 2013 is $169,018 Gross Leverage is 1.744 and Net Leverage is 0.7017 The latest...
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...is a problem if an asset or liability has to be liquidated immediately. If the asset or liability is held until maturity, then the reporting of book values does not pose a problem. For an FI, a major factor affecting asset and liability values is interest rate changes. If interest rates increase, the value of both loans (assets) and deposits and debt (liabilities) fall. If assets and liabilities are held until maturity, it does not affect the book valuation of the FI. However, if deposits or loans have to be refinanced, then market value accounting presents a better picture of the condition of the FI. The process by which changes in the economic value of assets and liabilities are accounted is called marking to market. The changes can be beneficial as well as detrimental to the total economic health of the FI. 6. Consider three Treasury bonds each of which has a 10 percent semiannual coupon and trades at par. a. Calculate the duration for a bond that has a maturity of four years, three years, and two years? Four-year Treasury Bond: Par value = $1,000 Coupon rate = 10% Semiannual payments R = 10% CF t 0.5 $50 1 $50 1.5 $50 2 $50 2.5...
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...its other distributors? Is the company’s credit policy appropriate? Is it profitable? If not, how to change it? 3. Why does this firm need increasing amounts of bank debt? 4. As a member of BoD, how would you vote on: o The proposed raise for Oleg Pinchuk o The quarterly dividend declaration of €698,000. o Adoption of the financial plan for 2001? Spreadsheet file: Available Donaldson, Lufkin & Jenrette 1995 (Abridged) 1. Why is Equitable considering selling an interest in DLJ? 2. What are the relative advantages and disadvantages of carve-outs, spin-offs and divestiture through cash sale? 3. What is your estimate of DLJ's fair value per share? In answering this question, please draw upon as many valuation approaches as you can. Give special attention to the valuation multiples of DLJ’s peers. Who are these peers? Why do they qualify as peers? 4. At what price should DLJ be offered? Think carefully about your answer here. The offering price need not be identical to your answer to question 3. If answers to 3 and 4 differ, please prepare to explain why. Paginas Amarelas 1. What is the valuation problem here? In what currency are the cash flows denominated? In what currency should the discount rate be denominated? 2. In this case, why doesn’t J.P. Morgan discount local cash flows at a local required rate of return? In fact, why not use that approach generally? 3. To complete the estimation ofr a required rate...
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...Advanced Corporate Finance [FN2] Examination Blueprint 2013/2014 Purpose The Advanced Corporate Finance [FN2] examination has been constructed using an examination blueprint. The blueprint, also referred to as the test specifications, outlines the content areas covered on the examination and the weighting allotted to each content area. This document also lists the topics, the level of competence for each topic, and the related learning objectives and competencies. The learning objectives have been designed to ensure that the competencies are met. In addition, information is provided on the proportion of each question type presented in the examination (that is, multiple choice, quantitative problems, and so on). Use Candidates should use the examination blueprint to prepare for the course examination. The blueprint may not include all the topics listed in the course materials; however, candidates are still responsible for acquiring a broad-based knowledge of all topics not listed in the blueprint since these topics will be tested in assignment and review questions. The topics not listed in the blueprint will also provide candidates with a greater depth of understanding of finance concepts. Examination Objectives The objective of the 4-hour comprehensive examination is to test CGA candidates on the prerequisite knowledge required for advancement into PA1 and PA2, so as to ensure that the candidates have the broad-based knowledge in finance needed to function properly in the association’s...
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...EXCEL MODELING AND ESTIMATION IN CORPORATE FINANCE Third Edition CRAIG W. HOLDEN Max Barney Faculty Fellow and Associate Professor Kelley School of Business Indiana University Copyright © 2008 by Prentice Hall, Inc., Upper Saddle River, New Jersey 07458 To Kathryn, Diana, and Jimmy. Contents iii CONTENTS Preface ..................................................................................... vii Third Edition Changes .................................................................................... vii What Is Unique About This Book ..................................................................... x Conventions Used In This Book .......................................................................xi Craig’s Challenge ........................................................................................... xiii The Excel Modeling and Estimation Series .................................................. xiii Suggestions for Faculty Members ..................................................................xiv Acknowledgements ........................................................................................... xv About The Author ................................................................. xvi PART 1 TIME VALUE OF MONEY ..... 1 Chapter 1 Single Cash Flow ....................................................1 1.1 Present Value .......................................................................................
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...Advanced Modelling in Finance using Excel and VBA Mary Jackson and Mike Staunton JOHN WILEY & SONS, LTD Chichester ž New York ž Weinheim ž Brisbane ž Singapore ž Toronto Copyright 2001 by John Wiley & Sons, Ltd, Baffins Lane, Chichester, West Sussex PO19 1UD, England National 01243 779777 International (C44) 1243 779777 e-mail (for orders and customer service enquiries): cs-books@wiley.co.uk Visit our Home Page on http://www.wiley.co.uk or http://www.wiley.com All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 9HE, UK, without the permission in writing of the publisher. Other Wiley Editorial Offices John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, USA Wiley-VCH Verlag GmbH, Pappelallee 3, D-69469 Weinheim, Germany John Wiley & Sons Australia Ltd, 42 McDougall Street, Milton, Queensland 4064, Australia John Wiley & Sons (Asia) Pte Ltd, 2 Clementi Loop #02-01, Jin Xing Distripark, Singapore 129809 John Wiley & Sons Canada Ltd, 6045 Freemont Blvd, Mississauga, ONT, L5R 4J3, Canada British Library Cataloguing in Publication Data A catalogue record for this book is available from the British...
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...SPREADSHEET MODELING IN CORPORATE FINANCE To accompany Principles of Corporate Finance by Brealey and Myers CRAIG W. HOLDEN Richard G. Brinkman Faculty Fellow and Associate Professor Kelley School of Business Indiana University Prentice Hall, Upper Saddle River, New Jersey 07458 To Kathryn, you’re the inspiration, and to Diana and Jimmy, with joy and pride. Craig CONTENTS Preface PART 1 TIME VALUE OF MONEY Chapter 1 Single Cash Flow 1.1 Present Value 1.2 Future Value Problems Chapter 2 Annuity 2.1 Present Value 2.2 Future Value 2.3 System of Four Annuity Variables Problems Chapter 3 Net Present Value 3.1 Constant Discount Rate 3.2 General Discount Rate Problems Chapter 4 Real and Inflation 4.1 Constant Discount Rate 4.2 General Discount Rate Problems Chapter 5 Loan Amortization 5.1 Basics 5.2 Sensitivity Analysis Problems PART 2 VALUATION Chapter 6 Bond Valuation 6.1 Basics 6.2 By Yield To Maturity 6.3 System Of Five Bond Variables 6.4 Dynamic Chart Problems Chapter 7 Stock Valuation 7.1 Two Stage 7.2 Dynamic Chart Problems Chapter 8 The Yield Curve 8.1 Obtaining It From Bond Listings 8.2 Using It To Price A Coupon Bond 8.3 Using It To Determine Forward Rates Problems Chapter 9 U.S. Yield Curve Dynamics 9.1 Dynamic Chart Problems PART 3 CAPITAL BUDGETING Chapter 10 Project NPV 10.1 Basics 10.2 Forecasting Cash Flows 10.3 Working Capital 10.4 Sensitivity Analysis Problems Chapter 11 Cost-Reducing Project 11...
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...Valuing Publicly Traded Equity Securities: The Black & Decker Corporation (BDK) [1] I. Introduction This teaching note describes the valuation of publicly traded equity securities using the Discounted Cash Flow (DCF) and Price/Characteristic (market comparison) approaches, with a specific spreadsheet example for The Black and Decker Corporation. Free cash flow valuation and comparables (comps) are key tools in fundamental analysis, the process of picking stocks with high expected return based on an analysis of the company. In theory, buying stocks of companies that are undervalued in the stock market will produce high returns as other investors slowly realize the company’s true value and quoted share prices increase to match that value. Three basic ideas underlie the application of discounted cash flow (DCF) analysis. First, the value of a company is ultimately derived from the cash that can be extracted from that company, and more cash is preferred to less. Second, cash received in the future is not as valuable as cash received today. Third, risky cash flows are valued less than cash flows known with relative certainty. The process of valuing publicly traded equity using DCF involves three steps. First, condensed financial statements, also called pro-forma statements, are forecasted several years into the future. Second, the forecasted statements are used to calculate free cash flows for the entire firm, which are then discounted by the...
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...Corporate Finance Fundamentals [FN1] Examination Blueprint 2010–2011 Purpose The Corporate Finance Fundamentals [FN1] examination has been constructed using an examination blueprint. The blueprint, also referred to as the test specifications, outlines the content areas covered on the examination and the weighting allotted to each content area. This document also lists the topics, the level of competence for each topic, and the related learning objectives. The learning objectives have been designed to ensure that the competencies are met. In addition, information is provided on the proportion of each question type presented in the examination (that is, multiple choice, quantitative problems, and so on). Use Students should use the examination blueprint to prepare for the course examination. The blueprint may not include all the topics listed in the course outline; however, students are still responsible for acquiring a broad-based knowledge of all topics not listed in the blueprint since these topics will be tested in assignment and review questions. The topics not listed in the blueprint will also provide students with a greater depth of understanding of finance concepts. Examination Objectives The objectives of this 3-hour, comprehensive examination are to test CGA students on the prerequisite knowledge required for the completion of Accounting Business Case [BC1] and advancement into Financial Accounting Consolidations and Advanced Issues [FA4], Accounting Theory and Contemporary...
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...Fin350 Week 7 Module 7 Practice Problems Click Link Below To Buy: http://hwcampus.com/shop/fin350-week-7-module-7-practice-problems/ Follow these instructions for completing and submitting your assignment: 1. Do all work in Excel. Do not submit Word files or *.pdf files. 2. Submit a single spreadsheet file for this assignment. Do not submit multiple files. 3. Place each problem on a separate spreadsheet tab. 4. Label all inputs and outputs and highlight your final answer. 5. Follow the directions in the “Guidelines for Developing Spreadsheets.” P8–9 Rate of return, standard deviation, and coefficient of variation Mike is searching for a stock to include in his current stock portfolio. He is interested in Hi-Tech, Inc.; he has been impressed with the company’s computer products and believes that Hi-Tech is an innovative market player. However, Mike realizes that any time you consider a technology stock, risk is a major concern. The rule he follows is to include only securities with a coefficient of variation of returns below 0.90. Mike has obtained the following price information for the period 2012 through 2015. Hi-Tech stock, being growth-oriented, did not pay any dividends during these 4 years. Stock price Year Beginning End 2012 $14.36 $21.55 2013 21.55 64.78 2014 64.78 72.38 2015 72.38 91.80 a. Calculate the rate of return for each year, 2012 through 2015, for Hi-Tech stock. b. Assume that each year’s return is equally probable, and calculate...
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...EMBA Program in Mexico City FINANCIAL MANAGEMENT: Spring 2012 Professor: Dr. Ramesh K. S. Rao Voice Mail: 512-475-8756 Fax: 512-471-5073 E-Mail: ramesh.rao@mccombs.utexas.edu Professor: Prof. James (Jim) Nolen Voice Mail: 512-471-5798 Fax: 512-471-5073 E-Mail: james.nolen@mccombs.utexas.edu Teaching Assistants: John Walker (Mexico City) Email : juan.walker@mba06.mccombs.utexas.edu Email 2 : jwalker22ar@gmail.com Mobile : 04455-16962736 Andres Herrera (Austin) Email: andres.herrera@mba12.mccombs.utexas.edu Mobile: 512-529-2730 Course Objectives • to introduce the concepts and theories of modern financial management, • to develop an appreciation for the usefulness of these theories for financial decision-making, • to develop the student's financial decision-making skills, • to provide an overview of current financial management theories and practices. Text Required: Corporate Finance by Ross, Westerfield and Jaffe, 9th ed., McGraw-Hill Irwin Supplemental: Financial Management, Concepts and Applications, 3rd ed., 1995, Ramesh K.S. Rao, SouthWestern Publishing Co., Cincinnati, a division of International Thompson. The...
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...Fin350 Week 7 Module 7 Practice Problems Click Link Below To Buy: http://hwcampus.com/shop/fin350-week-7-module-7-practice-problems/ Follow these instructions for completing and submitting your assignment: 1. Do all work in Excel. Do not submit Word files or *.pdf files. 2. Submit a single spreadsheet file for this assignment. Do not submit multiple files. 3. Place each problem on a separate spreadsheet tab. 4. Label all inputs and outputs and highlight your final answer. 5. Follow the directions in the “Guidelines for Developing Spreadsheets.” P8–9 Rate of return, standard deviation, and coefficient of variation Mike is searching for a stock to include in his current stock portfolio. He is interested in Hi-Tech, Inc.; he has been impressed with the company’s computer products and believes that Hi-Tech is an innovative market player. However, Mike realizes that any time you consider a technology stock, risk is a major concern. The rule he follows is to include only securities with a coefficient of variation of returns below 0.90. Mike has obtained the following price information for the period 2012 through 2015. Hi-Tech stock, being growth-oriented, did not pay any dividends during these 4 years. Stock price Year Beginning End 2012 $14.36 $21.55 2013 21.55 64.78 2014 64.78 72.38 2015 72.38 91.80 a. Calculate the rate of return for each year, 2012 through 2015, for Hi-Tech stock. b. Assume that each year’s return is equally probable, and calculate...
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...Licensed to: iChapters User Eugene F. Brigham UNIVERSITY OF FLORIDA Joel F. Houston UNIVERSITY OF FLORIDA Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Eugene F. Brigham UNIVERSITY OF FLORIDA Joel F. Houston UNIVERSITY OF FLORIDA Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Licensed to: iChapters User This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time...
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...the following information: Sector | | Industry | | Stock Type | | Stock Style | | 3. In your own words (i.e. do NOT cut and paste), describe what the company does. 4. Refer to p. 86-87 of the Wall Street Journal Complete Personal Finance Guidebook. a. How are growth stocks defined? b. What values are their P/E ratios expected to have? c. How are value stocks defined? d. What values are their P/E ratios expected to have? 5. Right now, the average stock has a Forward P/E of about 15. Based on the Forward P/E ratio of your stock and your answers to #4 above, is your stock a growth stock or a value stock? 6. The “Stock Style” is determined by the market cap and the valuation ratios (Forward P/E and P/B). The first word (large, mid, small)...
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