...Part A: PROBLEM-SOLVING QUESTIONS (Answer all FOUR questions). This assignment is 20% of the total mark. 1. Suppose a 10-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading for a price of $1034.74. (10 Marks) a. What is the bond’s yield to maturity (expressed as an APR with semiannual compounding)? CPN = PMT = $40 = 1000/2*0.08 P = $1034, 74 N = 20 FV = $1000 Using Therefore y = 3,75 And APR = 7.5% b. If the bond’s yield to maturity changes to 9% APR, what will the bond’s price be? Using the formula above with y=4,5 P= $934,96 I don’t see the need of including the excel file as it is simple calculations 2. FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $200,000 per year. Once in production, the bike is expected to make $300,000 per year for 10 years. Assume the cost of capital is 10%. (10 Marks) a. Calculate the NPV of this investment opportunity, assuming all cash flows occur at the end of each year. Should the company make the investment? As the cash flows occur at the end of the year, being t the year we are calculation for the cash flow (R), when t=0 R=0. From t=1 to t=6, R=-200000$. After that, from t=7 to t=16, R=+300000$. Cost of capital, I, is 10% We need to use the Net Present Value decision rule. Using that formula in excel, NPV = $169482 As it is positive, the company should enter the investment. It would be like having...
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...International Finance Paper Leonel A. Santana FIN/419 October 11, 2012 Florentino Lopez International Finance Paper To comprehend how worldwide banking has made it easier for Wal- Mart to attain its growth plan, one has to understand the contents of the worldwide banking process. According to financial experts worldwide investment banking includes acquisitions, mergers, underwriting, distributing equity, debt, financial restructurings, derivative securities, and divestitures. As far as Wal-Mart is concerned acquisitions and mergers have allowed them to establish and expand its being there in nations not fond of global nations; namely India and China. (Wal-Mart, 2010). With the world’s population at 6.8 billion and with China and India’s combined population approximated at 2.5 billion; both countries make up almost 40percent of the world’s population. Trying to tap into the biggest markets in Asia offers vast potential for expansion and profits for Wal- Mart. On the other hand India and China prove to be difficult markets an American company to go into because the government lacks related transparency, and discriminates American firms. To rise above the difficulties of foreign investments and increase its presence in China and India, Wal-Mart is relying on merging and using joint ventures. Wal- Mart’s venture consists of a 35 percent interest in China’s BCL (Bounteous Company Limited), and a joint investment...
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...Homework #1 1. Suppose you hire a real estate agent and tell him to sell your house to the highest bidder. You pay the real estate agent a flat fee of $50,000 when the house is sold. You learn that, unfortunately, the agent sells the house to the first bidder at a low price. a. What is this type of problem called? b. What is one way to change the real estate agent’s incentive so he does sell to the highest bidder, instead of to the first one? a. This type of problem is known as an agency problem b. One way to change the real estate agent’s incentive so that he is motivated to find the highest bidder is instead of paying him a flat fee of $50,000 you offer him a commission that pays him a percentage of the house’s sales price. This way he will try to find the highest bidder so he can maximize the amount of money he gets and you can get the best possible price for your house. 2. Suppose you own one share of stock in ABC Inc. and one share of stock in XYZ Co. You can sell both shares at $100, but it will take you much longer to find a buyer willing to pay $100 for XYZ compared to ABC. a. Which stock is more liquid? b. If you had to sell both stocks today, which one would sell for a higher price? a. The stock for ABC Inc. is more liquid because it can be sold more quickly with limited price impact. b. The stock for ABC Inc. would sell for a higher price because it is the most liquid out of the two. 3. National Bank pays 3% simple interest on its...
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...University of Texas at Dallas Jindal School of Management FIN4300 Problem Set #3 Fall 2014 Important note: Please submit paper copy of your solutions Due Dates: Dec. 8 for Section 002 and Section 501; Dec. 9 for Section 001 (all in-class) 1. Suppose you are a portfolio manager at Paulson & Co. Inc. Today is the last day of April 2013. Your portfolio did not do well in the most recent month. After learning about the post earnings announcement drift, you decide to give it a try. You gather most recent earnings information on 100 stocks as of April 30 2013. After examining the earnings surprises, you decide to buy an equally weighted portfolio of the top 10 stocks with the most positive earnings surprises. At the same time, you decide to short sell an equally weighted portfolio of the bottom 10 stocks with the most negative earnings surprises. Suppose the dollar amount for both the long and short is based on $10 million. The data for this exercise is included in the excel file SUE final q3.xlsx. (a) Suppose you hold your portfolios for one quarter (from May 1, 2013 to July 31, 2013). What is the return from your long-portfolio? What is the return from your short-portfolio? What is the return from the combined long-short portfolios? (b) Given the return you find from the above exercise, is it consistent with efficient market hypothesis? If yes, state the reason; if not, which form of EMH is violated and why? 2. (a) Many traders claim to observe patterns in stock...
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...Content Behavior Biases discussed in the article 2 Other behavior biases and empirical challenges 2 Lose aversion 2 Representativeness 3 Conservatism 3 Herd behavior 4 Limits to arbitrage 5 Weak-form efficiency. 5 Semi-strong form efficiency 6 Strong-form efficiency 6 Cross country and market settings difference 6 Appendix 8 References 13 Behavior biases discussed in the article The behavior biases that have been discussed are over-confidence and over-optimism. Those two biases lead investors to overestimate their knowledge, understate the risks and exaggerate their ability to control the situation and hence to trade excessively. Overconfidence about certain signals may cause overreaction and hence phenomena such as the book/market effect and long-run reversals whereas self-attribution allows prices to continue to overreact, creating momentum. In the longer-run there is reversal as prices revert to fundamentals. Other behavior biases and empirical challenges First of all, it is impractical to claim that people in general and investors in particular are fully rational. Several biases contribute to the irrationality. Loss aversion People don’t look at the levels of final wealth they can attain but at gains and losses relative to some reference points. They tend to avoid actions that could create discomfort over prior decisions, even though those actions may be in the individual’s best interest. Researchers have showed evidence of investors’ reluctance to sell losing positions...
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...ratio analysis is a useful tool for managers and investors that would like to evaluate the company’s financial health. By using this analysis companies are able to identify opportunities for growth and areas of weakness to determine where corporations can put in place corrective measures in order to rectify their areas of weakness. Financial statements are used in order to predict trends of cash flow within the business as well as predict the potential of a business and if they are capable of financial growth. Ratio analysis allows companies to analyze the future revenue of a company’s profit or a company’s loss. This paper will examine the benefits and limitations of ratio analysis, explain what factors impact the meaningfulness of such measures and what new practices or theories may be emerging regarding the application of ratio and financial statement. The paper concludes that ratio and financial statements is an essential tool used in analyzing a company’s profit. Close your eyes and think about all of the products you have consumed today. You purchased lunch from McDonald’s, used Google to help you find directions, drove your Toyota to work and grabbed your Nike sneakers as you headed to the gym. What do all of these brands have in common? They are well known market leaders and multinational organizations. Consumers are unaware of how many multinational brands they come into contact with daily, however, these organizations mass-produce goods...
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...Finance Analysis Paper Yahoo! Finance Yahoo! Finance is a service from Yahoo that provides financial information in various ways including stock quotes, corporate press releases, financial reports, stock exchange rates as well as popular message boards for discussing a company's forecasts and stock valuations. It holds the title for the top financial news and research website in the United States, with an astounding 23 million visitors in February 2010. It also offers tools for personal finance management. Yahoo! Finance includes similar portals identified to diverse large countries in South America, Europe, and Asia. Yahoo! is one remarkable website that is not only a favorable site for people linked with finance but is fairly easy to navigate. Anyone from experts who are tech-savvy to beginners who are just exploring the world of technology will able to find the most up to date and beneficial information regarding finance and investment with this website. There are many practical tools such as currency calculators, and a finance glossy that will help you uncover the world of finance and even personal investments you may be interested in. This site offers information in personal finance, latest news and of course investing. These sections are then sub-divided into additional categories that will help fulfill your curiosity in finance. Beginners especially will be excited to learn and understand the concepts of the finance market more properly. A few helpful sections beginners...
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...Title Author Research Objectives Hypothesis Methodology Data collection methods Sample Statistical method Findings/result Conclusion Islamic Finance and the Afterlives of Development in Malaysia Daromir Rudnyckyj To describes some of the actions that have taken to position Kuala Lumpur as the central node in this emerging financial system. It also highlights the key principles of Islamic finance and the debates in which practitioners are engaged while developing a shariah-compliant financial system. Four aspects of Malaysia’s Islamic finance project reflect the afterlives of development. A novel approach to capitalism has been created to show how the efforts build on prior legacies of develop mentalism. First, state plans to build an Islamic...
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...Finance Terms and Roles Paper Finance is simply the management of money. It is also described as the study of how people and businesses evaluate investments and raise capital to fund them (Mayo, 2012). When one think of finance, the first thing that comes to mind is cash flow (the amount of cash a company spend and receives.) The financial aspect of business includes receipt of cash, sales, management of finances, amongst other financial transactions. Loans and investments into a business is one of the first portions business owners seek knowledge in. Most first time business owns seek out loans and investments for startup money. Finance is an important aspect of business and in everyday situations. An efficient market is when all of the market’s participants can see the values of a public company at any given moment. The importance of an efficient market is there are not any over or undervalued stocks because all stock is traded based on information that is available to everyone. In this market businesses are able to raise money. A primary market is a financial market in which new securities (tradable assets) are bought and sold the initial time (Mayo, 2012). On the other hand, a secondary market is a market where previously issued securities are bought and sold (Mayo, 2012). Companies do not receive any additional money in a secondary market. A loss is a loss and a profit is a profit. Risk is the chance investors take when investing money into a business. Investors take...
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...International Finance Regina Ingel, Teri-Lee Begay, Kyle Oswald, and Clint Gray FIN/419 May 25, 2015 Jon Payne International Finance Coca Cola (CCE) has a huge footprint across the world. They are located in over 200 countries. With a footprint of that size it is vital for CCE to work with an investment bank. A discussion of the global banking process and how it has assisted CCE, how regulatory bodies affect financial decisions, and evaluate contemporary issues in international financial management. Global Investment Banking Investment banks are institutions that support companies, for instance, Coca Cola (CCE) in many different ways. First, they assist CCE in raising capital. Second, they offer advice on major transactions including mergers and financial restructuring. Finally, they engage in trading and market making activities for CCE (Gitman, 2014). Coca Cola is sold in over 200 countries. In fact there are only 2 countries in which Coca Cola is not sold, Cuba and North Korea. Both of these countries are under long-term US trade embargoes. However, the rest of the world is able to sell Coca Cola without any issues. In the last six months Coca Cola has acquired SABMiller, Appletiser brands and 19 non-Alcoholic ready to drink brands in Africa and Latin America (Bloomberg, 2014). The acquisition cost CCE $260, but gives them a bigger presence in Africa and Latin America. An acquisition of this nature is done with the help of an investment bank who in most...
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...Global Finance Environment Paper FIN/403 May 4, 2008 Globalization refers to the merging of national markets into one huge global marketplace. In today’s market, selling internationally is much easier due to falling barriers in cross-border trade. Now businesses don’t have to be industry giants to operate and succeed in global markets. Although it can be beneficial to offer a standard product that can be used worldwide, significant differences still exist between national markets such as cultural differences, consumer taste differences, product preferences and legal regulations. It is important to define and understand these differences when merging into national markets. Globalization is inevitable and it’s happening at an astonishing speed in nearly every market possible. The technology era that we are in has enabled businesses to join forces like never before and we are seeing significant changes in the global marketplace. There are main drivers in globalization and this paper will define three of them, as well as describe the risks associated with financial investing, and explain the importance of cultural sensitivity and ethics in global finance. Drivers of Globalization Market drivers Domestic markets are saturated and growth opportunities are often times limited. Expanding globally opens up many new opportunities allowing for real growth within a business. The following lists in detail the specific market drivers that play a key role...
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...Bank of America Stetson O’Flaherty Mark Cole Lithonia Campus Date: 11 - 5 - 2014 Strayer University Use data from within the past three (3) years to identify the profit margin, debt to asset ratio, price-earnings (PE) ratio, inventory turnover, current ratio, and times interest earned for the firm that you have selected. Bank of America Corporation (NYSE:BAC) is the world's largest holding bank company in terms of 2009 assets and total revenue. Through its numerous subsidiaries, the Charlotte, North Carolina-based bank offers a full range of financial and non-financial services in three principal divisions: Global Consumer and Small Business Banking, Global Corporate and Investment Banking, and Global Wealth and Investment Management. The firm has a strong geographical presence in all 50 U.S. states and the District of Columbia, as well as in 40 foreign countries, and serves over 55 million consumer and small business clients. For the full year 2010, Bank of America reported total revenue of $111.4B and a net loss of $2.2B. (NYSE USA2004- 2014) The weak US housing market causes the rate of foreclosures to remain high with approximately 1.8M homes either delinquent or in foreclosure.[Increased or sustained foreclosures puts a significant cost on Bank of America's Home Loans and Insurance segment. Debt to asset ratio, price-earnings (PE) As of today, Bank of America Corporation's share price is$16.72. Bank of America Corporation's earnings per share without non-recurring...
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...Personal finance is the process of which an individual or a family undergoes to budget, save, and spend their money over time, taking into account various financial risks and future life events. To me, personal finance means all of the above and that I am financially successful. To be financially successful means that I am able to pay off all debts (credit card, car, etc), provide and support my family by living an adequate lifestyle, have enough money to be able to pay for unexpected events or problems like car problems, a broken wrist, or a leaky roof and to still have enough money left over to be able to go on trips and do other fun things. The first step towards financial success starts with your job. You need to make enough money to support...
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...International Finance Karen Davis University of Phoenix September 9, 2010 Introduction 3. A firm’s current balance sheet is as follows: Assets - $100 Debt $10 Equity $90 Question 3a. What is the firm’s weighted cost of capital at various combinations of debt and equity, given the following information? Debts/Assets After Tax Debt Cost Cost of Equity Cost of Capital (weight)(cost of debt) weight (cost of equity) = k (cost of capital) 0% 8% 12% 10 8 12% 20 8 12% 30 8 13% 40 9 14% 50 10 15% 60 12 16% Answer – Debts/Assets After Tax Debt Cost Cost of Equity Cost of Capital (weight)(cost of debt) weight (cost of equity) = k (cost of capital) 0% (.0)(.08) (1.0)(.12) 12.0 % 10% (.1)(.08) (.9)(.12) 11.6 % 20% (.2)(.08) (.8)(.12) 11.2% 30% (.3)(.08) (.7)(.13) 11.5% 40% (.4)(.09) (.6)(.14) 12.0% 50% (.5)(.10) (.5)(.15) 12.5% 60% (.6)(.12) (.4)(.16) 13.6% Question 3b. Construct a pro forma balance sheet that indicates the firm’s optimal capital structure. Compare this balance sheet with the firm’s current balance sheet. What course of action should the firm take? CURRENT BALANCE SHEET PROFORMA BALANCE SHEET Assets - $100 Assets - $100 Debt $10 Debt $20 Equity $90 Equity $80 The optimal capital structure is “the unique capital structure that minimizes the firm’s composite cost of long-term capital” (Keown, et.al. 2005). The debt is 20% of the capital and the cost of capital is 11...
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...MBAA 518 Managerial finance Final Paper https://homeworklance.com/downloads/mbaa-518-managerial-finance-final-paper/ Write a short concise stock recommendation report for a firm in which you would recommend as a buy. You are correct that this is not an investments class but as you take a look at the examples provided you will see the application of various topics studied in this course. You will see ratios discussed, discounted cash flow valuation applied, growth opportunities analyzed and ultimately whether or not the investment opportunity is one that should be pursued. This investment opportunity and determining the risk, reward and valuation all are discussed throughout this course . Your paper will be in the range of 2 to 3 pages formatted similarly to the examples provided. References must be included and those should be referenced using the latest APA guidelines. Must include a brief discussion of the industry and industry outlook and where the firm being analyzed stands and performs in the industry. You will not that ratio analysis is often used but the ratios may vary by industry. In other words the key ratios used to analyze firms in industry “A” are not the same ratios used to analyze firms in industry “B”. Valuation is often considered using more than one method. Discounted cash flows may be used in conjunction with an appropriate ratio (again the ratio likely varies across industry). How does the current share price compare to what your analysis values the...
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