Question

 

This is a business finance course.

Using Excel, complete the following problems from chapter 12 in the textbook:
Chapter 12 questions.
P12-1
P12-2
P12-7
P12-9
P12-10
P12-11

book location, if needed however the problems are copied exactly from the book.
http://gcumedia.com/digital-resources/wiley/2013/introduction-to-finance-markets-investments-and-financial-management_ebook_15e.php

1. From the information below, compute the average annual return,
the variance, standard deviation, and coefficient of variation for each
asset.
ASSET ANNUAL RETURNS
A 5%, 10%, 15%, 4%
B 2 6%, 20%, 2%, 2 5%, 10%
C 12%, 15%, 17%
D 10%, 2 10%, 20%, 2 15%, 8%, 2 7%

2. Based upon your answers to question 1, which asset appears riskiest
based on standard deviation? Based on coefficient of variation?

7. Find the real return, nominal after-tax return, and real after-tax
return on the following:
STOCK NOMINAL RETURN INFLATION TAX RATE
X 13.5% 5% 15%
Y 8.7% 4.7% 25%
Z 5.2% 2.5% 28%

9. Using the information below, compute the percentage returns for
the following securities:
SECURITY	 PRICE	 PRICE ONE 	DIVIDENDS	 INTEREST
TODAY 	YEAR AGO 	RECEIVED	 RECEIVED
RoadRunner 	$20.05 	$18.67 		$0.50
Stock	
Wiley Coyote	 $33.42	$45.79 		$1.10
stock
Acme longterm
bonds 		$1,015.38	 $991.78 		$100.00
Acme short
termbonds 	$996.63 	$989.84 		$45.75
Xlingshot 		$5.43 	$3.45 		$0.02
Stock

10. Given her evaluation of current economic conditions, Ima Nutt
believes there is a 20 percent probability of recession, a 50 percent
chance of continued steady growth, and a 30 percent probability of
infl ationary growth. For each possibility, Ima has developed an interest
rate forecast for long-term Treasury bond interest rates:
ECONOMIC INTEREST RATE
FORECAST FORECAST
Recession 6 percent
Constant growth 9 percent
Infl ation 14 percent
a. What is the expected interest rate under Ima’s forecast?
b. What is the variance and standard deviation of Ima’s interest
rate forecast?
c. What is the coeffi cient of variation of Ima’s interest rate forecast?
d. If the current long-term Treasury bond interest rate is 8
percent, should Ima consider purchasing a Treasury bond?
Why or why not?



11. Ima is considering a purchase of Wallnut Company stock. Using
the same scenarios and probabilities as in problem 10, she estimates
Wallnut’s return is 2 5 percent in a recession, 20 percent in constant
growth, and 10 percent in infl ation.
a. What is Ima’s expected return forecast for Wallnut stock?
b. What is the standard deviation of the forecast?
c. If Wallnut’s current price is $20 per share and Wallnut is
expected to pay a dividend of $0.80 per share next year, what
price will Ima expect Wallnut to sell for in one year?

 

    • 6 years ago