fin600- correct asnwers

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Instructions

			Instructions
NAME:
	To complete the homework assignments in the templates provided:
	1.	The question is provided for each problem. You may need to refer to your textbook for additional information in a few cases.
	2.	You will enter the required information into the shaded cells.
	3.	The cells are coded:
		a) T requires a text answer. Essay questions require references; use the textbook.
		b) C requires a calculation, using Excel formulas or functions. You cannot perform the operation on a calculator and then type the answer in the cell. You will enter the calculation in the cell, and only the final answer will show in the cell. I will be able to review your calculation and correct, if necessary.
		c) F requires a number only. In some problems, a “Step 1” is added to help you solve the problem.
		d) Formula requires a written formula, not the numbers. For example, the rate of return = [(1 + nominal)/ (1+inflation)]-1, or D (debt) + E (equity) = V (value).
	4.	Name your assignment file as "lastnamefirstinitial-FINC600-Week#", and submit by midnight ET, Day 7.

P7-2

Problem 7-2
The following table shows the nominal returns on U.S. Stocks and the rate of inflation:
		Year	Nominal Return (%)	Inflation (%)
		2004	12.5	3.3
		2005	6.4	3.4
		2006	15.8	2.5
		2007	5.6	4.1
		2008	-37.2	0.1
	a) What was the standard deviation of the market returns?
	b) Calculate the average real return.
Answers:
a) What was the standard deviation of the market returns?
	Find the standard deviation by completing the table with the appropriate formulas
		Year	Nominal Return (%)	Difference from Average	Squared Difference	TIP: Click on the cell for directions
		2004	0.125	0.1188	0.01
		2005	0.064	0.0578	0.00
		2006	0.158	0.1518	0.02
		2007	0.056	0.0498	0.00
		2008	-0.372	-0.3782	0.14
		Total 2004-2008	0.031	0	0.04
		Average	0.0062		0.01
		Std. Deviation			19.3%	Use SQRT function for this answer only
b) Calculate the average real return.
	Find the average real return by completing the table with the appropriate formulas
		Year	Nominal Return (%) Owner: Owner: You need to express as a percent in the calculation. For example, 12.5/100=.125	Inflation (%) Owner: Owner: Owner:You need to express as a percent in the calculation. For example, 3.3/100=.033	Real Return (%) Owner: Real return = [(1 +nominal)/(1+inflation)]-1	TIP: Click on the cell for directions
		2004	0.125	0.033	0.089
		2005	0.064	0.034	0.029
		2006	0.158	0.025	0.130
		2007	0.056	0.041	0.014
		2008	-0.372	0.001	-0.373
		Average	0.0062	0.0268	-2.21%

P8-6

Problem 8-6
Suppose that the Treasury bill rate were 6% rather than 4%. Assume that the expected return on the market stays at 10%. Use the betas in Table 8.2 (p. 193) - also provided below.
a. Calculate the expected return from Dell. b. Find the highest expected return that is offered by one of these stocks. c. Find the lowest expected return that is offered by one of these stocks. d. Would Ford offer a higher or lower expected return if the interest rate were 6% rather than 4%? Assume that the expected market return stays at 10%. e. Would Exxon Mobil offer a higher or lower expected return if the interest rate were 8%?
Answers:
		Formula		Calculation
A. Dell's expected return		Rf + (Beta (Rm - Rf))		0.1246	12.46%
B./C.
Stock	Beta (B)	Revised T Bill Risk-Free Rate	Market Return	Expected return		Note: The expected return should be stated as a percentage using format cell. However the same is not done as the formatting of cells have not been altered
Amazon	2.16	4%	10%	0.17
Ford	1.75	4%	10%	0.15		Note: In this ques treasury bill rate is condidered 4% as from ques d and e it seems previously the trearury bill rate was 4%.
Dell	1.41	4%	10%	0.12
Starbucks	1.16	4%	10%	0.11
Boeing	1.14	4%	10%	0.11
Disney	0.96	4%	10%	0.10
Newmont	0.63	4%	10%	0.08
Exxon Mobil	0.55	4%	10%	0.07
Johnson & Johnson	0.5	4%	10%	0.07
Campbell Soup	0.3	4%	10%	0.06
B. Highest	Amazon has the highest rate of return
C. Lowest	Capbell soup has the lowest rate of return
D. FORD will offer a lower expected return at 6%.				Higher or lower?
Interest rate	4%	6%
Rate of return	14.50%	13.00%
E. Exxon will offer a higher_ expected return at 8%.				Higher or lower?
Interest rate	4%	8%
Rate of return	7%	9.10%

Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.

Principles of Corporate Finance, Concise, 2nd Edition