FINANCE HELP
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Copy of Fin 421 HW1 Excel.xlsx
Range 1
| Date | GE US Equity - Last Price | GE US Equity - Percent | SPX Index - Last Price | SPX Index - Percent | GE US Equity - Fitted | GE US Equity - Residual |
| 08/29/2014 | 25.98 | 3.3002 | 2003.37 | 3.77 | 4.0295 | 0.7293 |
| 07/31/2014 | 25.15 | -4.2998 | 1930.67 | -1.51 | -3.6526 | 0.6472 |
| 06/30/2014 | 26.28 | -1.9037 | 1960.23 | 1.91 | 1.3204 | 3.2241 |
| 05/30/2014 | 26.79 | -0.3719 | 1923.57 | 2.1 | 1.6077 | 1.9795 |
| 04/30/2014 | 26.89 | 3.8625 | 1883.95 | 0.62 | -0.5526 | -4.4151 |
| 03/31/2014 | 25.89 | 1.649 | 1872.34 | 0.69 | -0.4461 | -2.0951 |
| 02/28/2014 | 25.47 | 1.353 | 1859.45 | 4.31 | 4.8251 | 3.4721 |
| 01/31/2014 | 25.13 | -10.3461 | 1782.59 | -3.56 | -6.6394 | 3.7067 |
| 12/31/2013 | 28.03 | 5.1388 | 1848.36 | 2.36 | 1.9766 | -3.1622 |
| 11/29/2013 | 26.66 | 1.9893 | 1805.81 | 2.8 | 2.6302 | 0.6409 |
| 10/31/2013 | 26.14 | 9.4182 | 1756.54 | 4.46 | 5.0405 | -4.3777 |
| 09/30/2013 | 23.89 | 3.2411 | 1681.55 | 2.97 | 2.8778 | -0.3633 |
| 08/30/2013 | 23.14 | -5.0472 | 1632.97 | -3.13 | -6.0152 | -0.968 |
| 07/31/2013 | 24.37 | 5.0884 | 1685.73 | 4.95 | 5.7494 | 0.661 |
| 06/28/2013 | 23.19 | -0.5575 | 1606.28 | -1.5 | -3.6409 | -3.0834 |
| 05/31/2013 | 23.32 | 4.6209 | 1630.74 | 2.08 | 1.5687 | -3.0522 |
| 04/30/2013 | 22.29 | -3.59 | 1597.57 | 1.81 | 1.1787 | 4.7687 |
| 03/29/2013 | 23.12 | -0.4307 | 1569.19 | 3.6 | 3.7865 | 4.2172 |
| 02/28/2013 | 23.22 | 4.219 | 1514.68 | 1.11 | 0.1553 | -4.0637 |
| 01/31/2013 | 22.28 | 6.1458 | 1498.11 | 5.04 | 5.8901 | -0.2557 |
| 12/31/2012 | 20.99 | -0.6626 | 1426.19 | 0.71 | -0.4262 | 0.2363 |
| 11/30/2012 | 21.13 | 0.3324 | 1416.18 | 0.28 | -1.0412 | -1.3736 |
| 10/31/2012 | 21.06 | -7.2655 | 1412.16 | -1.98 | -4.3387 | 2.9269 |
FIN 421 HW1(2).docx
ID #:
Homework 1
FIN 421, SDSU Fall 2014
Due: October 7th, 2014 at the beginning of class
Instructions- Answer each question completely and clearly show your work in a logical fashion. Partial credit is given even for wrong answers. Turn in your answers at the beginning of class. Late homework or emailed homework will not be accepted. I will have the answer key posted during class on Oct. 7th. Please only help your classmates by teaching them, providing them the answers wont benefit you or your classmate (though I know it wont happen )
1. Three bonds are offered to two separate clients in California, a school teacher and a brain surgeon. The first bond presented to the clients is a City of San Diego municipal bond yielding 5.5%, the second bond is a US Treasury Bill yielding 4% and a corporate bond from General Electric yielding 6.25%. Given the school teacher’s tax rate is 25% and the surgeon’s tax rate is 45%, what bond would they prefer and what yield would they expect to earn?
2. Find the after-tax return to a corporation that buys a share of preferred stock at $34, sells it at year-end at $34, and receives a $4 year-end dividend. The firm is in the 30% tax bracket.
3. Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two for one in the second period and Stock B be splits four for one in the third period.
|
|
P(0) |
Q(0) |
P(1) |
Q(1) |
P(2) |
Q(2) |
P(3) |
Q(3) |
|
Stock A |
100 |
400 |
105 |
400 |
103 |
400 |
100 |
400 |
|
Stock B |
45 |
450 |
42 |
450 |
40 |
450 |
10 |
1800 |
|
Stock C |
90 |
700 |
100 |
700 |
52 |
1400 |
55 |
1400 |
A. Calculate the rate of return on a price-weighted index of the three stocks for the three periods in the table above.
4. Use the table below of option prices for Exxon to answer the following questions. Exxon is currently trading at $94.25. For clarity, the options are read in this format, (Stock Ticker, date of expiration, Call or Put, Strike Price), XOM 12/20/14 C90 is a call option on XOM with a strike price of 90 and expiring on 12/20/2014
You are very confident in Exxon and feel their upcoming earnings will far exceed what the investment community thinks. You think Exxon will jump to $105 on December 20th 2014.
A. Using the December 20th 2014 call options and your budget of $1,000 to spend on call options, which option would provide you the greatest return on your $1,000 of investable capital given your assumptions and constraints? Can only buy whole contracts. $1000 will be your denominator in calculating returns, not your invested amount.
B. Now instead of buying options, you decided to buy shares of Exxon on margin. On September 20th 2014 you bought as many whole shares as possible with your $1,000 and your broker’s initial margin requirement is 50%. What is your rate of return on your $1,000 of investable capital? Cost of borrowing is 3%.
C. Which investment provides the best return?
5. Suppose you purchased a mutual fund that is currently trading at $42.45, after holding it for one year you decide to sell it for $46.50. This mutual fund has a 2% front-end load, a 1.25% expense ratio and the fund distributed $.75 in income during the year.
A. You have $1,000 to invest and purchased as many whole shares as you can, what was your pretax return on your investment?
B. Given the situation in part A, if the fund instead had a 2% back end load, describe what you expect the return to be. (No numbers needed)
6. A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.8%. The probability distributions of the risky funds are:
|
|
Expected Return |
Standard Deviation |
|
Stock Fund |
19% |
27% |
|
Bond Fund |
9% |
11% |
The correlation between the two funds is .19.
A. What is the expected return and standard deviation of the minimum variance portfolio?
7. Use the Bloomberg screens below to answer questions regarding Exxon.
A. What is the security characteristic line for Exxon? Interpret the result. Use the first screen shot
B. Fill in the blank boxes of the second screen shot. Hint- You use the security characteristic line.
C. Compare the first and third screen shot and contrast the results. Provide possible explanations to account of any differences. (You do not need to compare every data point, a couple correct sentences and data points in your explanation will suffice)
D. Using the Excel data sheet provided with this assignment, create your own security characteristic line for General Electric. This is a challenge problem for you to explore Excel and use some data.
