energy sector problem set
tiger_
em565_wk2_problem_set.xlsTVM
| Problem Set 1. | Total Possible Points: 25 | |||||
| Finance 565/EM | ||||||
| Show all work. | ||||||
| Chapter 2: Reference Equations 2.1, 2.2, 2.3 | ||||||
| Time Value of Money | ||||||
| Compute the present value of the following sums: | ||||||
| a. 2000 to be received in five years, expected interest rate of 6% (1 point) | ||||||
| b. 1000 to be received in 10 years, expected interest rate of 6% (1 point) | ||||||
| Compute the future value of the following sums: | ||||||
| c. 2000 today, valued five years in the future at a rate of 6% (1 point) | ||||||
| d. 1000 today, valued ten years in the future at a rate of 6% (1 point) |
Bond Valuation
| Problem Set 1. |
| Finance 565/EM |
| Show all work. |
| Reference Chaper 5, Equation 5.1 |
| Compute the value of the following bonds: |
| a. A 3% coupon bond with 1000 face value and a 20 year maturity with Yield to Maturity of 5%. (2 points) |
| b. A 12% coupon bond with a 1000 face value and a 20 year maturity with Yield to Maturity of 10% (2 points) |
Stock Valuation
| Problem Set 1. |
| Finance 565/EM |
| Show all work. |
| 3. Compute the value of XYZ corporation if the quarterly dividend paid yesterday was $0.20 and the annual growth rate is a constant 12%. XYZ Corp reports a cost of equity of 22%. (3 points) |
| Reference Chapter 5, Equation 5.2, 5.3, 5.4 and 5.5. |
| 4. Compute the required return of ABC Corp. ABC trades on the New York exchange at a price of $22.00 per share, and pays a dividend of $1.00 per year. The capital gains growth rate is estimated to be 3%. (2 points) |
| Reference Chapter 5, Equation 5.2. |
Expected Returns and Risk
| Problem Set 1. | |
| Finance 565/EM | |
| Show all work. | |
| 5. Compute the expected eps (earnings per share) and standard deviation of eps for ABC corp, given the scenario analysis shown below. (2 points) | |
| Reference Chapter 6, Equations 6.2 and 6.3 | |
| eps | Probability |
| $1.00 | 10% |
| $1.20 | 25% |
| $1.50 | 25% |
| $1.60 | 40% |
| 6. Compute the correlation coefficient between ABC corps returns (given above) and XYZ corp, given the below information on XYZ corp's eps. (5 points) | |
| Reference Chapter 6, Equations 6.2 through 6.5 | |
| eps | Probability |
| $0.50 | 10% |
| $0.70 | 25% |
| $0.90 | 25% |
| $1.00 | 40% |
CAPM
| Problem Set 1. |
| Finance 565/EM |
| Show all work. |
| 7. Given the rate on a 10 year T-bill of 2.0% and an average return on the S&P 500 stock index over a 10 year period of 5%, compute the cost of equity for the following cases: |
| Reference Chapter 7 (all) |
| a. XYZ corp with a reported beta of .3 (2 points) |
| b. ABC corp with a reported beta of -.3 (2 points) |
| c. In a portfolio equally weighted between XYZ and ABC corp, what is the expected return of the portfolio? (1 point) |
