finance exam part2
Basitb1
exam_2_p2.xlsxDirections
| Finance 3910 | Spring 2015 | |||||||
| Exam 2 - Part 2 | ||||||||
| Directions: Rename this file by entitling it "Name_Exam_2_P2.xls" Example --> _Exam_2_P2.xls. Complete all questions found below. Assessment will be based on the following: | ||||||||
| · Correctness of the solution. | ||||||||
| · Does the solution answer the question and whether the question is completed as instructed | ||||||||
| · Correctness of the formulas used in completing each question | ||||||||
| · Flow of the Sheet (do all formulas flow through the sheet correctly, in other words, | ||||||||
| minimize the number of direct numerical inputs required by the user) | ||||||||
| · Correctly label the sheet | ||||||||
| · Presentation (i.e. Do not create sloppy sheets) | ||||||||
| · Include assumptions (only when needed) | ||||||||
| · Follows all directions | ||||||||
| Make sure your exam prints correctly on 8.5 x 11.0” paper either portrait or landscaped. Upon completion (after scanning for viruses), upload your file into the dropbox in D2L no later than Thursday (see Dropbox for time). DO NOT ENLARGE THE COLUMNS. Submit a hard copy during class. | ||||||||
| Student Name: | ||||||||
| Replace with Student's Name | ||||||||
| NC1. Input name above (failure to do so will result in a loss of points) | ||||||||
| NC2. Do not enlarge the columns, i.e. the hard copy should print on 1 page with respect to width. | ||||||||
| (enlarging columns without reformatting to fit on 1 page will result in a loss of points) | ||||||||
| NC3. Do not work together (doing so will result in a zero on this assignment) | ||||||||
| 1. Work Problems 1 & 2 | ||||||||
| ~ NC indicates Non-credit directions, but students can lose points for failing to comply |
Problem 1 (20 Points)
| Last dividend | 1.5 | |||
| Required return | 0.15 | |||
| Part (a.) | Growth of dividend | 0 | ||
| Price of stock | ||||
| Part (b.) | Growth of dividend | 0.03 | ||
| Price of stock | ||||
| Part (c.) | ||||
| time | Dividends | Price | ||
| 0 | ||||
| 1 | ||||
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| Part (d.) | dividend payout | 0.5 | ||
| EPS | 3.0900 | |||
| return on equity | 0.06 | |||
| Growth of EPS (=g) | ||||
| Reinvested Earnings per share (RE) | ||||
| Part (e.) | Price of stock |
Consider a stock whose last (time=0) annual dividend payment was $1.5. Assume a required rate of return of 15%. (a). Assume that the dividend payment is expected to remain constant indefinitely. Find the price of the stock. (b.) Assume that the dividend payment is expected to grow at a constant rate of 3% per year indefinitely. Find the price of the stock. (c.) Assume that the dividend payments are zero today and for the next three years. Then, in four years, the company raises dividends to $1.5 and grows them by 3% per year indefinitely. Assume a required rate of return of 15%. Find the dividends for the next 20 years. Also, find the stock price at time =3 and at time =0 using the principal of value additivity. (d.) Assume that the company has a dividend payout ratio of 50%. Next year it will earn $3.09 per share and have a return on equity of 6%. Caculate the company's growth rate of EPS (retention*return on equity) and the reinvested earnings per share. (e.) Using the earnings model, what is the value of the stock? Hint: V = EPs/i + RE*(r/i-1)/(i-g)
Problem 2 (22 Points)
| Bond 1 | Bond 2 | Bond 3 | Bond 4 | ||
| Maturity Date | 1/15/22 | 7/1/32 | 9/15/42 | 7/15/41 | |
| Settlement Date | 3/15/12 | 9/1/12 | 7/15/12 | 12/12/12 | |
| Frequency | 4 | 2 | 2 | 2 | |
| Face Value | 1000 | 1000 | 1000 | 100 | |
| Coupon Rate | 0.07 | 0.09 | 0.12 | 0.05375 | |
| Required Return | 0.09 | 0.12 | 0.14 | 0.04308 | |
| Call price | 1020 | 1030 | 1040 | 101 | |
| Call Date | 7/15/15 | 9/1/17 | 1/15/16 | 1/15/20 | |
| Part (a.) | Accrued interest | ||||
| Part (b.) | Prices | ||||
| Part (c.) | Current yield | ||||
| Part (d.) | Yield to call | ||||
| Part (e.) | Duration | ||||
| Part (f.) | under/over/fair | ||||
| Part (g.) | YTM |
You have decided to evaluate the three bonds below to include in your portfolio. (a.) Determine the accrued interest for each bond. (b.) Find the intrinsic prices using the PRICE function. (c.) Supposing that the intrinsic prices are the market prices, find the current yield of each bond. (d.) Determine the yield to call on these bonds given the time to first call and the call premium for each bond. (e.) Determine the duration of these bonds. (f.) Suppose that you know that Bond 4 is selling for $98.84. Is bond 4 undervalued, overvalued, or fairly valued compared to the given intrinsic price? (g.) Again, suppose that you know that Bond 4 is selling for $98.84. Find the yield to matruity of bond 4 using the market price.
