You are given the following in

You are given the following information. The current dollar-pound exchange rate is $2 per pound. A U.S. basket that costs $100 would cost $120 in the United Kingdom. For the next year, the Fed is predicted to keep U.S. inflation at 2% and the Bank of England is predicted to keep U.K. inflation at 3%. The speed of convergence to absolute PPP is 15% per year.

  1. What is the expected U.S. minus U.K. inflation di?erential for the coming year?

  2. What is the current U.S. real exchange rate qUS/UK with the United Kingdom?

  3. How much is the dollar overvalued/undervalued?

  4. What do you predict the U.S. real exchange rate with the United Kingdom will be in one yearAc€?cs time?

  5. What is the expected rate of real depreciation for the United States (versus the United Kingdom)?

  6. What is the expected rate of nominal depreciation for the United States (versus the United Kingdom)?

  7. What do you predict will be the dollar price of one pound a year from now?

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You are given the following in

You are given the following information for TELUS. Assume the company’s tax rate is 38%. Debt: 5,500 7 percent semi-annual coupon bonds outstanding, $1000 par value, 26 years to maturity, selling for 103 percent of par. Common Stock: 80,000 shares outstanding. The 3-month T-bill rate is 1%, the market rate of return is 12% and the stock has a beta value of 1.2. The stock is currently trading at $50. Preferred Stock: 13,000 shares of 6 percent preferred stock outstanding, currently selling for $106 per share.

a. What is the TELUS’s capital structure? (i.e. find the weights)

b. What is the cost of debt?

c. What is the firm’s cost of equity?

d. What is the firm’s cost of preferred stock? (1 mark) e. What is firm’s WACC?

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You are given the following in

You are given the following information about the current yields to maturity (YTM) of three riskless, coupon-paying bonds:

Maturity (years)
Coupon rate (annual payments) YTM (EAR)

1 2

3.00% 6.00% 2.000% 3.457%

3

5.00% 6.745%

Note that these are yields on coupon-paying bonds and that the coupon payments are annual, with the first coupon payment occurring exactly one year from today. Assume that there is no arbitrage.

a) b) c)

Determine the yield to maturity of a two-year zero-coupon bond. (8 points) Determine the yield to maturity of a three-year zero-coupon bond.

Yet another subprime mortgage crisis has just struck, and the part of the yield curve corresponding to years 1 and 2 computed in parts (a) and (b) has just shifted downwards by 2%. The part of the yield curve corresponding to years 3 and beyond remained the same. Determine the price of a three-year coupon- paying bond with annual coupon payments and a coupon rate of 8.00%

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You are given the following in

You are given the following information regarding prices for a sample of stocks.

PRICE
Stock Number of Shares T T + 1
A 3,000,000 $74 $92
B 10,000,000 24 35
C 26,000,000 15 23
  1. Construct an equal-weighted index by assuming $1,000 is invested in each stock. What is the percentage change in wealth for this portfolio? Do not round intermediate calculations. Round your answer to two decimal places.

    %

  2. Compute the percentage of price change for each of the stocks. Do not round intermediate calculations. Round your answers to two decimal places.

    Stock A: %

    Stock B: %

    Stock C: %

    Compute the arithmetic mean of these percentage changes. Do not round intermediate calculations. Round your answer to two decimal places.

    %

  3. Compute the geometric mean of the percentage changes in Part b. Do not round intermediate calculations. Round your answer to two decimal places.

    %

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You are given the following in

 You are given the following information concerning several mutual funds:

During the time period the Standard & Poor’s stock index exceeded the Treasury bill rate by 10.5 percent (i.e., rm 2 rf 5 10.5%).

a) Rank the performance of each fund without adjusting for risk and adjusting for risk using the Treynor index. Which, if any, outperformed the market? (Remember, the beta of the market is 1.0.) b) The analysis in part (a) assumes each fund is suffi ciently diversifi ed so that the appropriate measure of risk is the beta coeffi cient. Suppose, however, this assumption does not hold and the standard deviation of each fund’s return was as follows:

Thus, fund A earned a return of 12.4 percent, but approximately 68 percent of the time this return has ranged from 7.9 percent to 16.9 percent. The standard deviation of the market return is 0.01 (i.e., 1 percent), so 68 percent of the time, the return on the market has ranged from 9.5 to 11.5 percent. Rank the funds using this alternative measure of risk. Which, if any, outperformed the market on a risk-adjusted basis?

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You are given the following in

You are given the following information: U.S. Germany Singapore Nominal one year interest rate 1% 3% 2% Spot rate —– $1.19 $0.74 Interest rate parity exists between the U.S. and Germany as well as the U.S. and Singapore. The international Fisher effect exists between the U.S. and Germany as well as the U.S. and Singapore. Bill (based in the U.S.) invests in a one-year CD (certificate of deposit) in Singapore and sells Singapore dollar one year forward to cover his position. Erica (based in Singapore) invests in a one-year CD in Germany and does not cover her position. What are the returns on funds invested for Bill and Erica respectively? Please justify your explanation both in terms of theory and calculations. (Hint: You can get the exchange rate between euro and Singapore dollar from their respective rate to USD) ANS:Please clearly label your return calculations, i.e., the investment return for Bill and Erica respectively

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You are given the following in

You are given the following information:

a) What are the expected returns and standard deviations of a portfolio consisting of: 1. 100 percent in stock A? 2. 100 percent in stock B? 3. 50 percent in each stock? 4. 25 percent in stock A and 75 percent in stock B? 5. 75 percent in stock A and 25 percent in stock B?

b) Compare the above returns and the risk associated with each portfolio. c) Redo the calculations assuming that the correlation coeffi cient of the returns on the two stocks is 20.6. What is the impact of this difference in the correlation coeffi cient?

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You are given the following in

You are given the following information concerning four stocks:

Using 20X0 as the base year, construct three aggregate measures of the market that simulate the Dow Jones Industrial Average, the S&P 500 stock index, and the Value Line stock index (i.e., a simple average, a value-weighted average, and a geometric average).

a) What is the percentage change in each aggregate market measure from 20X0 to 20X1, and 20X0 to 20X2? Why are the results different even though only one stock’s price changed and in each case the price that changed doubled?

b) If you were managing funds and wanted a source to compare your results, which market measure would you prefer to use in 20X2?

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You are given the following in

You are given the following information:

  • r* = 1.5%
  • Investors expect inflation to average 3% per year into the foreseeable future
  • The MRP on 20 year bonds = 2%
  • The LP on U.S. and Yellow Inc. bonds = 0
  • The interest rate on a 20 year loan to Yellow Inc. is 1.25 times the rate on a 20 year loan to the U.S. government

a) What is the interest rate on a 1 year loan to the U.S. government?

b) What is the interest rate on a 20 year loan to the U.S. government?

c) What is the DRP on a 20 year loan to Yellow Inc.?

2) You just received a birthday present from your Uncle $200. You plan on investing this cash and expect to earn a return of 6% per year, compounded annually.

a) How much will your investment grow to in 10 years?

b) Your goal is to have $500 available in 10 years. What rate of return, compounded annually, would you have to earn to achieve your goal (round your answer to two decimal places)?

c) The rate of return in part b) above involves too much risk. If the maximum risk you’re willing to accept involves a rate of return of 8.5% per year, compounded annually, how many years will it take to achieve your goal of $500 (round your answer to two decimal places)?

d) Suppose you could earn a rate of return of 8.5% per year, compounded daily. How long would it take to achieve your goal now (round your answer to two decimal places)?

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You are given the following in

You are given the following information: Stockholders’ equity as reported on the firm’s balance sheet = $5.5 billion, price/earnings ratio = 17, common shares outstanding = 140 million, and market/book ratio = 2.5. The firm’s market value of total debt is $7 billion, the firm has cash and equivalents totaling $270 million, and the firm’s EBITDA equals $3 billion. What is the price of a share of the company’s common stock? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is the firm’s EV/EBITDA? Do not round intermediate calculations. Round your answer to two decimal places.

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You are given the following in

You are given the following information concerning two stocks that make up an index. Price per Share Shares Outstanding Beginning of Year End of Year Kirk, Inc. 62,167 $ 41 $ 45 Picard Co. 46,058 76 82 a. Assume that you want to build a price-weighted index including the two stocks. Please calculate the beginning index and the end index. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Beginning Index: End Index: b. What is the return for the price-weighted index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Index Return: % c. Assume that you want to rebuild a value-weighted index with the index value at the beginning of the year equal to 100. What is the index level at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places. Index Level at the end: d. What is the return of the value-weighted index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Index Return: % e. Assume the value-weighted index has been existing for 6 years and the index level happened to be 183.96 at the beginning of the year. What is the index level at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places. Index Level at the end: f. What is the return of this existing value-weighted index? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Index Return: %

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You are given the following in

You are given the following information about Electronics plc. It has a payout ratio of 0.6, a return on equity of 20 per cent, an equity Beta of 1.33 and is expected to pay a dividend next year of £2.00. There are one million shares outstanding and it is fairly valued. It also has nominal debt of £20 million issued at 10 per cent and maturing in 5 years. Yields on similar debt have since dropped to 8 per cent. The risk free rate is 6 per cent and the expected market return is 13.5 per cent.

(a) Find Electronics’ cost of capital and cost of equity.

(b) The company decides to retire half its debt at current prices. Find the company’s cost of capital and equity and explain your results.

(c) The company decides to diversify into a completely different business area and decides to look at Betas of firms currently trading in the new business area. The information is given below.

What discount rate should the company use for the new business?

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You are given the following in

You are given the following information concerning a noncallable, sinking fund debenture:

  • Principal: $1,000
  • Coupon rate of interest: 7 percent
  • Term to maturity: 16 years
  • Sinking fund: 5 percent of outstanding bonds retired annually; the balance at maturity

  1. If you buy the bond today at its face amount and interest rates rise to 11 percent after five years have passed, what is your capital gain or loss? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Use a minus sign to enter the loss amount, if any, as a negative value. Round your answer to the nearest dollar.

    $

  2. What is the bond’s current yield as of right now? Round your answer to the nearest whole number.

    %

  3. Given your price ina, what is the yield at maturity? Round your answer to the nearest whole number.

    %

  4. What proportion of the total debt issue is retired by the sinking fund? Round your answer to the nearest whole number.

    %

  5. If the final payment to retire this bond is $800,000, how much must the firm invest annually to accumulate this sum if the firm is able to earn 7 percent on the invested funds? Use Appendix C to answer the question. Round your answer to the nearest dollar.

    $

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You are given the following in

You are given the following information about a company’s capital:

A. The share price is $51.3 and there are 2.9 million shares outstanding. The share’s recent annual dividend was $4.4 and the dividends are expected to grow indefinitely at 1.7% a year. Calculate the cost of preferred share capital

B. The company has 0.2 million preferred shares outstanding. They are priced at $65.5 and pay an annual dividend of $2.9. Calculate the cost of equity

C. The company has 25544 thousand bonds outstanding. These bonds have a par value of $1000, mature in 11 years and pay semi-annually with a coupon rate of 3.3%. The market price of these bonds is $1090.16. Assuming this represents all of the company’s debt capital. Calculate the pre-tax cost of debt

D. Calculate the company’s weights of equity, preferred, and debt capital

E. Given a corporate tax rate of 25%, what is the company’s weighted average cost of capital?

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You are given the following in

You are given the following information concerning Parrothead Enterprises:
Debt:

9,900 7.4 percent coupon bonds outstanding, with 21 years to maturity and a quoted price of 106.25. These bonds have a par value of $1,000 and pay interest semiannually.

Common stock:

270,000 shares of common stock selling for $65.40 per share. The stock has a beta of .97 and will pay a dividend of $3.60 next year. The dividend is expected to grow by 5.4 percent per year indefinitely.

Preferred stock: 8,900 shares of 4.70 percent preferred stock selling at $94.90 per share.
Market: 11.1 percent expected return, a risk-free rate of 4.05 percent, and a 24 percent tax rate.

What is the firm’s cost of each form of financing? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Calculate the WACC for the company. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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You are given the following in

You are given the following information on Parrothead Enterprises:
Debt:

8,500 7.1 percent coupon bonds outstanding, with 24 years to maturity and a quoted price of 106.75. These bonds pay interest semiannually and have a par value of $2,000.

Common stock:

280,000 shares of common stock selling for $65.60 per share. The stock has a beta of 1.06 and will pay a dividend of $3.80 next year. The dividend is expected to grow by 5.1 percent per year indefinitely.

Preferred stock: 9,100 shares of 4.55 percent preferred stock selling at $95.10 per share. The par value is $100 per share.
Market: 10.9 percent expected return, risk-free rate of 4.15 percent, and a 21 percent tax rate.

Calculate the company’s WACC.

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