Question 2

FV =
Frequency =
Period = 12 x 2 =
Coupon rate =
Coupon payment =
Present value =
Semi Rate

1000
2
24
3%
30
1112
2.38%

(Semi annual)
(6% / 2)
(1000 x 3%)
(Application of excel rate function)

Before tax cost of debt = 2.38% x 2 =

4.76%

After tax cost of debt = 4.76%*(1- tax rate 30%) =

3.33%

Question 3
Geometric average return = ((1+3.3%)*(1+5.4%)*(1+18.9%)*(1-12.1%)*(1+3.5%)*(1-8.8%))^(1/6) - 1
1+3.3% =
1+5.4% =
1+18.9% =
1-12.1% =
1+3.5% =
1-8.8% =

1.033
1.054
1.189
0.879
1.035
0.912
1.07410528
GAR = (1.074105)^(1/6) - 1 =

1.199%

Question 4
Todays stock price, p = Expected dividend, D1/(Return r - Growth g)
So, D1 = P*(R-G)
Expected dividend, d1 = $52.8*(12.2% - 7.1%) =
$

2.69

Question 5
FV =
Rate =
PV =
Period =
Annual coupon =

1000
9.90%
-1017.2
11
$101.64 (Application of excel PMT function)

Question 7
Return = (Next dividend/Price)+Growth rate
Rate of return = ($2.56/$26.7)+7.4% =

16.99%

Question 8
Nominal rate = Real rate + Inflation rate
Nominal rate = 5.65% + 5.02% =

10.67%

Question 9
Rate =
Year
CF =
npv =

10.20%
1
2
3
4
1691
1691
1691
7769
$18,576.60 (Application of excel NPV function)

5
7769

6
7769

Question 10
Debt
Preferred stock
Equity
Total

Market value
$
137,015
$
54,507
$
103,045
$
294,567

Weight of preferred stock = $54,507/$2,945,67 =

18.50%

Question 11
Since bet for risk free asset is zero, nothing will be invested from it,
so weight of stock c = 100-29-23 =
48

Question 12
Arithmatic average return = (21.6%+17.9%-5%+10.8%+3.5%)/5 =

Question 13
71 shares

9.76%

Initial price
Dividend
End price

15
0.8
18.6

Total return = 1320.6+56.8 =

1065
56.8
1320.6
1377.4

Percentage return = (1377.4-1065)/1065 =

29.33%

Question 15

Stock 1
Stock 2
Risk free

Weight
Beta
WxB
33.33%
1.54 0.5133333
33.33% ?
33.33%
0
0
Portfolio
0.74

So w x b in stock 2 will be 0.74 - 0.513 =

0.226667

Beta of 2nd stock = 0.226667/33.33% =

0.68

Question 16
r = (1+i/n)^n - 1
Where r is effective rate
I = Nominal rate =
n = Compounding period =
r = (1+24.60%/12)^12 - 1 =

24.60%
12 (Monthly compounding)
27.57%

Question 17

Debt
Preferred stock
Equity
Total

Market value Weight

Cost
WxC
$
500
0.5
2.50%
1.25%
$
300
0.3
3.40%
1.02%
$
200
0.2
7%
1.40%
$
1,000
3.67%

Cost of debt after tax = 4.1%*(1-39%) =

So, WACC =

3.67%

2.50%

Question 18
Dividend in year 12 = $4.9*(1+6%)^12 =
Stock price in year 11 = $9.86/(13%-6%) =

$ 9.86
$ 140.85

Question 19
Cost of common stock = Risk free rate+(Market risk premium x beta)
Cost of common stock = 4.6%+(6%*0.72) =
8.92%

Question 20
PV =
FV =
Rate = 12%/2 =
Period =

-514
685
0.06 (Semi annual)
4.928796198 (Application of excel NPER function)

Years taken = 4.93/2 =

2.5 Years

Question 21
Growth rate
year
Dividend
Stock price at year 3 =
Total
x Present factor at 11%
Present value

9%
1
2.834

9%
9%
3%
0
2
3
4
2.6
3.08906 3.367075 3.468088
43.3511
2.834 3.08906 46.71817
0.900901 0.811622 0.731191
2.5531532 2.50715 34.15992

Current stock price = sum of present value =

$ 39.22

Question 24
PV =
nper =
rate =
Future value =

-121
8
13%
$321.67 (Application of excel FV function)

Question 25
D0 =

2.1

3%
5

Growth rtae, g =
D1 = 2.1*(1+3.5%) =

3.50%
2.1735

Stock price = 2.1735/(11.8% - 3.5%) =

26.19

Question 27
Weight
Debt
Equity
Total

Cost
38%
62%
100%

WxC
13.90%
3.95%

Cost of debt after tax = 5.9%*(1-33%) =

WACC =

5.28%
2.45%
7.73%
0.03953

7.73%

Question 28
Beta of this portfolio = 1*(20000/60000) =

0.33

%))^(1/6) - 1

So on