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by: Greta Hirthe


Greta Hirthe

GPA 3.65

Carole McGranahan

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About this Document

Carole McGranahan
Class Notes
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This 5 page Class Notes was uploaded by Greta Hirthe on Thursday October 29, 2015. The Class Notes belongs to ANTH 1105 at University of Colorado at Boulder taught by Carole McGranahan in Fall. Since its upload, it has received 19 views. For similar materials see /class/232005/anth-1105-university-of-colorado-at-boulder in anthropology, evolution, sphr at University of Colorado at Boulder.

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Date Created: 10/29/15
Exam 2 review Holding period returns Suppose a stock had an initial price of 64 per share paid a lek dend of 1 75 per share during the year and had an ending share price of 72 Compute the percentage total return Bond returns Suppose you bought a 9 percent coupon bond one year ago for 1050 The bond sells for 1080 today a Assuming a 1000 face value what was your total dollar return on this investment over the past year7 b What was your total nominal rate of return on this invest ment over the past year7 c If the inflation rate last year was 4 percent what was your total real rate of return on this investment7 Holding period returns bonds Suppose you buy a bond that has a face value of 1000 10 years left to maturity pays an annual coupon of 90 and the yield to maturity is 8 What is the market price of the bond7 What is the coupon yield7 What is the coupon rate7 After one year if the YTM is 7 5 what is your total holding period return7 HW 11 1 The Jacksoanimberlake Wardrobe Co JLlSt paid a dIVIdend of 1 40 per share on its stock The dIVIdends are expected to groW at a constant rate of 6 percent per year indefinitely lf Investors require a 12 percent return on The JacksoneTimberlake Wardrobe Co stock What is the current price7 HW 11 2 Ayden Inc has an issue of preferred stock outstanding that pays an 8 25 dIVIdend every year In perpetuity If this issue currently sells for 113 per share What is the required return7 Callable preferred stock Continuing the preVIous example suppose the stock Were callable in four years for 100 HoW much Would an investor be Willing to pay for a share if he Wanted to earn the same return assume that the stock Will be called ignore default risk7 Why is the stock Worth less if it includes the call option7 HW 11 3 RIZZI Co is groWing quickly DIVIdends are expected to grow at a 25 percent rate for the next three years With the growth rate falling off to a constant 7 percent thereafter If the required return is 13 percent and the company JLlSt paid a 2 80 dIVIdend What is the current share price7 DGM ABC Corp is currently paying no diVidend and does not plan to pay any In the Immediate future In 4 years ABC expects to begin paying a quarterly diVidend The first diVidend is expected to be 5 34 If the diVidend is expected to grow at an annual rate of 9 forever and investors require an expected return of 14 in order to hold ABC stock what is the value of a share of ABC stock today7 Bonds clean vs dirty price Suppose the quoted clean price of a bond is 1038 and that the bond pays a 35 coupon semiannually 7 coupon rate Suppose that there are 182 days between the last coupon payment and the next that 42 days have elapsed in this period at time of purchase and that accrued interest is calculated based on actual days the convention for Treasury bonds What is the invoice dirty price of the bond7 Duration QRS Corp has a bond With a face value of 1000 which matures in 4 years and pays an annual coupon of 80 The bond is currently trading at a price corresponding to a 12 yield to maturity What is its duration7 IRR vs NPV In most situations IRR and NPV Will both lead to the same con clusions What are the two common situations where IRR can give a mis7 leading result7 Scenario analysis vs sensitivity analysis What Is the most Important dIfferenoe between scenarIo analysIs and sensItIVIty analysIs7 Real vs nominal returns John has Just bought an annuIty thch Wlll pay 10 cash flows of 100 The cash flows are to be paId out annually begInnIng 5 years from today John paId 500 for thIs annuIty and the InflatIon rate Is expected to average 3 over the Investment perIod what Is the Investments39s expected real rate of return7 Bonds What Is a pure dIscount bond7 What does It mean when we say a bond Is selllng for par7 What do we mean when we refer to a prequm bond7 What Is a callable bond and why mIght a rm WIsh to Issue one7 What does It mean for a bond to be ca protected7 If we say that a callable bond has a call prequm of 100 what does thIs mean7 What Is a bond39s Indenture What do we mean when we refer to a bond39s senIorIty7 What do we mean when we refer to a subordInated bond7 Stocks DIrectors are elected by shareholder votes What Is the dIfference between cumulatIve votIng and straIght votIng7 For a preferred stock what Is the dIfference between cumulatIve and nonecumulatIve dIVIdends7 Corporate bonds are less rIsky than preferred stock but It Is often observed that a fIrm39s preferred stock pays a lower erd than Its bonds Why mIght thIs be7 Stocks and Bonds What do We mean by funded versus unfunded debt7 What is a debenture7 EAC IMHO Corp is considering a new machine This machine has an initial cost of 100000 and fixed costs of 20000 per year The machine Will be depreciated to zero using the straighteline approach over 8 years It Will be sold for 30000 after 5 years and replaced With a neW machine lMHO39s tax rate is 35 and the appropriate discount rate for this project is 12 What is this machine39s EAC7 Break even Suppose the machine in the preceding example is being used to produce bean bag chairs that sell for 50 each HoW many Would the company have to sell each year to break even in a financial sense7


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