Part of this assignment involves downloading historical stock prices from Yahoo Finance. You will need to do this often for coursework. To do this, go to finance.yahoo.com and enter the ticker into the search bar. This will bring you to the "Summary" page where you can get basic figures about the stock.
Click the "Historical Data" tab. Use the "Time Period" and "Frequency" menus to identify the data you need, then click apply. Use the "Download Data" tool to download an Excel fil with the historical prices. Use the "Adjusted Close" column to find historical returns.
1. In October 2017, struggling beverage manufacturer Long Island Iced Tea received notice that the firm would be delisted from the NASDAQ unless their market cap remained above $35 million for 10 business days in a row.
In an effort to increase their market value, the company opted to capitalize on the cryptocurrency craze by rebranding itself "Long Blockchain Corporation" (LBCC) on December 21st.
a. Find the stock's return on the day of the name change announcement (returns are calculated from close on day [t-1] to close on day [t]) ... and for the record, I don't believe this to be a rational reaction to a company changing its name.
b. If an investor purchased the stock at the highest price on December 21st (use the "High" column) and held it until the close on January 22nd, what would their return have been?
2. Use Morningstar (Morningstar.com) to look up the characteristics of the BlackRock Corporate High Yield Fund (HYT), which invests in high yield (i.e., risky) bonds.
a. Write a simple balance sheet for HYT
b. Assume that the underlying bond investments generate a 10% annual return. What is the total amount of revenue generated by the fund investment (in dollars) in a year?
c. Assume that the fund pays 2.5% interest on its debt (leverage). What is the total dollar amount of this interest payment?
d. Interest on leverage is tax deductible (similar to a corporation). If we assume that the investors in this fund have an average income tax rate of 30%, what is sum (in dollars) of all taxes paid in relation to this fund's earnings?
e. How much money did the tax deductibility of interest save the firm?
f. Net of the tax payment and interest expenses, what is the return (in percentage terms) generated by the underlying investments (in other words, the return on assets, or ROA)?
g. Net of the tax payment and interest expenses, what is the return (in percentage terms) on the shareholders' investment (in other words, the return on equity, or ROE)?
h. Assuming a 30% tax rate and 10% return on underlying investments, what would the after-tax return on equity have been if this fund did not use any leverage?