ASSESSMENT 1
Respond to the following five questions. Write your responses in a Word document, and number them 1-5.
1. Define the terms finance and financial management. What are the major sub-areas of finance?
2. Identify and define the three basic forms of business ownership. Describe the advantages and disadvantages of each.
3. Define the terms agency relationship and agency problem. Explain three different approaches to minimizing the agency problem.
4. Explain why ethical behavior is so important in the field of finance.
5. Explain the concept of shareholder wealth maximization. Is there a conflict between the goal of shareholder wealth maximization and the financial manager's need to act in an ethical manner? Why or why not?
ASSESSMENT 2
Respond to the following five questions. Write your responses in a Word document, and number them 1-5.
1. Categorize each of the following transactions as taking place in either the primary or secondary market:
o Supercorp issues $180 million of new common stock.
o HiTech, Inc. issues $30 million of common stock in an IPO.
o Megaorg sells $10 million of HiTech preferred stock from its marketable securities portfolio.
o The XYA Fund buys $220 million of previously issued Supercorp bonds.
o A. B. Corporation sells $15 million of XYZ common stock.
Identify whether the following financial instruments are capital market securities or money market securities:
o U.S. Treasury bills.
o U.S. Treasury notes.
o U.S. Treasury bonds.
o Mortgages.
o Federal funds.
o Negotiable certificates of deposit.
o Common stock.
o State and government bonds.
o Corporate bonds.
Identify the different types of financial institutions. What are the main services each of these financial institutions offers?
Define the six factors that determine the nominal interest rate on a security.
Define the concept of term structure of interest rates. What are three theories that explain the future yield curve of interest rates?
Use references to support your answers as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.
ASSESSMENT 3
Respond to the questions and complete the problems.
Questions
In a Word document, respond to the following. Number your responses 1-3.
1. Explain the concept of cash flow in corporate finance.
2. Explain how present value and future values are related.
3. Explain how present values are affected by changes in interest rates.
Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.
Problems
In either a Word document or Excel spreadsheet, complete the following problems.
- You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
- If you choose to solve the problems algebraically, be sure to show your computations.
- If you use a financial calculator, show your input values.
- If you use an Excel spreadsheet, show your input values and formulas.
In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.
Unless otherwise directed, assume annual compounding periods in the computational problems.
1. If you deposited $250 in your savings account today, and the bank pays 4 percent interest per year, how much would you have in your savings account after 9 years?
o Recalculate the account balance using a 6 percent interest rate and a 7 percent interest rate.
A $450 deposit earns 6 percent interest in the first year, 3 percent interest in the second year, and 7 percent interest in the third year. What is the future value at the end of the third year?
What is the annual rate of return for an $8,000 investment if in five years it grows to $12,500?
o Assuming the growth occurred in six years and then eight years, recalculate the rate of return for these two scenarios.
ASSESSMENT 4
Respond to the questions and complete the problems.
Questions
In a Word document, respond to the following. Number your responses 1-4.
1. Explain whether you would you rather have a savings account that paid interest compounded on a monthly basis or compounded on an annual basis? Why?
2. Describe what an amortization schedule is and its uses. Explain the purpose of an amortization schedule.
3. Interest on a home mortgage is tax deductible. Explain why interest paid in the early years of a home mortgage is more helpful in reducing taxes than interest paid in later years.
4. Explain the difference between an ordinary annuity and an annuity due.
Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.
Problems
In either a Word document or Excel spreadsheet, complete the following problems.
- You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
- If you choose to solve the problems algebraically, be sure to show your computations.
- If you use a financial calculator, show your input values.
- If you use an Excel spreadsheet, show your input values and formulas.
In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.
1. If interest rates are 8 percent, what is the future value of a $400 annuity payment over six years? Unless otherwise directed, assume annual compounding periods.
o Recalculate the future value at 6 percent interest and 9 percent interest.
If interest rates are 5 percent, what is the present value of a $900 annuity payment over three years? Unless otherwise directed, assume annual compounding periods.
o Recalculate the present value at 10 percent interest and 13 percent interest.
What is the present value of a series of $1150 payments made every year for 14 years when the discount rate is 9 percent?
o Recalculate the present value using discount rate of 11 percent and 12 percent.
ASSESSMENT 5
Respond to the questions and complete the problems.
Questions
In a Word document, respond to the following. Number your responses 1-3.
1. Describe the rights and advantages belonging to shareholders
2. Explain the differences between the Standard and Poor's 500 Index and the Dow Jones Industrial Average. Which is a better measure of stock market performance? Why?
3. Describe the differences between common stock and preferred stock.
Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.
Problems
In either a Word document or Excel spreadsheet, complete the following problems.
- You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
- If you choose to solve the problems algebraically, be sure to show your computations.
- If you use a financial calculator, show your input values.
- If you use an Excel spreadsheet, show your input values and formulas.
In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.
Compute the following:
1. Imagine that on June 4, the Dow Jones Industrial Average closed at 13,598.14, which was up 148.86 points from the previous day's close of 13,449.28. Calculate the return, in percent to four decimal places, of the stock market for June 4.
2. The cost per stock at a brokerage firm is $0.10. Calculate how much money you would need to buy 150 shares of HiTech, Inc., which trades at $18.22.
3. HiTech, Inc.'s growth for the future is forecasted to be a constant 10 percent. HiTech's next dividend is expected to be $1.18. Calculate the value of HiTech stock when the required return is 12 percent.
4. Preferred stock from HiTech, Inc. pays $1.20 in annual dividend. Calculate the value of the stock if the required return on the preferred stock is 4.5 percent.
5. HiTech, Inc. has earnings per share of $1.82 and a P/E ratio of 31.54. Calculate the stock price.
ASSESSMENT 6
Respond to the questions and complete the problems.
Questions
In a Word document, respond to the following. Number your responses 1-4.
1. Explain what a call provision enables bond issuers to do. Why would bond issuers exercise a call provision?
2. Define a discount bond and a premium bond. Provide examples of each.
3. Describe the relationship between interest rates and bond prices.
4. Describe the differences between a coupon bond and a zero coupon bond.
Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.
Problems
In either a Word document or Excel spreadsheet, complete the following problems.
- You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
- If you choose to solve the problems algebraically, be sure to show your computations.
- If you use a financial calculator, show your input values.
- If you use an Excel spreadsheet, show your input values and formulas.
In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.
Compute the following:
1. Assuming semi-annual compounding, what is the price of a zero coupon bond that matures in 3 years if the market interest rate is 5.5 percent? Assume par value is $1000.
2. Using semi-annual compounding, what is the price of a 5 percent coupon bond with 10 years left to maturity and a market interest rate of 7.2 percent? Assume that interest payments are paid semi-annually and that par value is $1000.
3. Using semi-annual compounding, what is the yield to maturity on a 4.65 percent coupon bond with 18 years left to maturity that is offered for sale at $1,025.95? Assume par value is $1000.
ASSESSMENT 7
Respond to the questions and complete the problems.
Questions
In a Word document, respond to the following. Number your responses 1-3.
1. Define risk, and explain how it is measured.
2. Identify a source of firm-specific risk. What is the source of market risk?
3. Explain what the coefficient of variation measures.
Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.
Problems
In either a Word document or Excel spreadsheet, complete the following problems.
- You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
- If you choose to solve the problems algebraically, be sure to show your computations.
- If you use a financial calculator, show your input values.
- If you use an Excel spreadsheet, show your input values and formulas.
In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.
1. Two years ago, Conglomco stock ended at $73.02 per share. Last year, the stock paid a $0.34 per share dividend. Conglomco stock ended last year at $77.24. If you owned 200 shares of Conglomco stock, what were your dollar return and percent return last year?
2. Calculate the coefficient of variation for the following three stocks. Then rank them by their level of total risk, from highest to lowest:
o Conglomco has an average return of 11 percent and standard deviation of 24 percent.
o Supercorp has an average return of 16 percent and standard deviation of 37 percent.
o Megaorg has an average return of 10 percent and standard deviation of 29 percent.
Year-to-date, Conglomco has earned a -1.64 percent return, Supercorp has earned a 5.69 percent return, and Megaorg has earned a 0.23 percent return. If your portfolio is made up of 40 percent Conglomco stock, 30 percent Supercorp stock, and 30 percent Megaorg stock, what is your portfolio return?
ASSESSMENT 8
Answer the following questions and complete the following problems:
Questions
In a Word document, respond to the following. Number your responses 1-2.
1. Explain why expected return is considered forward-looking. What challenges arise in using expected return?
2. Explain how differences in allocations between the risk-free security and the market portfolio can determine the level of market risk.
Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.
Problems
In either a Word document or Excel spreadsheet, complete the following problems.
- You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
- If you choose to solve the problems algebraically, be sure to show your computations.
- If you use a financial calculator, show your input values.
- If you use an Excel spreadsheet, show your input values and formulas.
1. Based on the probability and percentage of return for the three economic states in the table below, compute the expected return.
|
|
Economic State
|
Probability
|
Percentage of Return
|
|
Fast Growth
|
0.10
|
60
|
|
Slow Growth
|
0.50
|
30
|
|
Recession
|
0.40
|
-23
|
2. If the risk-free rate is 7 percent and the risk premium is 4 percent, what is the required return?
3. Suppose that the average annual return on the Standard and Poor's 500 Index from 1969 to 2005 was 14.8 percent. The average annual T-bill yield during the same period was 5.6 percent. What was the market risk premium during these 10 years?
4. Conglomco has a beta of 0.32. If the market return is expected to be 12 percent and the risk-free rate is 5 percent, what is Conglomco's required return? Use the capital asset pricing model (CAPM) to calculate Conglomco's required return.
5. Calculate the beta of a portfolio that includes the following stocks:
o Conglomco stock, which has a beta of 3.9 and comprises 35 percent of the portfolio.
o Supercorp stock, which has a beta of 1.7 and comprises 25 percent of the portfolio.
o Megaorg stock, which has a beta of 0.3 and comprises 40 percent of the portfolio.
Estimating Risk and Return Scoring Guide
ASSESSMENT 9
Respond to the questions and complete the problems.
Questions
In a Word document, respond to the following. Number your responses 1-4.
1. Explain the net present value (NPV) method for determining a capital budgeting project's desirability. What is the acceptance benchmark when using NPV?
2. Explain the payback period statistic. What is the acceptance benchmark when using the payback period statistic?
3. Describe the internal rate of return (IRR) as a method for deciding the desirability of a capital budgeting project. What is the acceptance benchmark when using IRR?
4. Describe the modified internal rate of return (MIRR) as a method for deciding the desirability of a capital budgeting project. What are MIRR's strengths and weaknesses?
Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.
Problems
In either a Word document or Excel spreadsheet, complete the following problems.
- You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
- If you choose to solve the problems algebraically, be sure to show your computations.
- If you use a financial calculator, show your input values.
- If you use an Excel spreadsheet, show your input values and formulas.
In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.
1. Based on the cash flows shown in the chart below, compute the NPV for Project Huron. Suppose that the appropriate cost of capital is 12 percent. Advise the organization about whether it should accept or reject the project.
|
Project Huron
|
|
Time
|
0
|
1
|
2
|
3
|
4
|
|
Cash Flow
|
$12,000
|
$2,360
|
$4,390
|
$1,520
|
$3,300
|
2. Based on the cash flows shown in the chart below, compute the IRR and MIRR for Project Erie. Suppose that the appropriate cost of capital is 12 percent. Advise the organization about whether it should accept or reject the project.
|
Project Erie
|
|
Time
|
0
|
1
|
2
|
3
|
4
|
5
|
|
Cash Flow
|
$12,000
|
$2,360
|
$4,390
|
$1,520
|
$980
|
$1,250
|