Masters Level Corporate Finance- Introduction to Risk and Return & Capital Asset Price Modeling

Hello,

 

I am looking for help on this assignment because I struggle with it and I have other classes with assignments. If you have any questions on the assignment, please feel free to ask me!

Instructions

he cells are coded:

requires a text answer.

requires a calculation. You cannot perform the operation on a calculator and then type the answer in the cell. You will enter the calculation in the cell, and only the final answer will show in the cell. I will be able to review your calculation and correct, if necessary.

requires a number only. In some problems, a “Step 1” is added to help you solve the problem.

2.

You will enter the required information into the shaded cells.

3.

T

a.

T

b.

C

c.

F

&16Instructions

Principles of Corporate Finance, Concise, 2nd Edition

P7-2

s and the rate of inflation:

2.5

a)     What was the standard deviation of the market returns?

Year Nominal Return (%)

2004

C C

2005 6.4 C C
2006 15.8 C C
2007 5.6 C C
2008 -37.2 C C

C C

Average C C

Deviation

C

b)     Calculate the average real return.

s

Year Nominal Return (%) Inflation (%)

2004 12.5 3.3 C
2005 6.4 3.4 C
2006 15.8 2.5 C
2007 5.6 4.1 C
2008 -37.2 0.1 C
Average C

Problem 7-2
The following table shows the nominal returns on U.S.	Stock
		Year			Nominal Return (%)		Inflation (%)
		2004	1		2.5		3.3
		2005			6.4		3.4
		2006			15.8
		2007			5.6		4.1
		2008			-37.2		0.1
	a)     What was the standard deviation of the market returns?
	b)     Calculate the average real return.
		Answers:
Find the standard deviation by completing the table with the appropriate formulas
Difference from		Average	Squared Difference
	12.5
Total
St	d.	Use SQRT function
Find the average real return by completing the table with the appropriate formulas
TIP: formula for real return can be found in the Classroom Course Tools, Resources, Financial	Formula
Real Return (%)

Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.

Principles of Corporate Finance, Concise, 2nd Edition

P7-11

Answers:

a. T
b. T
c. T

Problem 7-11

Each of the following statements is dangerous or misleading. Explain why. a. A long-term United States government bond is always absolutely safe. b. All investors should prefer stocks to bonds because stocks offer higher long-run rates of return. c. The best practical forecast of future rates of return on the stock market is a 5- or 10-year average of historical returns.

Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.

P8-6

rather than

. Assume that the expected return on the market stays at 10%. Use the betas in Table 8.2 (p. 193) – also provided below.

.
b. Find the highest expected return that is offered by one of these stocks.
c. Find the lowest expected return that is offered by one of these stocks.
d. Would

offer a higher or lower expected return if the interest rate were 6% rather than 4%? Assume that the expected market return stays at 10%.
e. Would

offer a higher or lower expected return if the interest rate were

?

Answers:

Formula

T C

Stock

F F C

Ford

F F C

Dell

F F C

F F C

F F C

F F C

F F C

Exxon Mobil

5

F F C

0.5 F F C

F F C

T

T

4% 6%

C C

Higher or lower?

Interest rate 4% 8%

Rate of return C C

Problem 8-6
Suppose that the Treasury bill rate were	6%		4%
a. Calculate the expected return from	Dell	Ford	Exxon Mobil	8%
Calculation
A. Dell’s expected return	TIP: Formula in Table 8.2 in textbook.
B./C.
Beta (B)	Revised T Bill Risk-Free Rate	Market Return	Expected return
Amazon	2.16
1.75
1.41
Starbucks	1.16
Boeing	1.14
Disney	0.96
Newmont	0.63
	0.5
Johnson & Johnson
Campbell Soup	0.3
B. Highest
C. Lowest
D. FORD will offer a ________ expected return at 6%.		Higher or lower?
	Interest rate
	Rate of return
E. Exxon will offer a _______ expected return at 8%.

Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.
Principles of Corporate Finance, Concise, 2nd Edition

P8-18

a. T

b. T

c. T

d. T

Problem 8-18

Some true or false questions about the APT: a. The APT factors cannot reflect diversifiable risks. b. The market rate of return cannot be an APT factor. c. There is no theory that specifically identifies the APT factors. d. The APT model could be true but not very useful, for example, if the relevant factors change unpredictably. Respond to each question – true or false – and why.

Answer:

Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.