DOC-20231229-WA0040.

docx

School

Beacon College *

*We aren’t endorsed by this school

Course

Subject

Finance

Date

Nov 24, 2024

Type

docx

Pages

Uploaded by BaronExploration17232

Al Zahra College for Women Assignment Department: Managerial and Financial Sciences Academic Year: (2023/2024) Semester: (1) Course Title Investment Course Code 24305 Course Instructor Dr. Rafat al-batayneh Student Name Student ID Date of Submission Thursday 04, 2024 Marking Distribution: Task Task Task Task Total Total (in letters) 1-4 T. Mark 20 % Student Mark Page 1 of 6 CLO T.N

Instruction: Answer the following questions as required. (Total = 20 % Marks) Rules & Regulations : 1. Total words count should be between 500-1000 words. Report should have the following:  Cover page , which indicates module title, names of students, name of instructor and date of submission  Table of Contents , which includes heading, subheading and page numbers.  Introduction with objectives of the report, data sources, and report structure  Discussion , description, discussion, explanation and analysis of the questions  Conclusion that reveals main findings regarding the questions, with recommendation(s).  List of References using APA style of referencing (APA 7 th Edition); at least 5 references.  The student declaration form should be attached in the final copy. 2. The Assignment should be done in Word, font size 12, font style Times New Roman, text color black, colors can be used ONLY in appendices; main body of the report should be black and white. 3. Late submission and Plagiarism policy will be applied accordingly. 4. Discussions should be with citations. 5. Softcopy in word format is to be submitted through Turnitin link on Moodle. 6. Presentation will be conducted after the assignment submission as per the dates informed Guidelines:  Assignment must be computer typed.  Font - Times New Roman  Font – Style - Regular  Font - Size - 12  Heading should be with Font Size 14, Bold, Capital and Underline.  Explain with suitable diagrams wherever required. Diagrams must be drawn using suitable software or by pencil.  Each student has to do the assignment individually / Students have to do the assignment collaboratively and each student should write a brief reflection on their contribution and learnings from group work.  You can refer books in E-Library or use internet resource. But you should not cut and paste material from internet nor provide photocopied material from books. The assignment answers should be in your own words after understanding the matter from the above resources. Page 2 of 6

Final Assignments (investment ): 1) Greengage, Inc., a successful nursery, is considering several expansion projects. All of the alternatives promise to produce an acceptable return. The owners are extremely risk-averse; therefore, they will choose the least risky of the alternatives. Data on four possible projects follow. a. Which project is least risky, judging on the basis of range? b. Which project has the lowest standard deviation? Explain why standard deviation is not an appropriate measure of risk for purposes of this comparison. c. Calculate the coefficient of variation for each project. Which project will Greengage’s owners choose? Explain why this may be the best measure of risk for comparing this set of opportunities. 2) 1 What is the real rate of interest? Differentiate it from the nominal rate of interest for the risk-free asset, a 3-month U.S. Treasury bill. –2 What is the term structure of interest rates, and how is it related to the yield curve? –3 For a given class of similar-risk securities, what does each of the following yield curves reflect about interest rates: (a) downward-sloping; (b) upward-sloping; and (c) flat? Which form has been historically dominant? –4 Briefly describe the following theories of the general shape of the yield curve: (a) expectations theory; (b) liquidity preference theory; and (c) market segmentation theory. 3) Lahey Industries has outstanding a $1,000 par-value bond with an 8% coupon interest rate. The bond has 12 years remaining to its maturity date. a. If interest is paid annually, find the value of the bond when the required return is (1) 7%, (2) 8%, and (3) 10%? b. Indicate for each case in part a whether the bond is selling at a discount, at a premium, or at its par value. c. Using the 10% required return, find the bond’s value when interest is paid semiannually. Page 3 of 6

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

4) Elliot Enterprises’ bonds currently sell for $1,150, have an 11% coupon interest rate and a $1,000 par value, pay interest annually, and have 18 years to maturity. a. Calculate the bonds’ yield to maturity (YTM). b. Compare the YTM calculated in part a to the bonds’ coupon interest rate, and use a comparison of the bonds’ current price and their par value to explain this difference. 5) Zane Perelli currently has $100 that he can spend today on polo shirts costing $25 each. Instead he could invest the $100 in a risk-free U.S. Treasury security that is expected to earn a 9% nominal rate of interest. The consensus forecast of leading economists is a 5% rate of inflation over the coming year. a. How many polo shirts can Zane purchase today? b. How much money will Zane have at the end of 1 year if he forgoes purchasing the polo shirts today? c. How much would you expect the polo shirts to cost at the end of 1 year in light of the expected inflation? d. Use your findings in parts b and c to determine how many polo shirts (fractions are OK) Zane can purchase at the end of 1 year. In percentage terms, how many more or fewer polo shirts can Zane buy at the end of 1 year? e. What is Zane’s real rate of return over the year? How is it related to the percentage change in Zane’s buying power found in part d? Explain. 6) The following yield data for a number of highest quality corporate bonds existed at each of the three points in time noted. a. On the same set of axes, draw the yield curve at each of the three given times. b. Label each curve in part a with its general shape (downward-sloping, upward-sloping, flat). c. Describe the general inflationary and interest rate expectation existing at each of the three times. Page 4 of 6

7) The real rate of interest is currently 3%; the inflation expectation and risk premiums for a number of securities follow. a. Find the risk-free rate of interest, RF , that is applicable to each security. b. Although not noted, what factor must be the cause of the differing risk-free rates found in part a? c. Find the nominal rate of interest for each security. 8) 1: What are the key differences between debt capital and equity capital? 2: What risks do common stockholders take that other suppliers of long-term capital do not? Describe the key items of information included in a stock quotation. What information does the stock’s price/earnings (P/E) ratio provide? 3: How does a right offering protect a firm’s stockholders against the dilution of ownership? 4: Explain the relationships among authorized shares, outstanding shares, treasury stock, and issued shares. 5 What are the advantages to both U.S.-based and foreign corporations of issuing stock outside their home markets? What are American depositary? receipts (ADRs)? 6 What claims do preferred stockholders have with respect to distribution ofearnings (dividends) and assets? 7 Explain the cumulative feature of preferred stock. What is the purpose of a call feature in a preferred stock issue? 9) 1: Describe the events that occur in an efficient market in response to new information that causes the expected return to exceed the required return. What happens to the market value? 2: What does the efficient-market hypothesis say about (a) securities prices, (b) their reaction to new information, and (c) investor opportunities to profit? 3: Scotto Manufacturing is a mature firm in the machine tool component industry. The firm’s most recent common stock dividend was $2.40 per share. Because of its maturity as well as its stable sales and Page 5 of 6

earnings, the firm’s management feels that dividends will remain at the current level for the foreseeable future. a. If the required return is 12%, what will be the value of Scotto’s common stock? b. If the firm’s risk as perceived by market participants suddenly increases, causing the required return to rise to 20%, what will be the common stock value? c. Judging on the basis of your findings in parts a and b, what impact does risk have on value? Explain. 4: Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has an $80 par value and pays an annual dividend of $6.40 per share. Similar risk preferred stocks are currently earning a 9.3% annual rate of return. a. What is the market value of the outstanding preferred stock? b. If an investor purchases the preferred stock at the value calculated in part a, how much does she gain or lose per share if she sells the stock when the required return on similar-risk preferred has risen to 10.5%? Explain. 5: Use the constant-growth model (Gordon model) to find the value of each firm shown in the following table: 6: McCracken Roofing, Inc., common stock paid a dividend of $1.20 per share last year. The company expects earnings and dividends to grow at a rate of 5% per year for the foreseeable future. a. What required rate of return for this stock would result in a price per share of $28? b. If McCracken had both earnings growth and dividend growth at a rate of 10%, what required rate of return would result in a price per share of $28? Page 6 of 6

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version