The dividend yield of a portfolio of shares with current price of £673,000 is 2.8% pa payable continuously. Calculate the forward price of a one-year forward contract, based on the portfolio, if we assume dividends are received continuously and the risk - free rate of interest is 4.6028% pa effective.
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- A one-year long forward contract on a dividend-paying stock is entered into, when the stock price is $40 and the risk-free rate of interest is 10% per annum with continuous compounding. The dividend yield on the index is 2% per annum with continuous compounding. What are the forward price and the initial value of the forward contract?The S&P portfolio pays a dividend yield of 1% annually. Its current value is 2,000. The T-bill rate is 4%. Suppose the S&P futures price for delivery in 1 year is 2,050. Construct an arbitrage strategy to exploit the mispricing and show that your profits 1 year hence will equal the mispricing in the futures market.The required rate of return on the Cosmos Corporation's common stock is 10%, the current real rate of return in the market is 1%, and the inflation rate is 3%. In this case, the risk premium associated with Cosmos stock is
- Assume the risk-free rate on long-term Treasury bonds is 6.04%. Assume also that the average annual return on the Winslow 5000 is 11% as the expected return on the market. Use the SML equation (i.e., CAPM) to calculate the two companies' required returns. Bartman Industries Reynolds Inc. Year Stock Price Dividend Holding period return Stock Price Dividend Holding period return 2020 $17.25 $1.15 $48.75 $3.00 2019 14.75 1.06 52.30 2.90 2018 16.50 1.00 48.75 2.75 2017 10.75 0.95 57.25 2.50 2016 11.37 0.90 60.00 2.25 2015 7.62 55.75The annual yield on a 4-year corporate security is 6.875 percent, while the annual yield on a 6-year corporate security is 7.85 percent. Assume that the real, risk-free rate of interest is expected to be constant over time at 2 percent, the default risk and liquidity premium on both securities is equal to 1.75 percent. Also assume that the maturity risk premium for all securities can be estimated as MPRt = (0.15%)*(t-1) where t is the number of periods until maturity. your analysis shows that the expected rate of inflation for year 2 is 2%. Year 3 is 3.5%. The expected rate of inflation for year 5 is 4.5%. Determine the anticipated rate of inflation for year 6.Assume you’ve forecasted the following Net Income amounts for Chipotle over the period 2021-2030. Assuming a beta of 1.28, a risk-free rate of 1.14% and a market risk premium of 4.72%. Assume Chipotle pays “dividends” each period equal to 5.24% of net income. The beginning book value of equity equals $2,020,135. Calculate residual income and the present value of each residual income amount. (Don’t forget to calculate book value of shareholders’ equity each period.) See attatched picture for work 2. Calculate the continuing value assuming a 3% growth rate.Step 1: Multiply Net Income for 2030 by (1+g)Step 2: Multiply Book Value of Shareholder’s Equity at end of 2030 by RE (cost of equity).Step 3: Subtract Step 2 amount from Step 1 amount. This is the continuing residual income.Step 4: Assume the Step 3 amount is a perpetuity with growth (this amount will grow forever at a constant rate). Divide the Step 3 amount by (RE-g). It will be a big number. 3. Add…
- Let's value a REIT using Net Asset Value another way. (All values are in Millions) Assume a REIT has debt of 1,000M, there are 100M shares outstanding, both the stock price and NAV/share equal $5, and a fair cap rate for the portfolio is 10.0%, what is the implied NOI? $100M $105.5M $101 M $150MSuppose you are considering two possible investment opportunities: a 12-yearTreasury bond and a 7-year, A-rated corporate bond. The current real risk-free rateis 4%, and inflation is expected to be 2% for the next 2 years, 3% for the following4 years, and 4% thereafter. The maturity risk premium is estimated by this formula:MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimatedto be 0.3%. You may determine the default risk premium (DRP), given thecompany’s bond rating, from the table below. Remember to subtract the bond’s LPfrom the corporate spread given in the table to arrive at the bond’s DRP. Whatyield would you predict for each of these two investments?RateCorporate Bond YieldYou have assigned the following values to these three firms: Upcoming Dividend $0.50 Estee Lauder Kimco Realty Nordstrom Price $36.00 75.00 11.00 1.58 2.00 Estee Lauder required return Kimco Realty required return Nordstrom required return Assume that the market portfolio will earn 17.20 percent and the risk-free rate is 8.20 percent. Compute the required return for each company using both CAPM and the constant-growth model. (Do not round intermediate calculations and round your final answers to 2 decimal places.) CAPM Growth 11.40% 17.00 8.80 % % % Beta 0.92 1.28 1.24 Constant-Growth Model % % %
- Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, AA-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Rate Spread = DRP + LP U.S. Treasury 0.73 % — AAA corporate 0.93 0.20 % AA corporate 1.33 0.60 A corporate 1.75 1.02 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: 6.553%----->correct 7-year Corporate yield: ? %…Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, AA-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Rate Spread = DRP + LP U.S. Treasury 0.73 % — AAA corporate 0.93 0.20 % AA corporate 1.33 0.60 A corporate 1.75 1.02 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: 10.533 % 7-year Corporate yield: 9.597% Given…Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, A-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Rate Spread = DRP + LP U.S. Treasury 0.83 % — AAA corporate 1.03 0.20 % AA corporate 1.39 0.56 A corporate 1.79 0.96 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: fill in the blank _ % 7-year Corporate yield: fill…
