Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 26, Problem 10QP
Summary Introduction
To prepare: Cash budget of C Incorporation.
Cash Budget:
Cash budget is prepared to ascertain the amount of cash for a given period. Cash budget is a statement that contains the information of cash receipts and cash payments. Closing balance of cash is calculated with the help of cash budget.
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John works for a fixed income hedge fund. Your fund invests in $100 million in mortgage-backed-bonds (MBS) with a duration of 10. He finances these bonds with $2 million in investor capital and $98 million of overnight repurchase agreements (required haircut=2%) with an interest rate of 1%.
After hours, negative news comes out on the evening news that increases yields on MBS by 25 basis points. Moreover, effective tomorrow, because of this bad news, repurchase agreement lenders will now require a haircut of 3% to lend to you via repurchase agreements with your MBS as collateral. Assuming he receives no interest payments from your MBS, how much cash does he need to not default on today’s repurchase agreement and to keep the position open for one more day tomorrow?
Please provide calculations in excel.
220
6-1. (Expected return and risk) Universal Corporation is planning to invest in a secu- LO1 LO2
rity that has several possible rates of return. Given the following probability distribu-
tion of returns, what is the expected rate of return on the investment? Also, compute
the standard deviations of the returns. What do the resulting numbers represent?
PROBABILITY
0.10
0.20
0.30
RETURN
-10%
5%
0.40
10%
25%
6-2. (Average expected return and risk) Given the holding-period returns shown here,
calculate the average returns and the standard deviations for the Kaifu Corporation Myb
and for the market.
MONTH
1
2
3
KAIFU CORP.
4%
6%
0%
2%
MARKET
2%
3%
1%
-1%
6-3. (Expected rate of return and risk) Carter, Inc. is evaluating a security. Calculate the
investment's expected return and its standard deviation.
PROBABILITY
0.15
RETURN
6%
0.30
9%
0.40
10%
0.15
15%
PART 2 The Valuation of Financial Assets
6-4. (Expected rate of return and risk) Summerville, Inc. is considering an investment in
one of…
6-14. (Expected return, standard deviation, and capital asset pricing model) The following LO5
are the end-of-month prices for both the Standard & Poor's 500 Index and Nike's
common stock.
a. Using the data here, calculate the holding-period returns for each of the months.
NIKE
S&P 500 INDEX
2017
January
$52.90
$2,279
February
57.16
2,364
March
55.73
2,363
April
55.41
2,384
May
52.99
2,412
June
59.00
2,423
July
59.05
2,470
August
52.81
2,472
September
51.85
2,519
October
54.99
2,575
November
60.42
2,648
December
62.55
2,674
2018
January
68.22
2,824
b. Calculate the average monthly return and the standard deviation for both the
S&P 500 and Nike.
222
PART 2 • The Valuation of Financial Assets
c. Develop a graph that shows the relationship between the Nike stock returns
and the S&P 500 Index. (Show the Nike returns on the vertical axis and the
S&P 500 Index returns on the horizontal axis as done in Figure 6-5.)
d. From your graph, describe the nature of the relationship between Nike stock…
Chapter 26 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 26 - Prob. 1CQCh. 26 - Prob. 2CQCh. 26 - Prob. 3CQCh. 26 - Cost of Current Assets Grohl Manufacturing, Inc.,...Ch. 26 - Prob. 5CQCh. 26 - Shortage Costs What are the costs of shortages?...Ch. 26 - Prob. 7CQCh. 26 - Prob. 8CQCh. 26 - Prob. 9CQCh. 26 - Prob. 10CQ
Ch. 26 - Prob. 11CQCh. 26 - Prob. 12CQCh. 26 - Prob. 1QPCh. 26 - Cash Equation Blizzard Corp. has a book value of...Ch. 26 - Changes in the Operating Cycle Indicate the effect...Ch. 26 - Prob. 4QPCh. 26 - Calculating Cash Collections The Litzenberger...Ch. 26 - Prob. 6QPCh. 26 - Prob. 7QPCh. 26 - Calculating Payments The Thakor Corporations...Ch. 26 - Calculating Cash Collections The following is the...Ch. 26 - Prob. 10QPCh. 26 - Prob. 11QPCh. 26 - Prob. 12QPCh. 26 - Prob. 13QPCh. 26 - Prob. 14QPCh. 26 - Prob. 15QPCh. 26 - Prob. 1MCCh. 26 - Rework the cash budget and short-term financial...Ch. 26 - Rework the sales budget assuming an 11 percent...
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