Pearson Etext For Foundations Of Finance -- Combo Access Card (10th Edition)
10th Edition
ISBN: 9780135639344
Author: Arthur J. Keown, John D Martin, J. William Petty
Publisher: PEARSON
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Chapter 8, Problem 7SP
You are considering an investment in Minnix Petroleum’s
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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 8 Solutions
Pearson Etext For Foundations Of Finance -- Combo Access Card (10th Edition)
Ch. 8 - Prob. 1RQCh. 8 - Prob. 2RQCh. 8 - Prob. 3RQCh. 8 - Prob. 4RQCh. 8 - Prob. 5RQCh. 8 - Define investors expected rate of return.Ch. 8 - Prob. 7RQCh. 8 - Prob. 8RQCh. 8 - (Preferred stock valuation) What is the value of a...Ch. 8 - (Preferred stock valuation) The preferred stock of...
Ch. 8 - Prob. 3SPCh. 8 - Haney, Inc.s preferred stock is selling for 33 per...Ch. 8 - Calculate the value of a preferred stock that pays...Ch. 8 - You are considering an investment in one of two...Ch. 8 - You are considering an investment in Minnix...Ch. 8 - Mosser Corporations common stock paid 1.32 in...Ch. 8 - The Cammack Corporation wants to achieve a steady...Ch. 8 - (Common stock valuation) Dalton Inc., has an 11.5...Ch. 8 - (Common stock valuation) Bates, Inc. pays a...Ch. 8 - You intend to purchase Dorchester common stock at...Ch. 8 - (Common stock valuation) Herrera Motor, Inc. paid...Ch. 8 - (Measuring growth) Given that a firms return on...Ch. 8 - (Common stock valuation) Sanfords common stock is...Ch. 8 - (Common stock valuation) The common stock of NCP...Ch. 8 - (Measuring growth) Septian, Inc.s return on equity...Ch. 8 - Prob. 18SPCh. 8 - Prob. 19SPCh. 8 - (Preferred stockholder expected return) You own...Ch. 8 - (Preferred stock expected return) You are planning...Ch. 8 - (Preferred stockholder expected return) Zust...Ch. 8 - (Preferred stockholder expected return) You own...Ch. 8 - Prob. 24SPCh. 8 - Prob. 25SPCh. 8 - Prob. 26SPCh. 8 - Prob. 27SPCh. 8 - (Common stockholder expected return) Alyward ...Ch. 8 - (Common stockholder expected return) Bennett,...Ch. 8 - (Common stockholder expected return) The common...Ch. 8 - (Common stockholder expected return) The market...Ch. 8 - Prob. 32SPCh. 8 - Prob. 33SPCh. 8 - Prob. 2MCCh. 8 - Assume Emerson Electrics managers expect earnings...Ch. 8 - Prob. 4MC
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