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Optional Extra Credit Due Date: 4/25/2016 Rule: Complete the following 4 problems and each one is worth 50 points. The adjusted points will be the average of your extra credit and your original total scores if any improvement score exists. 1. Suppose you purchase 2,000 shares of a closed-end mutual fund at its initial public offering; the offer price is $15 per share. The offering prospectus discloses that the fund promoter gets a 7.5 percent fee from the offering. If this fund sells at a 5 per cent discount to NAV the day after the initial public offering, what is the value of your investment? 2. Suppose the following three defense stocks are to be combined into a stock index in January 2013 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance): a. Calculate the initial value of the index if a price-weighting scheme is used. b. What is the rate of return on this index for the year ending December 31, 2013? For the year ending December 31, 2015? 3. The dividend for Douglas, Inc., is currently $1.25 per share. It is expected to grow at 20 percent next year and then decline linearly to a 5 percent perpetual rate beginning in four years. If you require a 16 percent return on the stock, what is the most you would pay per share? 4. Mid-American stock has a sustainable growth rate of 8 percent, ROE of 15 percent, and dividends per share of $1.65. If the P/E ratio is 20, what is the value of a share of stock?
Lessee Santi contracts for three leases of three machines for six months: lease A, lease B and Lease C. Each lease is non-cancelable and each machine reverts to the lessor at the end of the lease term. Assuming that the minimum lease payments are ma..
Which one of the following will decrease the net present value of a project?
Describe the characteristics of the ladder investment strategy and compare them to the barbell investment strategy. Why should the barbell strategy outperform the ladder strategy in a stable or declining interest rate environment? Why should the ladd..
A stock sells for $30. The next dividend will be $3 per share. If the return on equity ROE is a constant 15% and the company reinvests 40% of earnings in the firm, what must be the opportunity cost of capital?
A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,000 and other assets of $6,000. Equity is worth $18,000. The firm has 700 shares of stock outstanding and net income of $1,200. What will the new earnings pe..
Calvani, Inc., has a cash cycle of 39.5 days, an operating cycle of 55 days, and an inventory period of 23 days. The company reported cost of goods sold in the amount of $355,000, and credit sales were $578,000. What is the company’s average balance ..
First, consider Michele's savings. She began working at age 20 and began making an annual contribution of $2,000 at the first of the year beginning with her first year. She makes 13 contributions. She worked until she was 32 and then left full time w..
Assume that a 3-year Treasury note has no maturity premium, and that the real, risk-free rate of interest is 3 percent. If the T-note carries a yield to maturity of 13 percent, and if the expected average inflation rate over the next 2 years is 11 pe..
An analyst has modeled the stock of a company using a Fama-French three-factor model. The risk-free rate is 4%, the market return is 11%, the return on the SMB portfolio (rSMB) is 2.2%, and the return on the HML portfolio (rHML) is 5.8%. If ai = 0, b..
In the previous problem, suppose you sell the stock at a price of $62. What is your return? What would your return have been had you purchased the stock without margin? What if the stock price is $46 when you sell the stock?
In 2012, the total payroll for the New york Yankees was almost 200million, while the total payroll for the Oakland Athletics (a team known for using basball analytics or sabermetrics) was about 55million, less than one-third of the Yankees payroll. d..
Should preferred stock be classified as debt or equity/Does it matter if the classification is being made by the firm's a. management b. creditors, or c. equity investors?
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