FIN 301 Class Web Page, Spring ' 16
Instructor: Maggie Foley
Jacksonville University
Business Finance Online, an interactive learning tool for the Corporate Finance Student https://www.zenwealth.com/BusinessFinanceOnline/index.htm
Weekly SCHEDULE, LINKS, FILES and Questions
Chapter 
Coverage, HW, Supplements 
Required 
References

Videos (optional) 

Chapter
1, 2 
Chapter 1:
Introduction Flow of funds describes the financial assets flowing from
various sectors through financial intermediaries for the purpose of buying
physical or financial assets. *** Household,
nonfinancial business, and our government Financial institutions facilitate exchanges of funds and
financial products. *** Building blocks of a financial system. Passing and
transforming funds and risks during transactions. *** Buy and sell, receive and deliver, and create and underwrite
financial products. *** The transferring of funds and risk is thus created. Capital
utilization for individual and for the whole economy is thus enhanced. Chapter 2 Introduction of
Financial Market Introduction to Capital
Markets  ION Open Courseware (Video)
How the stock market works (video) Discussion:
How to pick stocks
Daily earning announcement: http://www.zacks.com/earnings/earningscalendar IPO schedule: http://www.marketwatch.com/tools/ipocalendar 

Introduction
to Capital Markets  ION Open Courseware


Chapter 5 
Chapter 5 Time value of Money Time value of money
(Video) The time value of money 
German Nande (video)
Chapter 5 Homework (due 2/4 and
part of HW will be worked out together in class) 1.
1. You deposit $5,000 in a saving account at 10%
compounded annually. How much is your first year interest? How much is your
second year interest? (500, 550) 2.
What is the future value of $5,000 invested for 3 years
at 10% compounded annually? ( 6,655) 3.
3. You just bought a TV for $518.4 on credit card. You plan to pay
back of $50 a month for this credit card debt. The credit card charges you
12% of interest rate on the monthly basis. So how long does it take to pay
back your credit card debt? (11 months) 4.
4. You are going to deposit certain amount in the next four years.
Your saving account offers 5% of annual interest rate. First year: $800 Second year: $900 Third year: $1000 Fourth year: $1200.
How much you can withdraw four years later? (4168.35) 5.
5. You are going to deposit certain amount in the next four years.
Your saving account offers 5% of annual interest rate. First year: $800 Second year: $900 Third year: $1000 Fourth year: $1200.
How much is the lump sum value as of today (NPV)?
(3429.31) 6.
6. Ten years ago, you invested $1,000. Today it is worth
$2,000. What rate of interest did you earn? (7.18%) 7.
7. At
5 percent interest, how long would it take to triple your
money? (22.52) 8.
8. What is the effective annual rate if a bank charges
you 12 percent compounded monthly? (12.68%) 9.
9. Your father invested a lump sum 16 years ago at 8%
interest for your education. Today, that account worth $50,000.00. How much
did your father deposit 16 years ago? ($14594.50) 10.
10. You are borrowing $300,000 to buy a house. The terms
of the mortgage call for monthly payments for 30 years at 3% interest. What
is the amount of each payment? ($1264.81) 11.
11. You deposit $200 at the beginning of each month into your
saving account every month. After two years (24 deposits total), your account
value is $6,000. Assuming monthly compounding, what is your monthly rate that
the bank provides? (1.74%) 12. You want to buy a fancy
car. For this goal, you plan to save $5,500 per year, beginning
immediately. You will make 4
deposits in an account that pays 8% interest.
Under these assumptions, how much will you have 4 years from today?
($26,766) 13. Citi card is giving you a good deal.
You can transfer your balance from your current credit card to Citi new card
with $50 balance transfer fee. The new card charges at 5% a year. But your
old card charges at 12% a year. Your balance in your old card is $5,000. If
you can afford to pay back to the credit card of $250 a month. How much
quicker does it take you to pay back your debt with the new card? (Hint: for
the new card, your debt = 5000+50=5050; Assume monthly compounding by credit
card companies). (1.28 months) 14. Your girlfriend just won the Florida
lottery. She has the choice of
$40,000,000 today or a 20year annuity of $2,850,000, with the first payment
coming one year from today. If the mutual fund of hers provides 4% of return
each year for the next 20 years, which payment option is more attractive to
her? ($40million) 15. The
Thailand Co. is considering the purchase of some new equipment. The quote
consists of a quarterly payment of $4,740 for 10 years at 6.5 percent
interest. What is the purchase price of the equipment? ($138,617.88) 16. The
condominium at the beach that you want to buy costs $249,500. You plan to
make a cash down payment of 20 percent and finance the balance over 10 years
at 6.75 percent. What will be the amount of your monthly mortgage
payment? ($2,291.89) 18. Shannon
wants to have $10,000 in an investment account three years from now. The
account will pay 0.4 percent interest per month. If Shannon saves money every
month, starting one month from now, how much will she have to save each
month? ($258.81) 23.
Expansion, Inc. acquired an additional business unit for $310,000. The
seller agreed to accept annual payments of $67,000 at an interest rate of 6.5
percent. How many years will it take Expansion, Inc. to pay for this
purchase? (5.68 years) 30. Sky
Investments offers an annuity due with semiannual payments for 10 years at 7
percent interest. The annuity costs $90,000 today. What is the amount of each
annuity payment? ($6,118.35) 
WSJ Paper,
1/18/2016
Welcome to the Crisis Economy,
Where Tumult Reigns
Be it geopolitical tension, terror
threats or faltering markets, there always seems to be something testing
growth
Summary of math and excel equations Math Equations FV = PV *(1+r)^n PV = FV / ((1+r)^n) N = ln(FV/PV) / ln(1+r) Rate = (FV/PV)^{1/n} 1 Annuity: N = ln(FV/C*r+1)/(ln(1+r)) Or N = ln(1/(1(PV/C)*r)))/ (ln(1+r)) EAR = (1+APR/m)^m1 APR = (1+EAR)^(1/m)*m Excel Formulas To get FV, use FV function. =abs(fv(rate, nper, pmt, pv)) To get PV, use PV function = abs(pv(rate, nper, pmt, fv)) To get r, use rate
function = rate(nper, pmt, pv, fv) To get number of years, use nper function = nper(rate, pmt, pv, fv) To get annuity payment, use PMT function = pmt(rate, nper, pv, fv) To get Effective rate (EAR), use Effect function = effect(nominal_rate, npery) To get annual percentage rate (APR), use nominal function = nominal(effective ratge, npery) First Mid Term – FIN301 Study Guide Multiple Choices (22*4 = 88) 1. Similar to Quiz 1, calculate interest and principal. 2. Similar to Quiz 1, calculate interest and principal. 3. Calculate FV, given everything else. 4. Calculate interest rate, given everything else. 5. Given APR, calculate EAR. 6. Calculate NPV, given everything else. 7. how long would it take to triple your money, given interest rate. 8. Calculate EAR, given APR. 9. Calculate monthly credit card payment, all given 10. Calculate the period to pay back the credit card debt, all given 11. Calculate NPV, given cash flow and rate 12. Calculate NPV, given cash flow and rate 13. Calculate APR, given EAR 14. Calculate house payment, all given. 15. Calculate payment, all given 16. Annuity due question (remember, type=1) 17. Calculate future value, all given 18. Calculate number of years, all given 19. Calculate car payment, all given 20. Calculate NPV, all given 21. Definition of ordinary annuity 22. Calculate present value, all given. Short
answer questions (6*2=12 – NPV and NFV calculation) 
Financial
Analysis Using Excel, Part 1 (Time Value of Money) 

2/9 First Mid term
(Chapter 5 only) 


Chapter 3 
Chapter 3 Financial
Statement Analysis Experts Explain: Financial Statements (well
explained, video) ******* Part I: Balance Sheet and Income Statement
************** Home Depot
(Ticker in the market: HD) reported the following information for the year
ended January 30^{th}, 2011 (expressed in millions). Sales: $67,977 Cost of goods
sold: $44,693 Marketing,
general and administrative expenses: $15,885 Depreciation
expenses: $1,616 Interest
expense: $530 Tax rate:
36.70% Number of
shares outstanding: 1,623 Dividends paid
to stockholders: $1,569. Use the above
information to try to prepare the income statement of
Home Depot for the year ended January 30^{th}, 2011 Home Depot
(Ticker in the market: HD) reported the following information for the year
ended January 30^{th}, 2011 (expressed in millions). Cash: $545 Accounts
receivables: $1,085 Inventories:
$10625 Other current
assets: $1,224 Gross fixed
assets: $38,471 Accumulated
depreciation: $13,411 Other fixed
assets: $1,586 Accounts
payable: $9,080 Short term
notes payable: $1,042 Long term debt:
$11,114 Total common
stock: $3,894 Retained
earnings: $14,995 Use the above
information to try to prepare the balance sheet of
Home Depot for the year ended January 30^{th}, 2011. HOMEWORK
(Due 2/18): Prepare income statement and balance sheet of
HOME DEPOT for year 2011 using above information. 
Cash flow template (new and simple, my contribution) 

************
Part II: Cash Flow Statement **************

In Millions of USD (except for per share
items) 
52 weeks ending
20140202 
Net Income/Starting Line 
5,385.00 
Depreciation/Depletion 
1,757.00 
Amortization 
 
Deferred Taxes 
31 
NonCash Items 
228 
Changes in Working Capital 
289 
Cash from Operating Activities 
7,628.00 
Capital Expenditures 
1,389.00 
Other Investing Cash Flow Items, Total 
118 
Cash from Investing Activities 
1,507.00 
Financing Cash Flow Items 
37 
Total Cash Dividends Paid 
2,243.00 
Issuance (Retirement) of Stock, Net 
8,305.00 
Issuance (Retirement) of Debt, Net 
3,933.00 
Cash from Financing Activities 
6,652.00 
Foreign Exchange Effects 
34 
Net Change in Cash 
565 
Cash Interest Paid, Supplemental 
639 
Cash Taxes Paid, Supplemental 
2,839.00 
Discussion:
1. What are the three components of
cash flow statement?
2. What does net change in cash mean?
Now let’s learn how to calculate cash changes in each session
Source of cash
Use of Cash
Cash Flow from Operations: Five Steps
1. Add back depreciation.
2. Subtract (add) any increase (decrease) in
accounts receivable.
3. Subtract (add) any increase (decrease) in
inventory.
4. Subtract (add) any increase (decrease) in
other current assets.
5. Add (subtract) any increase (decrease) in
accounts payable and other accrued expenses
HW of chapter 3 (word file here)
1. For the above precision tool example, work out the cash flow statement
2.
Firm AAA just showed how it operated in the prior
year.
Sales = $2,000; Cost of Goods Sold =
$1,000; Depreciation Expense = $200; Administrative Expenses = $180; Interest
Expense = $30; Marketing Expenses = $50; and Taxes = $200. Prepare income statement
3.
A firm has $2000 in current
assets, $3000 in fixed assets, $300 in accounts receivables, $300 accounts
payable, and $800 in cash. What is the amount of the inventory? (hint: 900)
4. A firm has net working capital of $1000. Longterm debt
is $5000, total assets are $8000, and fixed assets are $5000. What is the
amount of the total equity? (Hint: to find total equity, you need to
calculate total debt, which is a sum of long term debt and short term debt.
Short term can be found from new working capital.) (hint: 1000)
5. Andre's Bakery has sales of $100,000 with costs of
$50,000. Interest expense is $20,000 and depreciation is $10,000. The tax
rate is 35 percent. What is the amount of tax paid? (hint: 7000)(hint:
tax = taxable income * tax rate and taxable income = EBT)
6. Andre's Bakery has sales of $100,000 with costs of $50,000. Interest expense is $20,000 and depreciation is $10,000. The tax rate is 35 percent. The company also paid $3,000 for dividend. What is the retained earning? (hint: retained earning = net income  dividend)(hint: 10,000)
Cash Flow Statement Answer 
calculation for changes 

Cash at the beginning of the year 

Cash from operation 

net income 

plus depreciation 

/+ AR 

/+ Inventory 

+/ AP 

net change in cash from operation 

Cash from investment 

/+ (NFA+depreciation) 

net change in cash from investment 

Cash from finaning 

+/ long term debt 

+/ common stock 

 dividend 

net change in cash from investment 

Total net change of cash 

Cash at the end of the year 
More exercises of chapter 3 (word file here)
1. Inventory
has increased from $18,776 to $21,908. This is ____________ of
cash;
Long term
debt has increased from $9,800 to $11,500. This is ____________ of
cash.
A. use; use
B. use; source
C. source; source
D. source; use
2. The Blue Bonnet's 2008
balance sheet showed net fixed assets of $2.2 million, and the 2009 balance
sheet showed net fixed assets of $2.6 million. The company's income statement
showed a depreciation expense of $1,000,000. What was the amount of the net
capital spending for 2009? （$1,400,000）
3. A firm has $500 in inventory, $1,860 in fixed assets, $190
in accounts receivables, $210 in accounts payable, and $70 in cash. What is
the amount of the current assets? (760)
4. A firm has net working capital of $640. Total liability is
$5,860. Total assets are $6,230, and fixed assets are $3,910. What is the
amount of long term debt? (4180)
5. Which one of the following is a use of cash?
A. decrease in accounts receivable
B. decrease in accounts
payable
C. increase in common stock
D. decrease in inventory
6. The Purple Martin has annual sales of $687,400, total debt
of $210,000, total equity of $365,000, and a profit margin of 5.00 percent.
What is the return on assets? (5.98 percent)
7. A firm generated net income of $878. The depreciation
expense was $40 and dividends were paid in the amount of $25. Accounts
payables decreased by $13, accounts receivables increased by $20, inventory
decreased by $14, and net fixed assets decreased by $8. There was no interest
expense. What was the net cash flow from operating activity? (899)
8. Your firm has net income of $198 on total
sales of $1,200. Costs are $715 and depreciation is $145. The tax rate is
34%. The firm does not have interest expenses. What is the operating cash
flow? (383)
9. Teddy’s Pillows has beginning net fixed
assets of $480 and ending net fixed assets of $530. Assets valued at $300
were sold during the year. Depreciation was $40. What is the amount of
capital spending? (90)
10.
The total assets are $900, the fixed assets are $600, longterm debt is $500,
and shortterm debt is $200. What is the amount of net working capital? (100)
11.
At the beginning of the year, a firm
has current assets of $380 and current liabilities of $210. At the end of the
year, the current assets are $410 and the current liabilities are $250. What
is the change in net working capital?
12.
Art’s Boutique has
sales of $640,000 and costs of $480,000. Interest expense is $40,000 and
depreciation is $60,000. The tax rate is 34%. What is the net income?
(39,600)
2/18 Class, Guest Speaker Lecture
 How did I
last so long in Wall Street?
 by Mr. Peluso,
with 30+ years trading experience with Merrill Lynch.
 Opportunities to earn extra credit!
Ppt
here for your reference
Chapter 4: Ratio Analysis
Chapter 4 how to master analyzing financial statement (FYI
only)
Stock screening tools
FINVIZ.com
http://finviz.com/screener.ashx
We will focus on the following several ratios:
P/E (price
per share/earning per share, P/E < 15, a bargain)
PEG (PE ratio /
growth rate. PEG<1, undervalued stock)
EPS (earning per
share)
ROA (Return on Asset
= NI/TA, ROA>10% should be a nice benchmark)
ROE (return on
equity = NI/TE, ROE>15% should be good)
Current ratio (liquidity measure. = CA/CL, has to be greater than one)
Quick ratio (liquidity
measure. = (CAInventory)/CL, has to be greater than one)
Debt Ratio (Leverage
measure. = TD/TA, need to be optimal, usually between 30% and 40%)
Gross margin (profit
measure. = EBITDA/sales, or = Gross margin/sales, has to be positive)
Operating margin (profit measure. = EBIT/sales, or = operating income/sales, has
to be positive)
Net profit margin (profit measure. = NI/sales, has to be positive)
Payout ratio (=
dividend / NI, measures distribution to shareholders. No preferences. Usually
value stocks have high payout ratio; Growth stocks have low payout ratio).
Chapter 4 IN Class
Exercise (excel file here) 

Assignment:
Calculate ratios of AAPL 

Steps 
Inputs /
Answers 

1 
P/E = price per share
/ earning per share 

EPS  earning per share = NI / Shares
outstanding 
9.64 

NI 
53,394,000,000.00 

Shares outstanding 
5,540,000,000.00 

Price per share 
98.98 

P/E 
10.27 

2 
PEG =PE / Growth 

Assume growth rate of apple is 15% every
year, so growth = 15 

PEG =PE / Growth 
0.68 

3 
ROA = NI/TA 
18.38% 
NI 
53,394,000,000.00 

TA 
290,479,000,000.00 

4 
ROE = NI/TE 
0.45 
NI 
53,394,000,000.00 

TE 
119,355,000,000.00 

5 
Current Ratio = CA/CL 
0.45 
6 
Quick ratio = (CA  inventory)/CL 
0.45 
Total Current Assets 
89,378.00 

Total Current Liabilities 
80,610.00 

Total Inventory 
2,349.00 

7 
Debt ratio = TD/TA 
22.19% 
TA 
290,479,000,000.00 

Total Debt 
64,462,000,000.00 

8 
Gross margin = EBITDA/sales 
40.06% 

Gross Profit (= EBITDA) 
93,626.00 
Revenue 
233,715.00 

9 
Operating margin = EBIT / sales 
30.48% 
Operating Income 
71,230.00 

10 
Profit margin = NI/Sales 
22.85% 
Net Income 
53,394.00 

11 
Payout ratio = Total dividend / NI 
20.54% 
Dividend per share 
1.98 

Total dividend = dividend per share * total
shares 
10,969,200,000.00 
Exercise:
1. How much is the P/E ratio if there are 900
shares outstanding in 2009 and the current price is $85.4 per share? (Hint:
First calculate earning per share and then calculate P/E ratio)
2. A firm has a debttotal asset ratio of 40 percent
and a return on equity of 13 percent. What is the return on
asset? (Hard. Give a value for asset. And then calculate debt, equity,
and NI, and then calculate ROA.)
3. Coulter Supply has debt equity ratio that
equals to 1. What is the total asset / total equity ratio?
4. Big Guy Subs has net income of $150,980, a
priceearnings ratio of 12.8, and earnings per share of $0.87. How many
shares of stock are outstanding?
5. A firm has net working capital of $715, inventory of $1,500, and current liabilities of $3,908.
How many dollars worth of inventory need to be
liquidated to keep quick ratio stay above 1?
6. Firm AAA’s information are given as follows.
longterm debt ratio: 0.6. (long term debt ratio = long term debt/(long
term debt + total equity)
current ratio: 1.3.
current liabilities: $700
sales are $4,440
profit margin is 9.5%
return on equity is 19.5%
How much is the value in net fixed
assets?
HW (will not collect this HW):
Calculate all ratios above of a stock in your
portfolio except PEG, using the most recent annual financial statement
Second
MidTerm Study Guide
Multiple
Choices (24*3.5=84)
1. You should understand the concept of financial statement: balance
sheet, income statement, and cash flow statement.
2. Given items in current liability, and items in current asset,
calculate current liability.
3. Given net working capital, current asset, asset, calculate
current liability.
4. Given
debttotal asset ratio and total asset, calculate total debt.
5. Given debttotal asset ratio, and ROA, calculate ROE
6 and 7 Examples of
use / source of cash
8. Ratio analysis:
Given sales, total debt, total equity, current asset, current liability,
profit margin calculateROA, etc.
9. Cash flow statement
concepts: what are the three activities, and details.
10. Given net income,
depreciation, net working capital changes, investment activities, calculate
net cash flow from operation.
11. Given net income,
depreciation, net working capital changes, investment activities, calculate
net cash flow from investment activities.
12. ROA is given,
asset, equity, debt are given, calculate ROE.
13. Income statement
concept
14. Calculate net income, operating income, given sales COG
depreciation, interest, operating expenses, etc.
15. Calculate net income, operating income, given sales COG
depreciation, interest, operating expenses, etc.
16. Concept of financial statements
17. Concept of financial statements
18. Concept of financial statements
19. Concept of financial statements
20. Concept of financial statements
21. Concept of financial statements
22. Examples of use /
source of cash
23. Balance sheet calculation question
24. Given pe ratio, and
calculate earning per share first, and
figure out stock price.
Short answer questions (16 points)
Similar to quiz, prepare income statement
3/8: Second mid term
(Chapter 3 and chapter 4)
Chapter 7
Chapter 7 Bond pricing
Simplified Balance Sheet of WalMart
In Millions of USD 
As of 20140131 
Total Assets 
204,751.00 
Total Current Liabilities 
69,345.00 
Long Term Debt 
41,771.00 
Other liabilities 
17,380.00 
Total Liabilities 
128,496.00 
Total Equity 
76,255.00 
Total Liabilities & Shareholders' Equity 
204,751.00 
For discussion:
· What is this “long term debt”?
· Who is the lender of this “long term debt”?
So this long term debt is called bond in the
financial market. Where can you find the pricing information and other
specifications of the bond issued by WMT?
How Bonds Work (video)
FINRA – Bond market information
http://finramarkets.morningstar.com/BondCenter/Default.jsp
Chapter 7 Study guide (word file here)
1. Go to http://cxa.gtm.idmanagedsolutions.com/finra/BondCenter/Default.aspx , the bond market data website of FINRA to find bond information. For example, find bond sponsored by IBM
Or, just go to www.finra.org, è Investor center è market data è bond è corporate bond
Corporate
Bond

2. 2. Understand what is coupon, coupon rate, yield, yield to maturity, market price, par value, maturity, annual bond, semiannual bond, current yield.
3. 3. Understand how to price bond
Bond price = abs(pv(yield, maturity, coupon, 1000)) – annual coupon
Bond price = abs(pv(yield/2, maturity*2, coupon/2, 1000)) – semiannual coupon
Also change the yield and observe the price changes. Summarize the price change pattern and draw a graph to demonstrate your findings.
Again, when yield to maturity of this semi_annual coupon bond is 3%, how should this WMT bond sell for?
4. Understand how to calculate bond returns
Yield to maturity = rate(maturity, coupon, market price, 1000) – annual coupon
Yield to maturity = rate(maturity*2, coupon/2, market price, 1000)*2 – semiannual coupon
For example, when the annual coupon bond is selling for $1,200, what is its return to investors?
For example, when the semiannual coupon bond is selling for $1,200, what is its return to investors?
5. Current yield: For the above bond, calculate current yield.
6. Zero coupon bond: coupon=0 and treat it as semiannual coupon bond.
Example: A ten year zero coupon bond is selling for $400. How much is its yield to maturity?
A ten year zero coupon bond’s yield to maturity is 10%. How much is its price?
7. Understand what is bond rating and how to read those ratings.
a. Who are Moody, S&P and Fitch?
b. What is IBM’s rating?
c. Is the rating for IBM the highest?
d. Who earned the highest rating?
Chapter 7 Home Work
1.
IBM 5 year 2% annual coupon bond is selling
for $950. How much this IBM bond’s YTM?
3.09%
2.
IBM 10 year 4% semi_annual
coupon bond is selling for $950. How much is this IBM bond’s YTM? 4.63%
3.
IBM 10 year 5% annual coupon bond
offers 8% of return. How much is the price of this bond? 798.7
4.
IBM 5 year 5% semiannual coupon bond
offers 8% of return. How much is the price of this bond? $878.34
5.
IBM 20 year zero coupon bond offers 8% return.
How much is the price of this bond? 208.29
6.
Collingwood Homes has a bond issue outstanding that pays an 8.5
percent coupon and matures in 18.5 years. The bonds have a par value of
$1,000 and a market price of $964.20. Interest is paid semiannually. What is
the yield to maturity? 8.9%
7.
Grand Adventure Properties offers a 9.5 percent coupon bond with
annual payments. The yield to maturity is 11.2 percent and the maturity date
is 11 years from today. What is the market price of this bond if the face
value is $1,000? 895
8.
The zero coupon
bonds of D&L Movers have a market price of $319.24, a face value of
$1,000, and a yield to maturity of 9.17 percent. How many years is it until
these bonds mature? 12.73
years
9.
A zero coupon bond with a face value of $1,000 is issued with an
initial price of $212.56. The bond matures in 25 years. What is the implicit
interest, in dollars, for the first year of the bond's life? 6.29%
The bonds issued by Stainless Tubs bear
a 6 percent coupon, payable semiannually. The bonds mature in 11
years and have a $1,000 face value. Currently, the bonds sell for $989. What
is the yield to maturity? 6.14%
Summary of
bond pricing excel functions
To calculate bond price (annual coupon bond):
Price=abs(pv(yield to maturity, years
left to maturity, coupon rate*1000, 1000)
To calculate yield to maturity (annual coupon bond)::
Yield to maturity = rate(years left to maturity, coupon rate
*1000, price, 1000)
To calculate bond price (semiannual coupon bond):
Price=abs(pv(yield to maturity/2,
years left to maturity*2, coupon rate*1000/2, 1000)
To calculate yield to maturity (semiannual coupon bond):
Yield to maturity = rate(years left to maturity*2, coupon
rate *1000/2, price, 1000)*2
To calculate number of years
left(annual coupon bond)
Number of years =nper(yield to
maturity, coupon rate*1000, price,
1000)
To calculate number of years
left(semiannual coupon bond)
Number of years =nper(yield to
maturity/2, coupon rate*1000/2,
price, 1000)/2
To calculate coupon (annual coupon
bond)
Coupon = pmt(yield to maturity, number
of years left, price, 1000)
Coupon rate = coupon / 1000
To calculate number of years
left(semiannual coupon bond)
Number of years = pmt(yield to
maturity/2, number of years left*2, price, 1000)
Coupon rate = coupon / 1000
Math Formula (FYI)
C: Coupon, M: Par, $1,000; i: Yield to maturity; n: years left to maturity
For Semiannual, F=2 for semiannual coupon
M: Par, $1,000; i: Yield to maturity; n: years left to maturity
Chapter 6 Risk and Return
Chapter 6 In Class Exercise (word
file here)
HW of chapter 6 (word file here)
Chapter
6 Homework
1) Stock A has
the following returns for various states of the economy:
State of
the Economy Probability Stock A's Return
Recession 10% 30%
Below Average 20% 2%
Average 40% 10%
Above Average 20% 18%
Boom 10% 40%
Stock A's
expected return is?
2)
Joe purchased 800 shares of Robotics Stock at $3 per share on 1/1/09. Bill
sold the shares on 12/31/09 for $3.45. Robotics stock has a beta of 1.9, the
riskfree rate of return is 4%, and the market risk premium is 9%. Joe's
holding period return is?
3. You own a portfolio with the following expected
returns given the various states of the economy. What is the overall
portfolio expected return?
State of economy probability
of state of economy rate
of return if state occurs
Boom 27% 14%
Normal 70% 8%
Recession 3% 11%
4) The prices
for the Electric Circuit Corporation for the first quarter of 2009 are given
below. The price of the stock on
Month
End Price
January $125.00
February 138.50
March 132.75
5) Collectibles Corp.
has a beta of 2.5 and a standard deviation of returns of 20%. The return on
the market portfolio is 15% and the risk free rate is 4%. What is the risk
premium on the market?
6) An investor
currently holds the following portfolio:
Amount
Invested
8,000 shares of Stock A $16,000 Beta = 1.3
15,000 shares of Stock B $48,000 Beta = 1.8
25,000 shares of Stock C $96,000 Beta = 2.2
The beta for the
portfolio is?
7) Assume that
you have $165,000 invested in a stock that is returning 11.50%, $85,000
invested in a stock that is returning 22.75%, and $235,000 invested in a
stock that is returning 10.25%. What is the expected return of your
portfolio?
8) If you hold a
portfolio made up of the following stocks:
Investment
Value Beta
Stock A $8,000 1.5
Stock B $10,000 1.0
Stock C $2,000 .5
What is the beta
of the portfolio?
9. The
riskfree rate of return is 3.9 percent and the market risk premium (r_{m} –r_{f})
is 6.2 percent. What is the expected rate of return on a stock with a beta of
1.21?
10.
You own a portfolio
consisting of the stocks below.
Stock Percentage
of portfolio Beta
1.
20% 1
2.
30% 0.5
3.
50% 1.6
The risk free rate is 3% and market return is 10%.
a.
Calculate the
portfolio beta.
b.
Calculate the
expected return of your portfolio.
11. Computing
holding period return for Jazman and Solomon for
period 1 through 3 (bought in period 1 and sold in period 3). Show the
holding period returns for each company.
Period Jazman Solomon
1 $10 $20
2 $12 $25
3 $15 $15
12. Calculate expected return
State
of the economy 
Probability
of the states 
%
Return (Cash Flow/Inv. Cost) 
Economic
Recession 
30% 
5% 
Strong
and moderate Economic Growth 
70% 
15% 
13. Calculate the expected returns of the following cases, respectively
1) Invest $10,000 in Treasury bill with guaranteed return of 4%.
2) Investment $10,000 in Apple. 50% possibility to earn 20% return and 50% possibility to lose 10% of investment.
3) Investment $10,000 in WalMart. 50% possibility to earn 5% return and 50% possibility to earn 0% of investment.
14. Rank the risk of the following cases, from the least risky one the most risky one
1) Invest $10,000 in Treasury bill with guaranteed return of 4%.
2) Investment $10,000 in Apple. 50% possibility to earn 20% return and 50% possibility to lose 10% of investment.
3) Investment $10,000 in WalMart. 50% possibility to earn 5% return and 50% possibility to earn 0% of investment.
15. An investor currently holds the following
portfolio:
Amount
Invested
8,000 shares of Stock A $10,000 Beta = 1.5
15,000 shares of Stock B $20,000 Beta = 0.8
25,000 shares of Stock C $20,000 Beta = 1.2
Calculate the
beta for the portfolio.
16. Joe purchased 800 shares of Robotics Stock
at $5 per share on 1/1/13. Bill sold the shares on 4/18/13 for $6. Robotics
stock has a beta of 1.2, the riskfree rate of return is 1%, and the market
risk premium is 10%. Joe's holding period return is how much?
Excel Command:
sumproduct(array1, array2)
stdevp(observation1, obv2, obv3,….)
correl(stock 1’s return, stock 2’s return)
beta
= slope(stock return, sp500 return)
Study Guide for the Third MidTerm
1.
Definition of
coupon, par value, yield to maturity,
2.
Calculate yield to
maturity, given bond price, years to maturity, coupon rate – Annual coupon
bond
3.
Calculate yield to
maturity, given bond price, years to maturity, coupon rate – SemiAnnual
coupon bond
4.
Calculate bond
price, given yield to maturity, years to maturity, coupon rate – Annual
coupon bond
5.
Calculate bond
price, given yield to maturity, years to maturity, coupon rate – SemiAnnual
coupon bond
6.
Calculate yield to
maturity, given bond price, years to maturity, coupon rate – zero coupon bond
7.
Calculate bond
price, given yield to maturity, years to maturity, coupon rate – zero coupon
bond
8.
Calculate current
yield, given yield to maturity, price, years to maturity, coupon rate – zero
coupon bond
9.
Calculate years to
maturity, given bond price, yield to maturity, coupon rate – Annual coupon
bond
10.
Calculate years to maturity, given bond
price, yield to maturity, coupon rate – SemiAnnual coupon bond
11.
Calculate stock return, given state of the
economy, probability, and return for each state. For example,
State of
the
Economy Probability Stock
A's Return
Recession 20% 30%
Average 40% 10%
Boom 40% 40%
Stock A's expected return is?
12.
Given stock
purchasing price, selling price and dividend, calculate holding period return
1316
Definition of risk and return, risk free rate, market return, beta, CAPM,
SML, risk and return trade off.
17.
Calculate beta,
based on excel  Slope function
18.
Calculate stock
return, given beta, risk free rate, market return
19.
Calculate
portfolio’s beta, given beta of each stock and dollar amount invested in each
stock
20.
Given portfolio’s
beta, risk free rate, market return, calculate portfolio’s return
Chapter 8 Stock Evaluation
Dividend Growth Model
Po= D1/(rg) or Po= Do*(1+g)/(rg)
R = D1/Po+g = Do*(1+g)/Po+g
Dividend Growth
model template excel simple version  my
contribution
Chapter 8 Study Guide
Imagine you bought 100 shares of WalMart
(Ticker: WMT) a year ago.
1. How is your holding period return in the prior
year?
Price in 4/19^{ }of 2015 was $78.61 and price of 4/19^{ }of 2016 is $69.82.
2. The followings are from google/finance about WMT.
69.82
Range 
68.85
 69.90 
52 week 
56.30
 80.93 
Open 
69.05 
Vol / Avg. 
6.62M/8.18M 
Mkt cap 
220.37B 
P/E 
15.27 
Div/yield 
0.50/2.86 
EPS 
4.57 
Shares 
3.14B 
Beta 
0.22 
Inst. own 
31% 
What does each item indicate?
3. You own 100 shares of WMT. Are you a significant
shareholder of WMT? What type of rights you have as minor shareholders?
4. If WMT runs into trouble, how risky is your
investment in WMT? Compare with Treasury bill investors, Treasury bond
investors, WMT bond investors, Apple stock holders, etc.
5. Mike Duke is the CEO of WalMart. Do you have
any suggestive advices for him? How can you let him hear from you? How much
do you trust him not to abuse your investment? Are there any ways to
discipline him?
6. More exercise about the dividend growth model.
Consider the valuation of a common stock that
paid $1.00 dividend at the end of the last year and is expected to pay a cash
dividend in the future. Dividends are expected to grow at 10% and the
investors required rate of return is 17%. How much is the price?
7. The current market price of stock is $70 and
the stock pays dividend of $3 with a growth rate of 5%. What is the return of
this stock?
HW of chapter
8 (word file here) (answer)
Chapter 8 Home Work (will not be
collected)
1. Northern Gas recently paid a $2.80
annual dividend on its common stock. This dividend increases at an average
rate of 3.8 percent per year. The stock is currently selling for $26.91 a
share. What is the market rate of return?
2. Douglass
Gardens pays an annual dividend that is expected to increase by 4.1 percent
per year. The stock commands a market rate of return of 12.6 percent and
sells for $24.90 a share. What is the expected amount of the next
dividend?
3. IBM just paid $3.00 dividend per share to investors. The dividend growth rate is 10%. What is the expected dividend of the next year?
4. You bought 1 share of HPD for $20 in May 2008 and sold it for $30 in May 2009. How much is the holding period?
5. The current market price of stock is $50 and the stock is expected to pay dividend of $2 with a growth rate of 6%. How much is the expected return to stockholders?
6. The stockholder’s expected return is 8% and the stock is expected to pay dividend of $2 with a growth rate of 4%. How much should the stock be traded for?
7. The stockholder’s expected return is 8% and the stock is expected to pay dividend of $2 with a growth rate of 4%. How much is the dividend expected to be three years from now? (Hint: D_{3 }= D_{2}*(1+g) = D_{1}*(1+g)^{2} )
8. Kilsheimer
Company just paid a dividend of $5 per share. Future dividends are expected
to grow at a constant rate of 7% per year. The value of the stock is $42.80.
What is the required return of this stock?
9. Investors of Creamy Custard common stock
earns 15% of return. It just paid a dividend of $6.00 and dividends are
expected to grow at a rate of 6% indefinitely. What is expected price of
Creamy Custard's stock?
10. Douglass Gardens pays an annual dividend that is expected to increase by 6 percent per year. The stock commands a market rate of return of 12.6 percent and sells for $24.90 a share. What is the dividend yield of this stock?
Chapter
10 Capital Budgeting
NPV, IRR, and Payback period
template in Excel
Chapter
10 In Class Exercise
Question 1: Project with an initial cash outlay of
$20,000 with following free cash flows for 5 years.
Year Cash
flows
1 $8,000
2 4,000
3 3,000
4 5,000
5 10,000
1) How much
is the payback period (approach one)?
· Does
this method consider time value of money?
· Easy
to explain to outsiders?
2) If the
firm has a 10% required rate of return. How much is NPV (approach 2)?
· What
does NPV means? NPV>0 indicates what? Otherwise?
· Does
this method consider time value of money?
· Easy
to explain to outsiders?
3) If the
firm has a 10% required rate of return. How much is IRR (approach 3)?
· What
does IRR mean? IRR > 10% indicates what? Otherwise?
· Does
this method consider time value of money?
· Easy
to explain to outsiders?
Question 2: Project with an initial cash outlay of $60,000
with following free cash flows for 5 years.
Year FCF
Initial
outlay –60,000
1 25,000
2 24,000
3 13,000
4 12,000
5 11,000
The firm has a 15%
required rate of return.
Calculate payback
period, NPV, IRR. Analyze your results.
Question 3: Mutually
Exclusive Projects
1) Consider
the following cash flows for oneyear Project A and B, with required rates of
return of 10%. You have limited capital and can invest in one but one
project. Which one?
§ Initial Outlay: A = $200; B =
$1,500
§ Inflow: A
= $300; B = $1,900
2) Example:
Consider two projects, A and B, with initial outlay of $1,000, cost of
capital of 10%, and following cash flows in years 1, 2, and 3:
A:
$100 $200 $2,000
B:
$650 $650 $650
Which project should you choose if they are mutually
exclusive? Independent? Crossover rate?
Chapter 10 In Class Exercise
II
1. Consider the following two projects, calculate
the NPVs of the two projects. If the two projects are mutually exclusive,
which one should you choose? What about they are independent projects?
Project 
Year 0 Cash Flow 
Year 1 Cash Flow 
Year 2 Cash Flow 
Year 3 Cash Flow 
Year 4 Cash Flow 
Discount Rate 
A 
100 
40 
40 
40 
N/A 
.15 
B 
73 
30 
30 
30 
30 
.15 
2. You are considering
an investment with the following cash flows. If the required rate of return
for this investment is 15.5 percent, should you accept the investment based
solely on the internal rate of return rule? Why or why not?
3. It will
cost $6,000 to acquire an ice cream cart. Cart sales are expected to be
$3,600 a year for three years. After the three years, the cart is expected to
be worthless as the expected life of the refrigeration unit is only three
years. What is the payback period?
4. An investment project provides cash flows of $1,190 per
year for 10 years. If the initial cost is $8,000, what is the payback
period?
5. A firm evaluates all of its projects by using the NPV decision
rule. At a required return of 14 percent, the NPV for the following project
is _____ and the firm should _____ the project.
6. Consider
the following two mutually exclusive projects:
What is the NPV of each project? What is the IRR of each project?
What is the crossover rate for these two projects?
7. Cash Flow in
Period
Initial
Outlay 1 2 3 4
$4,000,000 $1,546,170 $1,546,170 $1,546,170 $1,546,170
The Internal Rate of Return (to nearest whole percent) i?
8. Welltran
Corp. can purchase a new machine for $1,875,000 that will provide an annual
net cash flow of $650,000 per year for five years. The machine will be sold
for $120,000 after taxes at the end of year five. What is the net present
value of the machine if the required rate of return is 13.5%.
9. Compute the discounted payback period for a project
with the following cash flows received uniformly within each year and with a
required return of 8%:
Initial Outlay = $100
Cash Flows: Year 1 = $40
Year
2 = $50
Year
3 = $60
10. A project requires an initial investment of $389,600. The
project generates free cash flow of $540,000 at the end of year 4. What is
the internal rate of return for the project?
NPV Excel syntax
Syntax
NPV(rate,value1,value2, ...)
Rate is the rate of
discount over the length of one period.
Value1, value2, ... are 1 to 29 arguments representing
the payments and income.
· Value1, value2, ... must
be equally spaced in time and occur at the end of
each period. NPV uses the order of value1, value2, ... to interpret the order of cash flows. Be
sure to enter your payment and income values in the correct sequence.
IRR Excel syntax
Syntax
IRR(values, guess)
Values is an array or a reference to cells that
contain numbers for which you want to calculate the internal rate of return.
Guess is a number that
you guess is close to the result of IRR.
Final Exam (chapter 8 and 9)
4/26, Tuesday, 12:003:00 pm