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FIN 351 DeVry Complete Homework Package
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FIN 351 DeVry Week 1 Homework Assignment
Answer the following items from your textbook:
* Chapter 1 Discussion Question 13
* Chapter 1 Problem 5
* Chapter 2 Discussion Question 2
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Chapter 1 Discussion Question 13
Chapter 1 Problem 5
Chapter 2 Discussion Question 2
Chapter 3 Discussion Question 17
Chapter 3 Problem 5
Chapter 3 Problem 12
Submit your answers in a Word document to the Week 1 Assignments Dropbox. Grading rubric may be found in Doc Sharing. Follow APA format.
Submit your assignment to the Dropbox, located at the top of this page. For instructions on how to use the Dropbox, read these
See the Syllabus section "Due Dates for Assignments & Exams" for due date information.
Chapter 1 Q#13
Many people think of risk as the danger of losing money. Is this the same way that risk is defined in finance?
Chapter 1 Q #5
Sally is reviewing the performance of several portfolios in the family trusts. Trust A is managed by Wall Street Investment Advisors and Trust B is managed by LaSalle Street Investment Advisors. Both trusts are invested in a combination of stocks and bonds and have the following returns:
a. Calculate the annualized geometric and arithmetic returns over this 5-year period.
b. Which manager performed the best, and is there a significant enough difference for Sally to move her money to the winning manager?
c. Explain the difference between the geometric and arithmetic returns.
Chapter 2 Q#2
What is an efficient market?
Chapter 3 Q#17
If you did not wish a high-priced or heavily capitalized firm (one with high total market value) to overly influence your index, which of the weighting systems described in this chapter would you be likely to use?
Chapter 3 Q#5
You sell 100 shares of Norton Corporation short. The price of the stock is $60 per share. The margin requirement is 50 percent.
a. How much is your initial margin?
b. If stock goes down to $42, what is your percentage gain or loss on the initial margin (equity)?
c. If stock goes up to $67.50, what is your percentage gain or loss on the initial margin (equity)?
d. In part c, if the minimum margin standard is 30 percent, will you be required to put up more margin? (Do the additional necessary calculations to answer this question.)
Chapter 3 Q#12
Assume the following five companies are used in computing an index:
a. If the index is price weighted, what will be the value of the index on December 31, 2007? (Take the average price on December 31, 2007, and divide by the average price on January 1, 1984, and multiply by 100.) The value of the index on December 31, 2007? (Take the total market value on December 31, 2007, and divide by the total market value on January 1, 1984, and multiply by 100.)
c. Explain why the answer in part b is different from the answer in part a.
FIN 351 DeVry Week 2 Homework Assignment
Answer the following items from your textbook.
Chapter 5 Discussion Question 10
Chapter 5 Discussion Question 12
Chapter 6 Discussion Question 2
Chapter 6 Discussion Question 3
Chapter 7 Discussion Question 9
Chapter 7 Problem 5
Chapter 7 Problem 10
Chapter 7 Problem 14
Chapter 8 Discussion Question 12
Chapter 8 Discussion Question 13
Chapter 8 Problem 5
Chapter 8 Problem 15
Submit your answers in a Word document to the Week 2 Assignments Dropbox. Grading rubric may be found in Doc Sharing. Follow APA format.
Submit your assignment to the Dropbox, located at the top of this page. For instructions on how to use the Dropbox, read these .equella.ecollege.com/file/8ff9f27a-3772-48cf-9855-4bec4e6706bf/1/Dropbox.html">step-by-step instructions.
1. What is the advantage of using a composite of indicators (such as the 10 leading indicators) over simply using an individual indicator?
2. Comment on whether each of the following three industries is sensitive to the business cycle. If it is sensitive, does it do better in a boom period or a recession?
3. List the five stages of the industry life cycle. How does the pattern of cash dividend payments change over the cycle? (A general statement is all that is required.)
4. Why might a firm begin paying stock dividends in the growth stage?
5. For cyclical companies, why might the current P/E ratio be misleading?
6. Assume D1 = $1.60, Ke = 13 percent, g = 8 percent. Using Formula 7–5 on page 168, for the constant growth dividend valuation model, compute P0.
7. Leland Manufacturing Company anticipates a nonconstant growth pattern for dividends. Dividends at the end of year 1 are $4.00 per share and are expected to grow by 20 percent per year until the end of year 4 (that’s three years of growth). After year 4, dividends are expected to grow at 5 percent as far as the company can see into the future. All dividends are to be discounted back to present at a 13 percent rate (Ke = 13 percent).
a. Project dividends for years 1 through 4 (the first year is already given). Round all values that you compute to two places to the right of the decimal point throughout this problem.
b. Find the present value of the dividends in part a. Year Dividends (20% growth) P.V. Factor 13%
c. Project the dividend for the fifth year (D5).
d. Use Formula 7–5 on page 168 to find the present value of all future dividends, beginning with the fifth year’s dividend. The present value you find will be at the end of the fourth year. Use Formula 7–5 as follows: P4 =
e. Discount back the value found in part d for four years at 13 percent. P.V. of $90.75 four years from now at 13%
f. Add together the values from parts b and e to determine the present value of the stock.
8. Mr. Phillips of Southwest Investment Bankers is evaluating the P/E ratio of Madison Electronics Conveyors (MEC). The firm’s P/E is currently 17. With earning per share of $2, the stock price is $34.
The average P/E ratio in the electronic conveyor industry is presently 16.
However, MEC has an anticipated growth rate of 18 percent versus an industry average of 12 percent, so 2 will be added to the industry P/E by Mr. Phillips. Also, the operating risk associated with MEC is less than that for the industry because of its long-term contract with American Airlines. For this reason, Mr. Phillips will add a factor of 1.5 to the industry P/E ratio.
The debt-to-total-assets ratio is not as encouraging. It is 50 percent, while the industry ratio is 40 percent. In doing his evaluation, Mr. Phillips decides to subtract a factor of 0.5 from the industry P/E ratio. Other ratios, including dividend payout, appear to be in line with the industry, so Mr. Phillips will make no further adjustment along these lines.
However, he is somewhat distressed by the fact that the firm only spent 3 percent of sales on research and development last year, when the industry norm is 7 percent. For this reason he will subtract a factor of 1.5 from the industry P/E ratio.
Despite the relatively low research budget, Mr. Sanders observes that the firm has just hired two of the top executives from a competitor in the industry. He decides to add a factor of 1 to the industry P/E ratio because of this.
a. Determine the P/E ratio for MEC based on Mr. Phillips’s analysis. Industry P/E ratio
b. Multiply this times earnings per share, and comment on whether you think the stock might possibly be under- or overvalued in the marketplace at its current P/E and price.
The analysis would appear to be that the stock with a current P/E of 17 and price of $34 is undervalued.
9. What might a high dividend-payout ratio suggest to an analyst about a company’s growth prospects?
10. Explain the probable impact of replacement-cost accounting on the ratios of return on assets, debt to total assets, and times interest earned for a firm that has substantial old fixed assets.
11. A firm has assets of $1,800,000 and turns over its assets 2.5 times per year.
Return on assets is 20 percent. What is its profit margin (return on sales)?
12. The Multi-Corporation has three different operating divisions. Financial information for each is as follows:
a. Which division provides the highest operating margin?
b. Which division provides the lowest after-tax profit margin?
c. Which division has the lowest after-tax return on assets?
d. Compute net income (after-tax) to sales for the entire corporation.
e. Compute net income (after-tax) to assets for the entire corporation.
f. The vice president of finance suggests the assets in the Appliances division be sold off for $10 million and redeployed in Sporting Goods.
g. Explain why Sporting Goods, which has a lower return on sales than Appliances, has such a positive effect on return on assets.
FIN 351 DeVry Week 3 Homework Assignment
Chapter 9 Discussion Question 9
Chapter 9 Discussion Question 20
Chapter 10 Discussion Question 3
Chapter 10 Discussion Question 9
Chapter 10 Discussion Question 11
Chapter 10 Discussion Question 13
Submit your answers in a Word document to the Week 3 Assignments Dropbox. Grading rubric may be found in Doc Sharing. Follow APA format.
1. Define special or abnormal returns.
2. What does Table 9–5 on page 252 indicate about the relationship between a firm’s P/E ratio and its average quarterly return?
3. If you “buy straw hats in winter” or buy “when there is blood in the street,” what kind of investor are you?
4. What is technical analysis?
5. Outline the basic assumptions of technical analysis.
6. Also under the Dow Theory, what other average is used to confirm movements in the Dow Jones Industrial Average?
FIN 351 DeVry Week 4 Homework Assignment
Chapter 11 Discussion Question 3
Chapter 11 Discussion Question 11
Chapter 11 Problem 2
Chapter 11 Problem 6
Chapter 11 Problem 8
Chapter 12 Discussion Question 3
Chapter 12 Problem 2
Chapter 12 Problem 6
Chapter 12 Problem 7
Chapter 12 Problem 16
Chapter 18 Discussion Question 5
Chapter 18 Problem 5
Submit your answers in a Word document to the Week 4 Assignments Dropbox.
• Chapter 11 Discussion Question 3 (Page 308)- Explain how a sinking fund works.
• Chapter 11 Discussion Question 11 (Page 308)- What tax advantages are associated with municipal bonds?
• Chapter 11 Problem 2 (Page 309)- If an investor is in a 30 percent marginal tax bracket and can purchase a straight (nonmunicipal bond) at 8.37 percent and a municipal bond at 6.12 percent, which should he or she choose?
• Chapter 11 Problem 6 (Page 309)- Assume a $1,000 Treasury bill is quoted to pay 5 percent interest over a six-month period.
How much interest would the investor receive? 6 month period:
What will be the price of the Treasury bill?
What will be the effective yield?
• Chapter 11 Problem 8 (Page 309)- The price of a Treasury strip note or bond can be found using.vitalsource.com/books/0077637011/content/id/appC">Appendix C toward the back of the text. It is simply the present value factor from the table times the maturity (par) value of the Treasury strip. Assume you are considering a $10,000 par value Treasury strip that matures in 25 years. The discount rate is 7 percent. What is the price (present value) of the investment?
• Chapter 12 Discussion Question 3 (Page 332)- Why does a bond price change when interest rates change?
• Chapter 12 Problem 2 (Page 333)- Given a 15-year bond that sold for $1,000 with a 9 percent coupon rate, what would be the price of the bond if interest rates in the marketplace on similar bonds are now 12 percent? Interest is paid semiannually. Assume a 15-year time period.
• Chapter 12 Problem 6 (Page 333)- What is the current yield of an 8 percent coupon rate bond priced at $877.60?
• Chapter 12 Problem 7 (Page 333)- What is the yield to maturity for the data in.vitalsource.com/books/0077637011/content/id/P12-177">problem 6? Assume there are 10 years left to maturity. It is a $1,000 par value bond. Use the trial-and-error approach with annual analysis. [Hint: Because the bond is trading for less than par value, you can assume the interest rate (i) for which you are solving is greater than the coupon rate of 8 percent.]
• Chapter 12 Problem 16 (Page 333)- The following pattern for one-year Treasury bills is expected over the next four years:
What return would be necessary to induce an investor to buy a two-year security?
What return would be necessary to induce an investor to buy a three-year security?
What return would be necessary to induce an investor to buy a four-year security?
• Chapter 18 Discussion Question 5 (Page 488)- As market rates of interest become higher, what impact does this have on duration?
• Chapter 18 Problem 5 (Page 490)- You are considering the purchase of two $1,000 bonds. Your expectation is that interest rates will drop, and you want to buy the bond that provides the maximum capital gains potential. The first bond has a coupon rate of 6 percent with four years to maturity, while the second has a coupon rate of 14 percent and comes due six years from now. The market rate of interest (discount rate) is 8 percent. Which bond has the best price movement potential? Use duration to answer the question.
FIN 351 DeVry Week 5 Homework Assignment
Chapter 13 Discussion Question 1
Chapter 13 Problem 1
Chapter 14 Discussion Question 3
Chapter 14 Discussion Question 11
Chapter 14 Problem 2
Chapter 14 Problem 3
Chapter 15 Discussion Question 7
Chapter 15 Discussion Question 14
Chapter 15 Problem 3
Chapter 16 Discussion Question 1
Chapter 16 Discussion Question 6
Submit your answers in a Word document to the Week 5 Assignments Dropbox.
1. Why would an investor be interested in convertible securities? (What do they offer to the investor?)
2. A convertible bond has a face value of $1,000, and the conversion price is $50 per share. The stock is selling at $42 per share. The bond pays $60 per year interest and is selling in the market for $930. It matures in 15 years. Market rates are 10 percent per year.
What is the conversion ratio?
What is the conversion value?
What is the conversion premium (in dollars and percent)?
What is the floor value or pure bond value?
3. What is meant by the exercise or strike price on an option?
4. What are two option strategies to take advantage of an anticipated decline in stock prices? (Relate one to call options and the other to put options.)
5. Look at the option quotes in Table 14–2 on page 368.
What is the closing price of the common stock of SINGLE Systems?
What is the highest strike price listed?
What is the price of a December 20 call option?
What is the price of a January 22.50 put option?
6. Assume a stock is selling for $66.75 with options available at 60, 65, and 70 strike prices. The 65 call option price is at $4.50.
What is the intrinsic value of the 65 call?
Is the 65 call in the money?
What is the speculative premium on the 65 call option?
What percentage does the speculative premium represent of common stock price?
Are the 60 and 70 call options in the money?
7. How does the concept of margin on a commodities contract differ from that of margin on a stock purchase?
8. How can using the financial futures markets for interest rates and foreign exchange help financial managers through hedging? Briefly explain, and give one example of each.
9. Sterling Jones purchases a 5,000 troy ounce contract on silver at $13.00 an ounce. At the same time he purchases an 112,000 pound sugar contract at 0.191 cents a pound. If the price of silver goes down to $12.94 at the same time the price of sugar goes up to 0.196 cents, will Sterling have an overall net gain or loss?
10. Why are stock index futures and options sometimes referred to as derivative products? Why do some investors believe derivative products make the markets more volatile? “
11. Why is it unrealistic for a portfolio manager to sell a large portion of his portfolio if he thinks the market is about to decline?
FIN 351 DeVry Week 6 Homework Assignment
Chapter 4 Discussion Question 15
Chapter 19 Discussion Question 8
Chapter 19 Problem 3
Chapter 20 Discussion Question 4
Chapter 20 Discussion Question 12
Submit your answers in a Word document to the Week 6 Assignments Dropbox.
See the Syllabus section "Due Dates for Assignments & Exams" for due date information
What is dollar-cost averaging? If you were a particularly astute investor at timing moves in the market, would you want to use dollar-cost averaging?
Are foreign markets likely to be more or less efficient than U.S. markets? What effect does this have on bid-ask spreads and the ability to absorb large transactions?
Assume you invest in the Japanese equity market and have a 25 percent return (quoted in yen). However, during the course of your investment, the yen declines versus the dollar. By what percentage could the yen decline relative to the dollar before all your gain is eliminated?
What two factors have hurt real estate in recent times? Why might the future outlook be more positive?
What are some factors that drive up the price of gold? What are factors that drive it down?
FIN 351 DeVry Week 7 Homework Assignment
Chapter 17 Discussion Question 4
Chapter 17 Discussion Question 6
Chapter 17 Discussion Question 8
Chapter 17 Discussion Question 10
Chapter 17 Discussion Question 12
Chapter 17 Discussion Question 13
Submit your answers in a Word document to the Week 7 Assignments Dropbox.
• Chapter 17 Discussion Question 4 pg. 456-In a two-asset portfolio, is the portfolio standard deviation a weighted average of the two individual stocks’ standard deviation? Explain.
• Chapter 17 Discussion Question 6 pg. 456-What are the two characteristics of points along the efficient frontier? Do portfolios exist above the efficient frontier?
• Chapter 17 Discussion Question 8 pg. 456-Describe the optimum portfolio for an investor in terms of indifference curves and the efficient frontier.
• Chapter 17 Discussion Question 10 pg. 456-In examining the capital market line as part of the capital asset pricing model, to increase portfolio return (KP) what other variable must you increase?
• Chapter 17 Discussion Question 12 pg. 456- What can be assumed in terms of volatility for a stock that has a beta of 1.2?
• Chapter 17 Discussion Question 13 pg. 456- What does the security market line indicate? In general terms, how is it different from the capital market line?w can using the financial futures markets for interest rates and foreign exchange help financial managers through hedging? Briefly explain, and give one example of each.
• Chapter 17 Discussion Question 10 pg. 456-In examining the capital market line as part of the capital asset pricing