BUS 405 All Assignments

Week 1

BUS 405 Week 1 Assignment Annualized Returns Chapter 3 Problem 18

Complete problem 18 in Chapter 3 (shown below) and submit to the instructor. Show your work to find the annualized return for each of the listed share prices. Write a 100 word analysis of the process to calculate these annualized returns.

Suppose you have $28,000 to invest. Youre considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $40 per share. You also notice that a call option with a $40 strike price and six months to maturity is available. The premium is $4.00. MMEE pays no dividends. What is your annualized return from these two investments if, in six months, MMEE is selling for $48 per share? What about $36 per share?

Week 2

BUS 405 Week 2 Assignment Abbott Laboratories Problem

After reading the Value Line figures and information on Abbott Laboratories in the Questions and Problems section of Chapter 6 (just before Problem 27), complete Problems 27, 28, 29, 30, and 31 and submit to your instructor. Show your calculations and in your response to problem 31 write a 100 to 200 word defense of your position as to the value of Abbott Laboratories stock at its current price of $50 per share.

1. What is the sustainable growth rate and required return for Abbott Laboratories? Using these values, calculate the 2010 share price of Abbott Laboratories Industries stock according to the constant dividend growth model.

2. Using the P/E, P/CF, and P/S ratios, estimate the 2010 share price for Abbott Laboratories. Use the average stock price each year to calculate the price ratios.

3. Assume the sustainable growth rate and required return you calculated in Problem 27 are valid. Use the clean surplus relationship to calculate the share price for Abbott Laboratories with the residual income model.

4. Use the information from the previous problem and calculate the stock price with the clean surplus dividend. Do you get the same stock price as in the previous problem? Why or why not?

5. Given your answers in the previous questions, do you feel Abbott Laboratories is overvalued or undervalued at its current price of around $50? At what price do you feel the stock should sell?

Week 3

BUS 405 Week 3 Assignment Bootstrapping Chapter 10 Problem 31

Complete problem 31 of Chapter 10 (shown below), and submit to your instructor. Show your calculations and the algebraic manipulation of the price equation for the bond. In addition to solving the problem, write a 100 to 200 word essay on the term structure of fixed income securities.

One method used to obtain an estimate of the term structure of interest rates is called bootstrapping. Suppose you have a one-year zero coupon bond with a rate of r1 and a two-year bond with an annual coupon payment of C. To bootstrap the two-year rate, you can set up the following equation for the price (P) of the coupon bond: P=C_1/(1+r_1 )+(C_2+Par value)/(1+r_2 )^2

Because you can observe all of the variables except r2, the spot rate for two years, you can solve for this interest rate. Suppose there is a zero coupon bond with one year to maturity that sells for $949 and a two-year bond with a 7.5 percent coupon paid annually that sells for $1,020. What is the interest rate for two years? Suppose a bond with three years until maturity and an 8.5 percent annual coupon sells for $1,029. What is the interest rate for three years?

Week 4

BUS 405 Week 4 Assignment Performance Metrics Chapter 13 Problem 22

Complete Problem 22 in the Questions and Problems section of Chapter 13 (shown below). When you pick the best choice for your portfolio, defend your decision in a 100 - 200 word essay.

You have been given the following return information for two mutual funds (Papa and Mama), the market index, and the risk-free rate.

Year

Papa Fund

Mama Fund

Market

Risk-Free

2008

-12.6%

-22.6

-24.5%

1%

2009

25.4

18.5

19.5

3

2010

8.5

9.2

9.4

2

2011

15.5

8.5

7.6

4

2012

2.6

-1.2

-2.2

2

Calculate the Sharpe ratio, Treynor ratio, Jensens alpha, information ratio, and R-squared for both funds and determine which is the best choice for your portfolio.

Complete Problems 1, 2, and 3 from the Questions and Problems section of Chapter 11 (shown below). Remember to complete all parts of the questions, and report the results of your analysis.

a. Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone.

State of Economy

Probability of State of the Economy

Security Return if State Occurs

Recession

.30

-8%

Normal

.40

13

Boom

.30

23

b. Using the information in the previous question, calculate the standard deviation of returns.

c. Repeat Questions 1 & 2 assuming that all three states are equally likely.

Complete Problem 10 from the Questions and Problems section of Chapter 12: A stock has a beta of .9 and an expected return of 9 percent. A risk-free asset currently earns 4 percent.

a. What is the expected return on a portfolio that is equally invested in the two assets?

b. If a portfolio of the two assets has a beta of .5, what are the portfolio weights?

c. If a portfolio of the two assets has an expected return of 8 percent, what is its beta?

d. If a portfolio of the two assets has a beta of 1.80, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.

Week 5

BUS 405 Week 5 Final Project

The student will construct a well-diversified portfolio using an initial investment stake of $50,000 (the portfolio should use 95% of the fund, but they may not use more than $50,000). The student may include stocks, common or preferred; bonds, corporate or U.S. Treasury bonds; mutual funds; and futures contract or options. The student will use the closing prices from the first day of the class to determine the price of each issue. Only whole lots of any issues may be acquired, that is no less than 100 shares of common or preferred stock; no less than 5 corporate bonds or $10,000 for U.S. Treasury Bonds; no fewer than the minimum required investment for any mutual fund; and no fewer than 5 contracts for any option or futures position. The settlement date will be the first day of Week 3. The student does not have to use all of the above mentioned securities, but they must use more than one class. Transaction costs are ignored in the creation of the portfolio.