University:
York University
Course:
ADMS 2541 | Introduction to Personal Finance
Academic year:

2021
Views:

228

Pages:

2
Author:

Niklas

EXAM 3 1) Dep₁ = 525,000 - 525,000 = 0 Dep₂ = 525,000 - 525,000 = 0 Dep₃ = 525,000 - 525,000 = 0 NSUM(MV - BV) = 300,000 - 525,000 = -225,000 N = 300,000 / -225,000 = -1.33 FCF₁ = (0 - 0 - 0) × (1 - 0.40) = 0 FCF₂ = (0 - 0 - 0) × (1 - 0.40) = 0 FCF₃ = (0 - 0 - 0) × (1 - 0.40) = 0 2) WACC = WD × rD × (1 - T) + WE × rE D: bonds, Price per bond = 815.66 # of bonds = 150,000 Total debt = 150,000 × 815.66 = 122,350,000 E: stocks, Price per stock = 21 # of stocks = 8 million Total equity = 8 million × 21 = 168 million WD = 122,350,000 / 290,350,000 = 0.4214 WE = 168,000,000 / 290,350,000 = 0.5786 rD = 10% = 0.10 rE = 14% = 0.14 WACC = 0.4214 × 0.10 × (1 - 0.40) + 0.5786 × 0.14 = 0.0873 3) FCF₁ = 595,000 FCF₂ = 97,925 FCF₃ = 468,187.25 NPV = 595,000 / (1 + 0.0873) + 97,925 / (1 + 0.0873)^2 + 468,187.25 / (1 + 0.0873)^3 = 1,045,341.46 4) PI = PV(cash inflows) / Initial investment PI = 1,045,341.46 / 545,000 = 1.92 5) Payback Period = Year 1 + (Remaining cost / Cash flow in Year 2) Year 1 = 595,000 Year 2 = 595,000 + 97,925 = 692,925 Remaining cost = 545,000 - 692,925 = -147,925 Payback Period = 1 + (-147,925 / 468,187.25) = 0.67 CHAPTER 10 Return = (P₁ - P₀ + Div) / P₀ Avg Returns F = Σ Ri / N = (R₁ + R₂ + ... + Rn) / N Historical Returns: Approx follows normal distribution 1926-2017 Avg Return (SD) Large stocks 12.10% 19.80% Small stocks 10.5% 31.7% Long-term corp. bonds 6.4% 8.3% Long-term gov. bonds 9.9% US Treasury bills 3.4% Historical Risk measured by σ² = variance of returns Var(σ²) = Σ (Ri - R̄)² / (N - 1) = [Σ (Ri - R̄)²] / (N - 1) SD(σ) = √[Var(σ²)] Risk Premium = Asset class return - risk-free return Geometric Avg Returns = [∏ (1 + Ri)]^(1/N) - 1 Info Used in Fundamental Analysis - Firms: Fin. Statements, Bus. Plans, Specific Announcements - Comp. and Suppliers: Comp., market share, product quality - Macro: GDP growth, employment, industrial production - Invest. Brokerage: security analysis, earnings, dividend forecast, buy/sell rec. Strong form efficient: - Info: Public or private - Inside info is of little use Semi-strong: - Info: Publicly available info - Fundamental analysis is of little use Weak form: - Info: Past prices, volume data - Technical analysis is of little use In reality: - No risk-free asset - Geometric avg returns < arithmetic avg returns - Holding period risk