Financial Management

Financial Management

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Useful Formulae BUS

 

Part 1.

How does a portfolio reduce risk?

 

Use the following information for Questions 2 and 3.

Securities in vested in the portfolio
Security Investment amount b Expected return Standard deviation
A $375 1.2 17% 12%
B $550 1 15% 8%

Part 2. (Show all work for credit)

What are the expected return and b of the portfolio?

 

Part 3. (Show all work for credit)

What is the standard deviation of the portfolio?

 

 

Part 4. (Show all work for credit)

Use the following information to calculate the required return on a company’s stock. The company has a of 1.2 and the 90-day Treasury Bill rate is 2%. The stock price is $32, next year’s dividends are expected to be $2.5 per share, and the stock is expected to grow at a rate of 3% annually.

 

Part 5. (Show all work for credit)

Part a. Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

 

Part b. You have just purchased a U.S. Treasury bond for $747.25. No payments will be made until the bond matures 5 years from now, at which time it will be redeemed for $1,000. What interest rate will you earn on this bond?

 

Part 6. (Show all work for credit)

Part a. What’s the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $3,000 at the end of Year 4 if the interest rate is 5%?

 

Part b. Suppose you borrowed $12,000 at a rate of 9.0% and must repay it in 4 equal installments at the end of each of the next 4 years. How large would your payments be?

 

Part 7. (Show all work for credit)

What is the difference between a bond’s coupon rate and its yield to maturity?

 

Part 8. (Show all work for credit)

What is the price of a bond that pays a semiannual coupon rate of 8%? The bond matures in 20 years, has a yield to maturity equal to 7%, and has a face value of $1,000.

 

Part 9. (Show all work for credit)

What would the stock price be for a company that just paid $2.35 dividends per share? The required return on the stock is 12% and the dividends are expected to grow at a constant 3% for the future.

 

Part 10. (Show all work for credit)

Given the following financial statements, what are the additional funds needed to pay for a growth rate of 15%? The assets are currently utilized at 95% of capacity. The fixed assets can only increase by increments of $27,000,000.

 

Income Statement
All numbers in thousands
Revenue 31-Dec-17
Total Revenue 160,043,000
COGS 140,436,000
SG&A 11,527,000
Depreciation 3,267,000
EBIT 4,813,000
Interest Expense 1,133,000
Income Before Tax 3,680,000
Income Tax Expense 520,000
Net Income 3,160,000
Dividends 1,580,000
Add. to Retained Earnings 1,580,000
Balance Sheet
All numbers in thousands
Period Ending 31-Dec-17
Current Assets Current Liabilities
Cash 28,709,500 Accounts Payable 23,282,000
Accounts Receivables 73,026,500 Note Payable 51,621,000
Inventory 14,166,000 Accruals 19,697,000
Total Current Assets 115,902,000 Total Current Liabilities 94,600,000
Long Term Debt 128,220,000
Common Stock 41,000
Retained Earnings 34,947,000
PP&E 141,906,000 Total Stockholder Equity 34,988,000
Total Assets 257,808,000 Total Assets 257,808,000

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