Question 2

FV =
Frequency =
Period = 12 x 2 =
Coupon rate =
Coupon payment =
Present value =
Semi Rate

1000
2
24
3%
30
1112
2.38%

(Semi annual)
(6% / 2)
(1000 x 3%)
(Application of excel rate function)

Before tax cost of debt = 2.38% x 2 =

4.76%

After tax cost of debt = 4.76%*(1- tax rate 30%) =

3.33%

Question 3
Geometric average return = ((1+3.3%)*(1+5.4%)*(1+18.9%)*(1-12.1%)*(1+3.5%)*(1-8.8%))^(1/6) - 1
1+3.3% =
1+5.4% =
1+18.9% =
1-12.1% =
1+3.5% =
1-8.8% =

1.033
1.054
1.189
0.879
1.035
0.912
1.07410528
GAR = (1.074105)^(1/6) - 1 =

1.199%

Question 4
Todays stock price, p = Expected dividend, D1/(Return r - Growth g)
So, D1 = P*(R-G)
Expected dividend, d1 = $52.8*(12.2% - 7.1%) =
$

2.69

Question 5
FV =
Rate =
PV =
Period =
Annual coupon =

1000
9.90%
-1017.2
11
$101.64 (Application of excel PMT function)

02% = 10. so weight of stock c = 100-29-23 = 48 Question 12 Arithmatic average return = (21.507/$2. nothing will be invested from it.6%+17.65% + 5.67% Question 9 Rate = Year CF = npv = 10.9%-5%+10.5%)/5 = Question 13 71 shares 9.67 = 18.576.76% .50% Question 11 Since bet for risk free asset is zero.945.7)+7.567 Weight of preferred stock = $54.60 (Application of excel NPV function) 5 7769 6 7769 Question 10 Debt Preferred stock Equity Total Market value $ 137.56/$26.8%+3.4% = 16.045 $ 294.015 $ 54.Question 7 Return = (Next dividend/Price)+Growth rate Rate of return = ($2.99% Question 8 Nominal rate = Real rate + Inflation rate Nominal rate = 5.507 $ 103.20% 1 2 3 4 1691 1691 1691 7769 $18.

40% $ 1.57% Question 17 Debt Preferred stock Equity Total Market value Weight Cost WxC $ 500 0.2 7% 1.5133333 33.5 2.4 Percentage return = (1377.33% Question 15 Stock 1 Stock 2 Risk free Weight Beta WxB 33.0.74 .33% 0 0 Portfolio 0.226667 Beta of 2nd stock = 0.1 Where r is effective rate I = Nominal rate = n = Compounding period = r = (1+24.513 = 0.226667/33.60% 12 (Monthly compounding) 27. WACC = 3.54 0.1 = 24.50% .50% 1.33% ? 33.000 3.4-1065)/1065 = 29.68 Question 16 r = (1+i/n)^n .6 1377.8 1320.8 18.33% = 0.Initial price Dividend End price 15 0.74 So w x b in stock 2 will be 0.6 Total return = 1320.6+56.3 3.8 = 1065 56.1%*(1-39%) = So.67% Cost of debt after tax = 4.60%/12)^12 .25% $ 300 0.67% 2.33% 1.40% 1.02% $ 200 0.

367075 3.85 Question 19 Cost of common stock = Risk free rate+(Market risk premium x beta) Cost of common stock = 4.731191 2.08906 3.468088 43.71817 0.6 3.834 9% 9% 3% 0 2 3 4 2.3511 2.86 $ 140.22 Question 24 PV = nper = rate = Future value = -121 8 13% $321.834 3.9*(1+6%)^12 = Stock price in year 11 = $9.5 Years Question 21 Growth rate year Dividend Stock price at year 3 = Total x Present factor at 11% Present value 9% 1 2.72) = 8.811622 0.67 (Application of excel FV function) Question 25 D0 = 2.86/(13%-6%) = $ 9.Question 18 Dividend in year 12 = $4.1 3% 5 .08906 46.93/2 = 2.92% Question 20 PV = FV = Rate = 12%/2 = Period = -514 685 0.900901 0.15992 Current stock price = sum of present value = $ 39.6%+(6%*0.928796198 (Application of excel NPER function) Years taken = 4.50715 34.06 (Semi annual) 4.5531532 2.

g = D1 = 2.19 Question 27 Weight Debt Equity Total Cost 38% 62% 100% WxC 13.8% .9%*(1-33%) = WACC = 5.73% 0.3.5%) = $ 26.45% 7.73% Question 28 Beta of this portfolio = 1*(20000/60000) = 0.90% 3.03953 7.1*(1+3.50% 2.95% Cost of debt after tax = 5.5%) = 3.1735/(11.Growth rtae.33 .1735 Stock price = 2.28% 2.

%))^(1/6) .1 .

.

.

So on .

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