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  • FIN 534 Week 6 Homework Set 3

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    Barbaracrios
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    FIN 534 Week 6 Homework Set 3 Purchase here http://homeworkonestop.com/FIN%20534/fin-534-week-6-homework-set-3 Product Description Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Use the following information for questions 1 through 8: The Goodman Industries’ and Landry Incorporated’s stock prices and dividends, along with the Market Index, are shown below. Stock prices are reported for December 31 of each year, and dividends reflect those paid during the year. The market data are adjusted to include dividends. Goodman Industries Landry Incorporated Market Index Year Stock Price Dividend Stock Price Dividend Includes Dividends 2013 $25.88 $1.73 $73.13 $4.50 17.49 5.97 2012 22.13 1.59 78.45 4.35 13.17 8.55 2011 24.75 1.50 73.13 4.13 13.01 9.97 2010 16.13 1.43 85.88 3.75 9.65 1.05 2009 17.06 1.35 90.00 3.38 8.40 3.42 2008 11.44 1.28 83.63 3.00 7.05 8.96 1. 1. Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and then calculate average annual returns for the two stocks and the index. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and then dividing the result by the beginning price. Assume that dividends are already included in the index. Also, you cannot calculate the rate of return for 2008 because you do not have 2007 data.) 1. 2. Calculate the standard deviations of the returns for Goodman, Landry, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.) 1. 3. Estimate Goodman’s and Landry’s betas as the slopes of regression lines with stock return on the vertical axis (y-axis) and market return on the horizontal axis (x-axis). (Hint: Use Excel’s SLOPE function.) Are these betas consistent with your graph? 1. 4. The risk-free rate on long-term Treasury bonds is 6.04%. Assume that the market risk premium is 5%. What is the required return on the market using the SML equation? 1. 5. If you formed a portfolio that consisted of 50% Goodman stock and 50% Landry stock, what would be its beta and its required return? 1. 6. What dividends do you expect for Goodman Industries stock over the next 3 years if you expect you expect the dividend to grow at the rate of 5% per year for the next 3 years? In other words, calculate D1, D2, and D3. Note that D0 = $1.50. 1. 7. Assume that Goodman Industries’ stock, currently trading at $27.05, has a required return of 13%. You will use this required return rate to discount dividends. Find the present value of the dividend stream; that is, calculate the PV of D1, D2, and D3, and then sum these PVs. 1. 8. If you plan to buy the stock, hold it for 3 years, and then sell it for $27.05, what is the most you should pay for it? Use the following information for Question 9: Suppose now that the Goodman Industries (1) trades at a current stock pri

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    FIN 534 Week 6 Homework Set 3 Purchase here http://homeworkonestop.com/FIN%20534/fin-534-week-6-homework-set-3 Product Description Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Use the following information for questions 1 through 8: The Goodman Industries’ and Landry Incorporated’s stock prices and dividends, along with the Market Index, are shown below. Stock prices are reported for December 31 of each year, and dividends reflect those paid during the year. The market data are adjusted to include dividends. Goodman Industries Landry Incorporated Market Index Year Stock Price Dividend Stock Price Dividend Includes Dividends 2013 $25.88 $1.73 $73.13 $4.50 17.49 5.97 2012 22.13 1.59 78.45 4.35 13.17 8.55 2011 24.75 1.50 73.13 4.13 13.01 9.97 2010 16.13 1.43 85.88 3.75 9.65 1.05 2009 17.06 1.35 90.00 3.38 8.40 3.42 2008 11.44 1.28 83.63 3.00 7.05 8.96 1. 1. Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and then calculate average annual returns for the two stocks and the index. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and then dividing the result by the beginning price. Assume that dividends are already included in the index. Also, you cannot calculate the rate of return for 2008 because you do not have 2007 data.) 1. 2. Calculate the standard deviations of the returns for Goodman, Landry, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.) 1. 3. Estimate Goodman’s and Landry’s betas as the slopes of regression lines with stock return on the vertical axis (y-axis) and market return on the horizontal axis (x-axis). (Hint: Use Excel’s SLOPE function.) Are these betas consistent with your graph? 1. 4. The risk-free rate on long-term Treasury bonds is 6.04%. Assume that the market risk premium is 5%. What is the required return on the market using the SML equation? 1. 5. If you formed a portfolio that consisted of 50% Goodman stock and 50% Landry stock, what would be its beta and its required return? 1. 6. What dividends do you expect for Goodman Industries stock over the next 3 years if you expect you expect the dividend to grow at the rate of 5% per year for the next 3 years? In other words, calculate D1, D2, and D3. Note that D0 = $1.50. 1. 7. Assume that Goodman Industries’ stock, currently trading at $27.05, has a required return of 13%. You will use this required return rate to discount dividends. Find the present value of the dividend stream; that is, calculate the PV of D1, D2, and D3, and then sum these PVs. 1. 8. If you plan to buy the stock, hold it for 3 years, and then sell it for $27.05, what is the most you should pay for it? Use the following information for Question 9: Suppose now that the Goodman Industries (1) trades at a current stock pri

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    FIN 534 Week 6 Homework Set 3

    Uploaded by

    Barbaracrios
    FIN 534 Week 6 Homework Set 3 Purchase here http://homeworkonestop.com/FIN%20534/fin-534-week-6-homework-set-3 Product Description Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Use the following information for questions 1 through 8: The Goodman Industries’ and Landry Incorporated’s stock prices and dividends, along with the Market Index, are shown below. Stock prices are reported for December 31 of each year, and dividends reflect those paid during the year. The market data are adjusted to include dividends. Goodman Industries Landry Incorporated Market Index Year Stock Price Dividend Stock Price Dividend Includes Dividends 2013 $25.88 $1.73 $73.13 $4.50 17.49 5.97 2012 22.13 1.59 78.45 4.35 13.17 8.55 2011 24.75 1.50 73.13 4.13 13.01 9.97 2010 16.13 1.43 85.88 3.75 9.65 1.05 2009 17.06 1.35 90.00 3.38 8.40 3.42 2008 11.44 1.28 83.63 3.00 7.05 8.96 1. 1. Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and then calculate average annual returns for the two stocks and the index. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and then dividing the result by the beginning price. Assume that dividends are already included in the index. Also, you cannot calculate the rate of return for 2008 because you do not have 2007 data.) 1. 2. Calculate the standard deviations of the returns for Goodman, Landry, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.) 1. 3. Estimate Goodman’s and Landry’s betas as the slopes of regression lines with stock return on the vertical axis (y-axis) and market return on the horizontal axis (x-axis). (Hint: Use Excel’s SLOPE function.) Are these betas consistent with your graph? 1. 4. The risk-free rate on long-term Treasury bonds is 6.04%. Assume that the market risk premium is 5%. What is the required return on the market using the SML equation? 1. 5. If you formed a portfolio that consisted of 50% Goodman stock and 50% Landry stock, what would be its beta and its required return? 1. 6. What dividends do you expect for Goodman Industries stock over the next 3 years if you expect you expect the dividend to grow at the rate of 5% per year for the next 3 years? In other words, calculate D1, D2, and D3. Note that D0 = $1.50. 1. 7. Assume that Goodman Industries’ stock, currently trading at $27.05, has a required return of 13%. You will use this required return rate to discount dividends. Find the present value of the dividend stream; that is, calculate the PV of D1, D2, and D3, and then sum these PVs. 1. 8. If you plan to buy the stock, hold it for 3 years, and then sell it for $27.05, what is the most you should pay for it? Use the following information for Question 9: Suppose now that the Goodman Industries (1) trades at a current stock pri

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    © All Rights Reserved
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    of 3

    FIN 534 Week 6 Homework Set 3

    Purchase here
    http://homeworkonestop.com/FIN%20534/fin-534week-6-homework-set-3

    Product Description
    Directions: Answer the following questions on a separate document. Explain how you reached
    the answer or show your work if a mathematical calculation is needed, or both.
    Use the following information for questions 1 through 8:
    The Goodman Industries and Landry Incorporateds stock prices and dividends, along with the
    Market Index, are shown below. Stock prices are reported for December 31 of each year, and
    dividends reflect those paid during the year. The market data are adjusted to include dividends.

    Goodman Industries

    Year Stock Price

    2013

    $25.88

    Landry Incorporated
    Market Index

    Dividend

    Stock Price
    Dividends

    $1.73
    17.49

    $73.13
    5.97

    Dividend

    Includes

    $4.50

    2012

    22.13

    1.59
    13.17

    78.45
    8.55

    4.35

    2011 24.75

    1.50
    13.01

    73.13
    9.97

    4.13

    2010

    16.13

    1.43
    9.65

    85.88
    1.05

    3.75

    2009

    17.06

    1.35
    8.40

    90.00
    3.42

    3.38

    2008

    11.44

    1.28
    7.05

    83.63
    8.96

    3.00

    1. 1.
    Use the data given to calculate annual returns for Goodman, Landry, and the Market
    Index, and then calculate average annual returns for the two stocks and the index. (Hint:
    Remember, returns are calculated by subtracting the beginning price from the ending
    price to get the capital gain or loss, adding the dividend to the capital gain or loss, and
    then dividing the result by the beginning price. Assume that dividends are already
    included in the index. Also, you cannot calculate the rate of return for 2008 because you
    do not have 2007 data.)

    1. 2.
    Calculate the standard deviations of the returns for Goodman, Landry, and the
    Market Index. (Hint: Use the sample standard deviation formula given in the chapter,
    which corresponds to the STDEV function in Excel.)

    1. 3.

    Estimate Goodmans and Landrys betas as the slopes of regression lines with stock
    return on the vertical axis (y-axis) and market return on the horizontal axis (x-axis).
    (Hint: Use Excels SLOPE function.) Are these betas consistent with your graph?

    1. 4.
    The risk-free rate on long-term Treasury bonds is 6.04%. Assume that the market
    risk premium is 5%. What is the required return on the market using the SML equation?

    1. 5.

    If you formed a portfolio that consisted of 50% Goodman stock and 50% Landry
    stock, what would be its beta and its required return?

    1. 6. What dividends do you expect for Goodman Industries stock over the next 3 years
    if you expect you expect the dividend to grow at the rate of 5% per year for the next 3
    years? In other words, calculate D1, D2, and D3. Note that D0 = $1.50.

    1. 7.

    Assume that Goodman Industries stock, currently trading at $27.05, has a required
    return of 13%. You will use this required return rate to discount dividends. Find the
    present value of the dividend stream; that is, calculate the PV of D1, D2, and D3, and
    then sum these PVs.

    1. 8.

    If you plan to buy the stock, hold it for 3 years, and then sell it for $27.05, what is
    the most you should pay for it?

    Use the following information for Question 9:


    Suppose now that the Goodman Industries (1) trades at a current stock price of $30 with a (2)
    strike price of $35. Given the following additional information: (3) time to expiration is 4
    months, (4) annualized risk-free rate is 5%, and (5) variance of stock return is 0.25.

    9. What is the price for a call option using the Black-Scholes Model?

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