Share price with new project

R company has 200m share holders currently, and share price is Rs 120. The company is considering a project which has after tax cash flows of 400m, 500m, 300m over the 3 years of its useful life, net of depreciation. what will be the theoretical share price once this project is announced.

Annuity and perpetuity

A pension plan Advertisement boasts :
You start at age 31, pay Rs. 10,000 for 20 years every year We will give you Rs. 26000 every year for the next 20 years. Is this a good scheme? Risk free rate is 6%, equity rate is 13% and inflation is 4%

Discount factor to interest factor

Discount is when the interest to be paid is deducted upfront. An individual borrows a sum of 5,000 and agrees to pay this back at the end of 1 year with interest calculated at an effective rate of 10% per annum. The total amount repayable will therefore be 5,500. An alternative way of looking at this arrangement would be to say that the individual has borrowed 5,500 (the amount to be repaid) but the lender has deducted an interest payment of 500 at the time the money was lent. Presented in this way, it would seem logical to express the effective discount rate as 9.09% (ie 500 / 5,500 ) Find a formula to calculate discount rate given interest rate What is the discount rate d corresponding to an effective annual interest rate of 15%?
D = 0.15/1.15 = 13.043%

NAV of MF
Premier Fund had year-end assets of $825,000,000 and liabilities of $25,000,000. If Premier's NAV was $32.18, how many shares must have been held in the fund? (Assets liabilities) / shares = NAV; 800M / S = 32.18; S = 24,860,161.59.

Portfolio return and risk 2 stock

The expected rates of return of stocks A and B are 13.2% and 7.7% , respectively. The standard deviations of stocks A and B are 1.5% and 1.1%, respectively. The coefficient of correlation between A and B is 0.46. If you invest 40% of your money in A and 60% in B, what will be your portfolio's standard deviation? What is the sharpe ratio? What is the global minimum variance portfolio?

Global Min Var portfolio

Suppose Stock A has an expected return of 15%, a standard deviation of 20%, and a Beta of 0.4 while Stock B has an expected return of 25%, a standard deviation of 30% and a beta of 1.25, and the correlation between the two stocks is 0.25. What is the percent invested in Stock A to yield the minimum standard deviation portfolio containing Stock A and Stock B? 75%

Explained variance and systematic risk

The beta of an active portfolio is 1.20. The standard deviation of the returns on the market index is 20%. The unexplained variance of the active portfolio is 1%. Find the standard deviation of the returns on the active portfolio. 24.12%

The degree of idiosyncratic risk

Assume we use an observable stock index as factor: then: H i ! Cov ( R i , R m )
Var ( R m )

Rit ! Ji  H i Rmt  I it

Looks like CAPM but here we can use any stock market index (or any factor), rather than the unobservable true market portfolio The variance of asset i:
Var ( R i ) ! H i2 Var ( R m )  Var ( I i )

Hence the explained variance is: 1- explained variance = un explained variance due to idiosyncratic risk! Accoding to CAPM the indiosyncratic risk should be 0.

) H i2 ar ( ar ( i )

Beta and share price

The correlation coefficient between share A and the market portfolio is +0.6. Stock A has a share price of 62, and the standard deviation of return of the share is 30%. The market portfolio provides a return of 13% with a standard deviation of 20%. Risk free rate is 6% Calculate the NEXT YEAR S DIVIDEND of the share. What other assumptions do you need to make?

Certainty equivalent
Suppose that your current job pays $100,000 per year. You are considering relocating to a new city where you may get a higher paying job at $150,000 with a probability of 60%, or a lower paying job at $50,000 with a probability of 40%. Assume you have a log utility function, U(W) = log (W). Are you risk averse? Why? What is your decision about relocating and searching for a new job? Assume that your decision is solely based on the monetary term. A log function will not fit all investors. If your utility function takes the form of , does this utility function display more or less risk aversion than the log utility function?

Index adjustment
a. For the price-weighted index, I0 = 7.667, I1 = 9.667. The rate of return on the index is 26.09%. For the market value weighted index, it goes from 1266.67 to 1633.33, 28.95%. The second index yields a higher number because it puts a higher weight on stock C, which has a higher capitalisation. b. If Stock C splits two for one at t=1, then there is no change for the market value weighted index. However, for the price weighted index, we need to adjust the divisor to make sure that the value of the index does not change. Denote the new divisor as d, (9+4+8)/d = 9.667, and d = 2.172, down from 3 before the split. c. You buy number of shares for A, B, and C at t=0, proportional to their market weights at time t=0, and rebalance at t=1. calculate rebalances based on market weights.

AR and GR
Find arithmetic and geometric return for a stock with prices for five years : 120, 145, 170, 132, 120 Which is a better measure and under what situations?