Q4: What is the “Coefficient of Variation?

What is the inverse? (Show equations/diagrams)

What does it tell you in regards to units of risk and return?

Why is this important for a risk-averse investor?

How would you use these measurements? Show Equations/Definitions (2)!!

Coefficient of Variation:

Risk-Adjusted Rate of Return (Inverse):

Sharp Ratio:

Jensen Ratio:

Treynor Ratio:

Negotiable Instruments (NI), and related issue that often affect our lives. Well, well, checks are a great way of paying for goods and or services. However, these days it seems that checks are being used as tender less and less. Again, due to fraud and dishonesty some of the reasons are that retailers are refusing to take checks as payments. This is especially true of smaller businesses that have been "burnt" by accepting checks. So often you will see a posted sign that says, "sorry for the inconvenience, but we cannot take personal checks as payment." Check fraud is a real problem for our society. It costs us so much to recover from them. Banks are repaying customers for stolen checks and it is not fair

On the other hand people steal checks all the time. Once I had a box of checks stolen and the perpetrators used the checks at various places to pay for stuff. In addition, they cashed some of them. That was back in the late 1980's. Online banking was not an option at that time. So it took a long time for me to realize that....Of course, the onus was on me to prove to the bank that my checks were stolen and used. They eventually reimbursed me for cashed one, but not the ones used to pay for services and goods.

Some questions to reflect on: How can we prevent such fraudulent behavior, can check fraud be stopped? Are checks becoming obsolete? How do you feel about online banking?

​Rally, Inc., is an​ all-equity firm with assets worth $ 24 billion and 6 billion shares outstanding. Rally plans to borrow $ 10 billion and use funds to repurchase shares.​ Rally's corporate tax rate is 38 %​, and Rally plans to keep its outstanding debt equal to $ 10 billion permanently.

a. Without the increase in​ leverage, what would be​ Rally's share​ price?

Without the increase in​ leverage, Rally's share price is ​$ nothing. ​ (Round to the nearest​ cent.)

b. Suppose Rally offers $ 4.49 per share to repurchase its shares. Would shareholders sell for this​ price?

▼ Yes/No . ​(Select from the​ drop-down menu.) The minimum share price they would sell for is ​$ nothing. ​ (Round to the nearest​ cent.)

c. Suppose Rally offers $ 4.79 per​ share, and shareholders tender their shares at this price. What will be​ Rally's share price after the​ repurchase?

If Rally offers $ 4.79 per​ share, and shareholders tender their shares at this​ price, the share price after the repurchase will be ​$ nothing. ​(Round to the nearest​ cent.)

d. What is the lowest price Rally can offer and have shareholders tender their​ shares? What will be its stock price after the share repurchase in that​ case?

The lowest offer per share is ​$ nothing. ​ (Round to the nearest​ cent.) The stock price after repurchase is ​$ nothing. ​ (Round to the nearest​ cent.)

A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $25,088.00 per year for 8 years and costs $104,097.00. The UGA-3000 produces incremental cash flows of $27,444.00 per year for 9 years and cost $124,467.00. The firm’s WACC is 7.75%. What is the equivalent annual annuity of the GSU-3300?

A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $26,762.00 per year for 8 years and costs $103,375.00. The UGA-3000 produces incremental cash flows of $29,533.00 per year for 9 years and cost $125,250.00. The firm’s WACC is 8.97%. What is the equivalent annual annuity of the UGA-3000?

Thanks!

Considering Purchasing Power Parity and the Law of One Price:

a. Assume that the current price of a Big Mac in the United States today is $2.75. Assume also that the current price of a Big Mac in Malaysia is 6.5000 ringgits and that the current USDMYR exchange rate is 3.0250 ringgits per $. What is the implied PPP of the USD?

b. Using the assumptions above, what is the under (-) / over (+) valuation of Malaysian ringgits versus the U.S. dollar in percentage terms?

c. What are the long-term implications associated with your answer to part b.?

Assume you have a one-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8.6% coupon rate and pays the $86 coupon once per year. The third has a 10.6% coupon rate and pays the $106 coupon once per year. a. If all three bonds are now priced to yield 8.6% to maturity, what are their prices? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Zero 8.6% Coupon 10.6% Coupon Current prices $ 1000 $ 10 $ b-1. If you expect their yields to maturity to be 8.6% at the beginning of next year, what will their prices be then? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Zero 8.6% Coupon 10.6% Coupon Price one year from now $ $ $ b-2. What is your rate of return on each bond during the one-year holding period? (Do not round intermediate calculations.Round your answers to 2 decimal places.) Zero 8.6% Coupon 10.6% Coupon Rate of return % % %

inancing Deficit

Garlington Technologies Inc.'s 2016 financial statements are shown below:

Balance Sheet as of December 31, 2016

Income Statement for December 31, 2016

Suppose that in 2017 sales increase by 20% over 2016 sales and that 2017 dividends will increase to $200,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 8%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.

Suppose that zero interest rates with continuous compounding are as follows:

Calculate forward interest rates for the second, third, fourth, and fifth years.

Describe the short-falls, if any, of PPP as a predictor of currency exchange rates?

pton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2016, is shown here (millions of dollars):

Sales for 2016 were $425 million and net income for the year was $12.75 million, so the firm's profit margin was 3.0%. Upton paid dividends of $5.1 million to common stockholders, so its payout ratio was 40%. Its tax rate was 40%, and it operated at full capacity. Assume that all assets/sales ratios, (spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2017. Do not round intermediate calculations.

1. If sales are projected to increase by $90 million, or 21.18%, during 2017, use the AFN equation to determine Upton's projected external capital requirements. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.
   $ million
   
2. Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places.
   %

Use the forecasted financial statement method to forecast Upton's balance sheet for December 31, 2017. Assume that all additional external capital is raised as a line of credit at the end of the year and is reflected (because the debt is added at the end of the year, there will be no additional interest expense due to the new debt).
Assume Upton's profit margin and dividend payout ratio will be the same in 2017 as they were in 2016. What is the amount of the line of credit reported on the 2017 forecasted balance sheets? (Hint: You don't need to forecast the income statements because the line of credit is taken out on last day of the year and you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2017 addition to retained earnings for the balance sheet without actually constructing a full income statement.) Round your answers to the nearest cent.

QUESTION 3

1. One of the benefits of having active financial markets is the information we can get from those markets. Questions like what is an appropriate yield to maturity on a bond or cost of equity for a given security can be determined by looking at information from financial markets on similar securities.

   True

   False

1 points   

QUESTION 4

1. One of the costs of active financial markets is that they make it more difficult to diversify and reduce risk. Risk becomes more concentrated among a few investors active.

   True

   False

Jetson Industries has a share price of $ 21.57 today. If Jetson is expected to pay a dividend of $ 0.86 this year and its share price is expected to grow to $ 24.83 at the end of the​ year, what is​ Jetson's dividend yield and equity cost of​ capital?

Consider the following three bonds:

Assume that coupons are paid every 6 months and the face values of all the bonds are $1,000.

(a) Determine the spot rate curve. (That is, determine s_0.5, s₁, and s_1.5 in yearly terms.) (Keep 4 decimal places, e.g. 0.1234)

     s_0.5:          s₁:            s_1.5 :

(b) Suppose that the 0.5- and 1.5-year zero-coupon bonds are available. Determine their respective prices. (Keep 2 decimal places, e.g. xxx.12)

     P_Z0.5:               P_Z1.5:

(c) Determine the forward rate f _0.5,1 (in yearly term) on a 6-month Treasury bill 6 months from now. (Keep 4 decimal places, e.g. 0.1234)

(d) Determine the forward rate f_0.5,1.5 (in yearly term) on a 12-month Treasury bill 6 months from now. (Keep 4 decimal places, e.g. 0.1234)

(e) Price the 1.5-year coupon bond 6 months from now. (Keep 2 decimal places, e.g. xxx.12)?