Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return (%) T-Bill Return (%) 2011 ?34.33 4.30 2012 31.70 0.70 2013 14.56 0.27 2014 3.58 0.04 2015 19.46 0.06

a. What was the risk premium on common stock in each year? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

b. What was the average risk premium? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. What was the standard deviation of the risk premium? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a coupon of 3.5% if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as shown in the table below. (Assume the entire 3.5% coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

A project with a 3-year life has the following probability distributions for possible end of year cash flows in each of the next three years: Year 1 Prob then Cash Flow 0.30 $300 0.4 $500 0.3 $700. Year 2 0.15 $100 0.35 $200 0.35 $600 0.15 $900. Year 3 0.25 $200 0.75 $800. Using an interest rate of 8 percent, find the expected present value of these uncertain cash flows. (Hint: Find the expected cash flow in each year, then evaluate those cash flows.) a. $1,204.95 b. $835.42 c. $1,519.21 d. $1,580.00 e. $1,347.61

Ayura is offered mortgage rates of 4.13% on a 15-year and 4.70% on a 30-year. She is able to make either payment and is buying a house with an initial loan balance of $245,000. Her lender is offering 1.5 discount points and she will pay $8,700 is third party expenses. If she is able to earn 10.9% investing in the S&P 500.

Then a. What is her monthly payment for each loan?

b. What is the lender's yield on each loan?

c. What is the effective borrowing cost of each loan?

d. Based on present value computations which loan is a better option for her?

You currently make $100,000 a year and expect your salary increase by 10% a year for 20 years.   You are considering an MBA which will cost you $120,000 for the entire education. If you take the MBA, you will have to pay the full tuition today (all upfront) and you will make zero earnings at the end of years 1 and 2. However, after graduation you’ll have an opportunity to join an investment bank, which promises $130,000 a year, which will grow by 15% for 18 years after graduation. Is the MBA a good deal? Assume a constant discount rate of 15%. What if rates fall to 10%? What if rates rise to 17%, how does your answer change? Show your detailed spreadsheet calculations using Excel.

Question 1 Sales for the Forever Young Cosmetics Company (in $ millions) are as follows:

(a) Develop a three-year moving average.

(b) Develop a four-year moving average.

(c) Develop a five-year moving average.

(d) Develop a seven-year rmoving average.

1. You are analyzing a project with the following cash flows:

Year 0:      -240,000

Year 1:      + 10,000

Year 2:      + 55,000

Year 3:      +100,000

Year 4:      +380,000

What is the NPV for this project, using a 15% discount rate?

Multiple Choice

• The Project has an NPV of $69,281

• The Project has an NPV of $58,445

• The Project has an NPV of $70,617

• The Project has an NPV of $93,301

What is the IRR for this project?

Multiple Choice

• The Project has an IRR of 26.51%

• The Project has an IRR of 28.13%

• The Project has an IRR of 22.93%

• The Project has an IRR of 19.32%

What is the Payback for this project:

Multiple Choice

• The Project has a payback of 3.20 years

• The Project has a payback of 3.88 years

• The Project has a payback of 3.05 years

• The Project has a payback of 3.28 years

What is the Profitability Index for this Project

Multiple Choice

• The Project has a P.I. of 1.65

• The Project has a P.I. of 2.33

• The Project has a P.I. of 1.39

• The Project has a P.I. of 1.44

Based on your analysis and given what you know about capital budgeting, which one of the following statements is correct regarding the Project just analyzed in the previous 5 questions (#14-#18)?

Multiple Choice

• You should accept the Project since its IRR is lower than the hurdle rate of 15%

• You should reject the Project

• You should accept the Project, since its Profitability Index is less than 1.0

• You should accept the Project, since its NPV is positive

Assume these are the stock market and Treasury bill returns for a 5-year period:

Required:

a. What was the risk premium on common stock in each year?

b. What was the average risk premium?

c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)

Sunshine Company is a calendar year accrual-basis taxpayer and is in its first year of operations. Sunshine Company had the following income, expense, and loss items for the current year:

Furthermore, Sunshine’s liabilities (all recourse) increased from $0 on 1/1 to $300,000 on 12/31 of the current year.

1. Assume that Sunshine Company is a c corporation. Alvin contributed $60,000 to purchase 60% of the stock while his wife’s best friend, Ann, contributed $40,000 to purchase the remaining 40% of the stock when the corporation was formed this year. Alvin received a $2,400 per month salary ($28,800 in total). Ann doesn’t work for the company so she received no salary. The company distributed some profits at the end of the year by paying out a $55,000 dividend. (11 points)
   1. Calculate Sunshine Corporation’s taxable income and income tax liability to be reported on Form 1120.
   2. What amount and type of income must Alvin report on his individual Form 1040 tax return?
   3. What amount of Alvin’s income will be subject to self-employment tax?
   4. What is Alvin’s basis in his Sunshine stock at the end of this year?

Note that you do not need to complete Form 1120 but this form and related schedules will be a useful guide in completing this portion of the assignment

Assume an economy where

• One period is one year

• The one year short term interest rate from time n to time n + 1 is rn.

• The rate evolves via a stochastic process: r0 = 0.02 rn+1 = Xrn
˜ P[X = 2k] = 1/3
for k ∈{−1,0,1}.
(1)
• Consider now a zero-coupon bond that matures in 3−years with common face and redemption value F = 100.

• Compute B0, the value of this zero-coupon bond.

• Also compute European Call Options on this bond that expire in

(a) 3 years with strike K = 97.

(b) 1 year with strike K = 97.

• Finally, compute American Put Options on this bond that expire in

(a) 3 years with strike K = 97.

(b) 1 year with strike K = 97.

I need detailed process please. Just picture I can't get it.