Answer & Explanation:I need sheet P7-2 and P8-6 completed thank you.
finc600_homework_template_week_3_jan2013.xlsx
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Instructions
NAME:
To complete the homework assignments in the templates provided:
1. The question is provided for each problem. You may need to refer to your textbook for
information in a few cases.
2. You will enter the required information into the shaded cells.
3. The cells are coded:
a) T requires a text answer. Essay questions require references; use the textbook.
b) C requires a calculation, using Excel formulas or functions. You cannot perform the
calculator and then type the answer in the cell. You will enter the calculation in the cell
final answer will show in the cell. I will be able to review your calculation and correct, if
c) F requires a number only. In some problems, a “Step 1” is added to help you solve t
d) Formula requires a written formula, not the numbers. For example, the rate of return
nominal)/ (1+inflation)]-1, or D (debt) + E (equity) = V (value).
4. Name your assignment file as “lastnamefirstinitial-FINC600-Week#”, and submit by mi
7.
ions
efer to your textbook for additional
s; use the textbook.
You cannot perform the operation on a
he calculation in the cell, and only the
alculation and correct, if necessary.
dded to help you solve the problem.
ample, the rate of return = [(1 +
eek#”, and submit by midnight ET, Day
Problem 7-2
The following table shows the nominal returns on U.S. Stocks and the rate of inflation:
Year
2004
2005
2006
2007
2008
a)
b)
Nominal Return
(%)
12.5
6.4
15.8
5.6
-37.2
Inflation (%)
3.3
3.4
2.5
4.1
0.1
What was the standard deviation of the market returns?
Calculate the average real return.
Answers:
a)
What was the standard deviation of the market returns?
Find the standard deviation by completing the table with the appropriate formulas
Year
2004
2005
2006
2007
2008
Total 2004-2008
Average
Std. Deviation
b)
Nominal Return Difference from
(%)
Average
12.5
C
6.4
C
15.8
C
5.6
C
-37.2
C
C
C
Squared
Difference
C
C
C
C
C
C
C
C
Calculate the average real return.
Find the average real return by completing the table with the appropriate formulas
Year
2004
2005
2006
2007
2008
Nominal Return
(%)
12.5
6.4
15.8
5.6
-37.2
Inflation (%)
3.3
3.4
2.5
4.1
0.1
Real Return
(%)
C
C
C
C
C
Average
C
TIP: Click on the cell
for directions
Use SQRT function for this answer only
TIP: Click on the cell
for directions
Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.
Problem 7-11
Each of the following statements is dangerous or misleading. Explain why .
a. A long-term United States government bond is always absolutely safe.
b. All investors should prefer stocks to bonds because stocks offer higher long-run rates of return.
c. The best practical forecast of future rates of return on the stock market is a 5- or 10-year average of historical
returns.
Answers:
a.
T
b.
T
c.
T
Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.
Problem 8-6
Suppose that the Treasury bill rate were 6% rather than 4%. Assume that the expected return on the market
stays at 10%. Use the betas in Table 8.2 (p. 193) – also provided below.
a. Calculate the expected return from Dell.
b. Find the highest expected return that is offered by one of these stocks.
c. Find the lowest expected return that is offered by one of these stocks.
d. Would Ford offer a higher or lower expected return if the interest rate were 6% rather than 4%? Assume that
the expected market return stays at 10%.
e. Would Exxon Mobil offer a higher or lower expected return if the interest rate were 8%?
Answers:
A. Dell’s expected return
Formula
Calculation
Rf + (Beta (Rm – Rf))
C
B./C.
Amazon
Revised T Bill
Beta (B) Risk-Free
Rate
2.16
F
F
C
Ford
1.75
F
F
C
Dell
1.41
F
F
C
Starbucks
1.16
F
F
C
Boeing
1.14
F
F
C
Disney
0.96
F
F
C
Newmont
0.63
F
F
C
Exxon Mobil
0.55
F
F
C
Johnson & Johnson
0.5
F
F
C
Campbell Soup
0.3
F
F
C
Stock
B. Highest
T
C. Lowest
T
Market
Return
D. FORD will offer a ________ expected return at 6%.
Interest rate
Rate of return
4%
C
Expected
return
Higher or lower?
6%
C
E. Exxon will offer a _______ expected return at 8%.
Interest rate
4%
8%
Rate of return
C
C
Higher or lower?
Principles of Corporate Finance, Concise, 2nd Edition
Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.
Problem 8-18
Some true or false questions about the APT:
a. The APT factors cannot reflect diversifiable risks.
b. The market rate of return cannot be an APT factor.
c. There is no theory that specifically identifies the APT factors.
model could be true but not very useful, for example, if the relevant factors change unpredictably.
Respond to each question – true or false – and why.
Answer:
T/F
a.
WHY?
b.
WHY?
c.
WHY?
d.
WHY?
d. The APT
…
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