does someone know the difference between CML and SML? or in particular about Q56 first sit 2017. Why is this answer wrong "The straight line that connects all possible combinations of expected return and std. dev for all possible portfolios consisting of the stock and the savings account is the CML" ?
The CML is the capital market line. It is the line that shows all possible combinations between the MARKET portfolio and risk-free assets like bonds or savings accounts. It has the highest sharp ration, implying that it gains the most excess return per unit of risk. However the SML (security market line) is the graphical representation of the CAPM, thus being a regression showing how much expected return a stock should get based on its sensitivity/beta.
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30.) The coupon bond pays a coupon of 5%, clearly lower than the yield to maturity of 10,4%. This implies that the bond is sold at discount.
Cash inflows are coupon payments of 50 (take coupon rate * Face Value / # payments per year) and the Face Value
We get 50 each year for 5 years, and 1000 at year 5, thus we can use the annuity formual for the 50$ each year:
50/0.104*(1-1/1.104^5)+1000/1.104^5 = 797.37
Closest to 750
ANSWER D
34.) To find the Stock price after the dividend drop to 1.50$, we need to find the cost of equity based on the prior years stock price and dividend payment:
Use the dividend discount model for infinite growth ( dividend/(cost of equity - growth rate)
2,5/(X - 0.04) = 25 ---> X = 0.14
Thus,
1,5/(0,14 - 0,08) = 25$
ANSWER B
25.) Profitability Index = PV( cash inflow)/ PV (cash outflow)
Thus PV( Cash inflow) --> 4000/0,15 * (1 - 1/1,15^4) = 11.419
PV(Cas outflow) --> 10.000
PI = 11.419/10.000 = 1.14 --> 14% is the profitability of the project over its initial investment ( 14% is the percentage change )
ANSWER A
13.) You need to apply the APR to EAR transformation, since the EAR incorporates the compounding effect.
calculation:
investment i. --> 20.000 * 1,07^5 = 28.051
investment ii. --> 20.000 * ((1+ 0,07/2)^2)^5 = 28.211 ---> EAR is calculated by taking (1 + APR/k)^k where k is the number of payments per anno
investment iii. --> 20.000 * (e^0.07)^5 = 28.381 ---> for continuous interest we need to take e^interest rate
ANSWER C
18.) Here you need to know three formulas : the dividend yield, the capital gain and the total return. Further they tell us that the rental yield is calculated one on one like the dividend yield, so the rent of 150.000 is treated like a dividend.
dividend yield = dividend/price in year 0
capital gain = (price in year 1 - price in year 0) / price in year 0 ---> just a percentage change calculation
total return = dividend yield + capital gain
Calculation:
150.000/2.000.000 = 0.075
(1.175.000 - 2-000-000) / 2.000.000 = -0.4125
0.075 -0.4125 = -0.3375
ANSWER A
For this exercise we need the WACC, to find the cost of debt. To remember, the WACC uses the firms financial distribution of debt and equity as weights for the cost of equity and cost of debt.
Calculation:
E/(E+D) * cost of equity + D/(E+D) * cost of debt * (1-tax rate) = Rwacc
280/(280+93) * 0.09 + 93/(280+93) * X * (1 - 0.6) = 0.073
Solve for X --> 93/(280 + 93) * X * 0.6 = 0,073 - 280/(280+93) *0.09 -----> 93/(280 + 93) * X * 0.6 = 0.00616
93/(280 + 93) * X = 0.00616 / 0,6 ----> 93/(280 + 93) * X = 0,0103
X = 0,0103 / 93/(280 + 93) -----> X= 0,041
cost of debt is around 4%
ANSWER A
The idea behind this question is to show you the effect of diversification. To understand it, you need to know that if stocks move together they will exhibit a positive correlation (if they move 1:1, thus identically they have a correlation of 1). If the stock have a high correlation, the effect of diversification will be very small, leading to almost no decrease in risk. Since the variance is used to measure risk (square root of variance is the volatility ---> risk), the variance will be very high for two a two stock portfolio with highly correlated stocks, since we do not diversify greatly.
We can conclude:
with more movement together comes high correlation and thus a bigger variance
You start with -100, in year one you get +40 and in year 2 you get +50. so combined thats +90, you still need 10 to be fully re-paid. In year 3 your cash flow is 60 , 60/12 = 5 so you need two months to get the 10 in order to have your investment back. With the payback rule you do not need to take any kind of rate into account so the best anwser is 2.2 years.
For this exercise you need to find the time period it takes for the project to payback its initial investment. Thus we want to know how long it take to have our cash inflows being equal to our cash outflow of 100.
Calculation:
After year 1: 40 $ of cash inflow --> we still need 60 more to break even
After year 2: 90 $ of cash inflow --> we still need 10 more
Thus we need 10 more dollars from the total cash flows of year 3, to have paid back. This means we need only 10 out of 60 dollars. Considering that we will get 60 over a year, therefore 10 dollars every 2 months, we need to transform months into years:
2/12 (every 2 months 10 dollars, thus we only need 2 more month to break even) ---> simplify ---> 1/6----> 0,167
We can conclude:
It takes 2 years and 2 months to pay back, which is the same as 2,167 years --> closest to 2,2
ANSWER D
He send an e-mail saying you must send it to the regular e-mail address
+3
Anonymous User
6 months ago
course coordinator just dropped an email about this
+2
Anonymous User
6 months ago
Is there a difference between the free cash flow method and the discounted free cash flow method or is it the same?
they ask in the course assignment to use the free cash flow method to value a company and its stock price, which one should I use?
FCF gives you the yearly cash flows. DCF is discounting them to a present value of the enterprise. Subtract the debt and add the cash to enterprise value, and you have the market value. Divide by shares outstanding gives you share price.
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