Finance assignment 3 | Business & Finance homework help


Assignment 3
Assignment 3, which is desert 15 percent of your aggregate track for the progress, is made up of 14 questions desert a aggregate of 85 marks. Review the "Course Assignments" page in the Welcome and Orientation minority of this progress website for relevant counsel in-reference-to requirements for submitting your counterparts to problem-solving questions. Include your ward ID affect and appose counsel on the top page of your assignment. If you bear any questions environing Assignment 3, appose the Ward Support Centre.
1.
Given a cause generous trounce of 5%, a dispense recur of 15%, and the counsel for accumulations A and B in the subjoined board, determine if accumulation A and accumulation B are undervalued or balancevalued if they are prized by the pawn dispense length.
Stock
Beta
Estimated Return
A
1.3
17%
B
0.9
15%
(6 marks)
2.
A accumulation has an look-fored ROE of 14% per year, look-fored hues per divide of $3, and vindication kindred of 40%. Its dispense capitalization trounce is 11% per year. What are its look-fored augmentation trounce, its prize, and its P/E kindred?
(6 marks)
3.
To affect the prize of a accumulation, an analyst may use the dividend abatement design, enlarge the intercept of the accumulation’s proximate determination hues per divide by the P/E kindred, or affect the introduce prize of look-fored forthcoming generous specie flows. How are the three ways allied? Argue their strengths and weaknesses.
(5 marks)
4.
The textbook directes ROE two incongruous ways: (A) and (B) Why is ROE written two incongruous ways? What indicated assumptions are required for these two formats to shape sentiment?
(6 marks)
5.
Collect cause on the S&P/TSX Composite abjuration for two months on a daily cause. Compute the five-day affecting medium for each day, then argue the deviate of the abjuration.
(7 marks)
6.
Is an at-the-money seduce discretion on a accumulation further costly than an at-
(5 marks)
the-money put discretion on the identical accumulation delay the identical ripeness and identical stamp prize? Prove your counterpart.
7.
A three-month European seduce on a non-dividend-paying accumulation is prevalently selling for $1. The stamp prize of the discretion is $85. The underlying accumulation trades for $85. The cause-generous share trounce is 6%. Does an arbitrage occasion endure? If you counterparted "yes," clear-up what mark of affair you should consummate to shape an arbitrage acquisition, and demonstration how this acquisition comes environing.
(9 marks)
8.
A slight, very-greatly leveraged strong has claim delay a visage prize of D that procure be expired in six months. If, by then, the strong's prize is remarkable than D, the strong procure pay the claim’s visage prize to claim holders. If the strong's prize is inferior than D, the strong procure be in failure and procure be enslaved balance by claim holders.
a. How do you direct the strong’s equity pose as an discretion?
(2 marks)
b. How do you direct the claim holders’ pose as an discretion?
(2 marks)
c. What can a strong do to acception its prize?
(2 marks)
9.
Suppose that the cause generous trounce is 4% per six months, the practice prize for a seduce discretion on accumulation A is $80, and the discretion procure be expired in six months. The prevalent accumulation prize for A is $80. If the accumulation prize can either advance up or down by 5% each six month determination, what procure the seduce prize be if prized by the binomial discretion pricing way?
(5 marks)
10.
Suppose you are a financial advisor to an investor whose portfolio consists of 400 divides of Delta Cruise Inc. accumulation and 10 put discretions on the identical accumulation. The cause generous trounce is 6%, term to ripeness is six months, practice prize and accumulation prize are twain at $82, and the dispense observed put prize is $4.56. The accumulation does not pay out any dividend. After your decomcollocation of the Delta Cruise Inc. accumulation prizes, you confront out that the trutination hiatus is at 30%. Is the investor pose polite hedged? What is your counsel to the investor?
(5 marks)
11.
As a canola source in Alberta, you look-for to bud 80 tonnes of canola in October. The prevalent prize of canola is $380 per tonne. You are because using November Canola forthcomings to hedge. The prize of the forthcomings abridge is $390 per tonne. Each abridge is for 20 tonnes. What is the initiatory cause? How divers forthcomings abridges are needed? Should you assume a desire or imblameless pose in canola forthcomings? If you run to bar your forthcomings pose at the end of October when the cause is 7, what procure the hedge acquisition be?
(6 marks)
12.
Suppose you manipulate an equity portfolio of $40 pet delay a beta of 1.2. You are frightened of a downturn in the dispense and run to hedge your portfolio using the three month S&P/TSX 60 abjuration forthcomings. The abjuration is prevalently selling at $645, the three month abjuration forthcomings prize is at $635, and the forthcomings abridge’s multiplier is $200. How divers forthcomings abridges would be needed to hedge your portfolio? If, at the end of one month, the abjuration forthcomings prize and the abjuration specie prizes are
(6 marks)
$630 and $640 respectively, then what would your mould or detriment be?
13.
Given the cause in the board beneath for a pattern determination, compute the Sharpe, Jensen, Treynor, and M2 metes for the portfolio P and the dispense. The cause generous trounce is at 5%. Did the portfolio P outperform the dispense? By which mete?
Portfolio P
Market M
Average recur
0.34
0.27
Beta
1.10
1.00
Standard hiatus
0.40
0.30
(8 marks)
14.
Suppose the prevalent prize of an abjuration is S0 and the cause generous trounce is rf. How greatly would you pay for blameless intercept of the abjuration prize in six months?
(5 marks)