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    Finance 334 stFinal 1 Summer 2009

Name:

Student #:

(8 points)

    1.

    Today, you sold 200 shares of Bank Stock, Inc., for $32.50 a share. You bought the shares

    one year ago at a price of $28.75 a share. Over the year, you received a total of $125 in

    dividends. What was the (1) dividend yield, (2) capital gain yield, (3) total % return and (4)

    total dollar return?

    (8 points)

    2.

    a. A mutual fund has a NAV of $12.61 and an offering price of $13.27. What is the

    front-end load for this fund?

    b. A convertible bond has a coupon rate of 7% and 20 years left until maturity. If the

    bond was not convertible it would yield 8%. The conversion ratio for the bond is 25

    and the current stock price is $37. What is the minimum price of the bond?

    b. A bond with a conversion ratio of 20 is selling at a yield to maturity of 10.2%. If the

    company’s stock is currently priced at $75, what is the conversion value?

    c. You invested $10,000 in a mutual fund when the offering price was $35.36

    and the NAV was $33.59. This purchase was made one year ago

    today. Today, the fund distributed a total of $1.67 in long-term gains and $.92

    in short-term gains. The current offering price is $36.42 and the NAV is

    $34.60. What is your return for the year?

(9 points)

    3.

    a. What is your margin if you purchase 50 shares of RC stock at $120 per share and invest

    $4,000 of your own money?

    b. Tom purchased 300 shares of stock for $29 a share. The initial margin is 60 percent and

    the maintenance margin is 30 percent. If the stock price falls below what amount will

    Tom will receive a margin call.

    c. George short sold 300 shares of Celpa stock at $37 a share at an initial margin of 60

    percent. The maintenance margin is 30 percent. What is the highest the stock price can

    go before he receives a margin call?

(9 points)

    4.

     CALL PUT

    Options/Strike EXP VOL LAST VOL LAST

    ReC 30 Feb 15 13 2181 0.44

    42.63 35 Feb 709 8.25 4001 0.88

    42.63 40 Feb 3219 4.75 6432 2.06

    42.63 40 Apr 949 6.83 406 3.75

    42.63 40 Jul 892 8.75 910 5.25

    a. You purchase 10 of the April 40 call contracts on ReC, Inc. If the stock price on the expiration date is $44 per share, what is your dollar profit?

    b. You bought five July 40 put contracts on ReC Inc. The stock price at expiration is $45. What is your dollar profit on this transaction?

    c. You purchase 50 February 35 put contracts on ReC., Inc. The stock price at expiration is $32. What is your dollar profit on this transaction?

(8 points)

    5.

     Shares outstanding Beginning Share Price (1/1/07) Ending Share Price (1/1/08)

    Red, Inc. 800 $10 $12

    Yellow Corp. 600 $45 $43

    Green Co. 900 $96 $103

    If Red, Yellow, and Green are the only three stocks in the index, what is the (1) price-weighted (2) value weighted, and (3) equally weighted index return? Also, (4) what would be the value weighted index return if Green Company had a 2 for 1 stock split in 07 so the number of shares

    doubles 1800 shares outstanding (900 x 2), and the price falls to $51.50 (103/2 = $51.50).

(9 points)

    6.

    a. Evans, Ltd. just paid a dividend of $3.00 per share. If the dividend will increase by 5%

    per year and the required return is 14%, what is the price of the stock?

    b. A stock will pay dividends of $50 per year for the next 5 years, then cease operations. If

    the required rate of return by investors on this stock is 14%, what is the value of the stock?

    c. Ebert Corp. is experiencing a period of high growth. The company just paid a dividend

    of $2.00 per share and the dividend will grow at 20% per year for the next 5 years and

    6% thereafter. If the required return is 15%, what is the (1) price of the stock today, and

    (2) price of the stock in one year?

(8 points)

    7. Bond Pricing (Assume semi-annual Coupon payments)

    a. What is the market price of a 15 year bond with a 6.5% coupon rate and an 8% yield to

    maturity.

    b. A bond issued two years ago had 30 years to maturity and a 7.5% coupon rate. If the

    YTM is 6.8%, what is the price of the bond?

    c. A bond has a price of $760.54 and 23 years to maturity. If the coupon rate is 8.5%, what

    is the yield to maturity of this bond?

    d. A bond makes $40 interest (coupon) payments - semi-annually. If the price of the bond

    is $927, what is the current yield?

(8 points)

    8.

    What is the duration of a 3 year bond with a 9% coupon and price of $1,110.16 (work semi-annually; use the method from class lecture)?

(8 points)

    9.

    Given the following information:

State Probability Stock A’s Returns Stock B’s Returns

    Recession 0.25 2 5

    Normal 0.50 12 7

    Boom 0.25 15 -3

    a. Compute the expected return for Stock A and B.

    b. Compute the variance and standard deviation for Stock A & B

    c. Compute the correlation coefficient

    d. Compute the expected return and portfolio standard deviation of a portfolio

    consisting of 50% A and 50% B.

    e. Compute the expected return and portfolio standard deviation of a portfolio

    consisting of 70% A and 30% B.

(8 points)

    10.

    A call option has an exercise price of $90 and 25 days until expiration. The current risk-free rate of interest is 5%. The underlying stock is selling for $93, the standard deviation of the stock is .55, and the stock has a 1.5% dividend yield.

    d. Using the Black-Scholes Option Pricing Model What is the price of the call option?

    e. What is the price of the corresponding put option.

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