FIN 3100 Lecture Notes - Lecture 2: Dividend Yield, Standard Deviation, Risk Premium

65 views6 pages

peachbuffalo68

26 Aug 2016

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Investors want to maximize returns and minimize risk: risk-and-return trade off (the ability to sleep at night test) In order to analyze investment performance, you must know how to measure returns over time. Includes: income (cash received) and capital gain/loss (change in the value of the asset. Dollar profit or loss = ending value + distributions original cost. Rate of return = dollar profit or loss / original cost. Example: you take a ,700 position in stock (100 shares at /share). The stock paid a . 85/share dividend and is worth . 33 one year later. (income from dividends) + (capital gain: current price paid price)= total dollar. Roi includes the capital gain or loss regardless if you actually sold the security (relevant for tax purposes) Capital gain(loss) yield= end price beg price / beg price. Total roi = (end price beg price) + dividend / original price. Roi bond example: you bought a bond for one year ago.

Related Questions

Goodman Industries ,Landry Incorporated Market Index

Year	Stock Price	Dividend	Stock price	Dividend	Included dividends
2013	25.88	1.73	73.13	4.5	17495.97
2012	22.13	1.59	78.45	4.35	13178.55
2011	24.75	1,5	73.13	4.13	13019.97
2010	16.13	1.43	85.88	3.75	9651.05
2009	17.06	1.35	90.00	3.38	8403.42
2008	11.44	1.28	83.63	3.00	7058.96

1. Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and then calculate average annual returns for the two stocks and the index. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and then dividing the result by the beginning price. Assume that dividends are already included in the index. Also, you cannot calculate the rate of return for 2008 because you do not have 2007 data.)Ã

2. Calculate the standard deviations of the returns for Goodman, Landry, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.)Ã

3. What dividends do you expect for Goodman Industries stock over the next 3 years if you expect the dividend to grow at the rate of 5% per year for the next 3 years? In other words, calculate D1, D2, and D3. Note that D0 = $1.50.Ã

4. Assume that Goodman IndustriesÃ¢â¬â¢ stock has a required return of 13%. You will use this required return rate to discount the dividends calculated earlier. If you plan to buy the stock, hold it for 3 years, and then sell it for $27.05, what is the most you should pay for it?

Please share the excel file using google docs.Thanks

Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in the course shell. The project has to be done in Excel so that the instructor knows how the work has been done, step by step. Use the following information for questions 1 through 4: The Goodman Industries and Landry Incorporated as stock prices and dividends, along with the Market Index, are shown below. Stock prices are reported for December 31 of each year, and dividends reflect those paid during the year. The market data are adjusted to include dividends. Goodman Industries ,Landry Incorporated Market Index Year Stock Price Dividend Stock price Dividend Included dividends 2013 25.88 1.73 73.13 4.5 17495.97 2012 22.13 1.59 78.45 4.35 13178.55 2011 24.75 1,5 73.13 4.13 13019.97 2010 16.13 1.43 85.88 3.75 9651.05 2009 17.06 1.35 90.00 3.38 8403.42 2008 11.44 1.28 83.63 3.00 7058.96 1. Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and then calculate average annual returns for the two stocks and the index. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and then dividing the result by the beginning price. Assume that dividends are already included in the index. Also, you cannot calculate the rate of return for 2008 because you do not have 2007 data.)Ã 2. Calculate the standard deviations of the returns for Goodman, Landry, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.)Ã 3. What dividends do you expect for Goodman Industries stock over the next 3 years if you expect the dividend to grow at the rate of 5% per year for the next 3 years? In other words, calculate D1, D2, and D3. Note that D0 = $1.50.Ã 4. Assume that Goodman IndustriesÃ¢â¬â¢ stock has a required return of 13%. You will use this required return rate to discount the dividends calculated earlier. If you plan to buy the stock, hold it for 3 years, and then sell it for $27.05, what is the most you should pay for it?

1) You purchased four WXO 30 call option contracts at a quoted price of $.34. What is your net gain or loss on this investment if the price of WXO is $33.60 on the option expiration date? 2) You wrote ten call option contracts on JIG stock with a strike price of $40 and an option price of $.40. What is your net gain or loss on this investment if the price of JIG is $46.05 on the option expiration date? 3) You currently own a one-year call option on Way-One, Inc. stock. The current stock price is $26.50 and the risk-free rate of return is 4%. Your option has a strike price of $20 and you assume that it will finish in the money. What is the current value of your call option? 4) Three months ago, you purchased a put option on WXX stock with a strike price of $61 and an option price of $.60. The option expires today when the value of WXX stock is $63.50. Ignoring trading costs and taxes, what is your total profit or loss on your investment? 5) Suppose you look in the newspaper and see ABC trading at $50 per share. Calls on ABC with one month to expiration and an exercise price of $45 are trading at $6.50 each. Puts on ABC with one month to expiration and an exercise price of $55 are trading at $3.50 each. Are these prices reasonable? Explain. (Ignore transactions costs.) 6) You sold ten put option contracts on PLT stock with an exercise price of $32.50 and an option price of $1.10. Today, the option expires and the underlying stock is selling for $34.30 a share. Ignoring trading costs and taxes, what is your total profit or loss on this investment?

FIN36058 EXAM III NAME:
PROBLEMS
I. (15 points) You have purchased a call option contract on Smith & Smith common stock. The option contract is for 100 shares. The option has an exercise price of $43.00 and S & Sâs stock currently trades at $40.00. The option premium is quoted at $2.00.
a. If S & Sâs stock price rises to $44.00, while you exercise the option? Calculate your net profit/loss on the option contract if (5 points).
b. If S & Sâs stock price rises to $48.00, while you exercise the option? Calculate your net profit/loss on the option contract if (5 points).
c. If the stock price rises to $42.00, would you exercise or not exercise the option and what would be your gain or loss (3 points)?
d. You will make a profit on the option if the S & S stock price rises above what amount (2 points)?
To earn a profit, you must recoup the price you paid for the call, plus the exercise price:
II. (13 points) Green Backs Bank wishes to take a position in Treasury bond futures contracts, which
currently have a quote of 96-240. Green Backs thinks interest rates will go down over the period of
investment.
a. Should the bank go long or short on the futures contracts (3 points)?
b. Given your answer to part (a), calculate the net profit to Tree Row Bank if the price of the futures
contracts increases to 99-160 (5 points).
c. Given your answer to part (a), calculate the net profit to Tree Row Bank if the price of the futures
contracts decreases to 94-080 (5 points).
III. (20 points) The financial statements for MHM Bank (MHM) are shown below:
a. Calculate MHMâs total operating income (3 points).
b. Calculate MHMâs asset utilization ratio (3 points).
c. Calculate MHMâs ROA (3 points).
d. Calculate the dollar value of MHMâs earning assets (3 points).
e. Calculate the dollar value of MHMâs interest-bearing liabilities (3 points).
f. Calculate MHMâs spread (3 points).
g. Calculate MHMâs net interest margin (3 points).
h. Calculate MHMâs interest expense ratio (3 points).
Balance Sheet MHM Bank
Assets
Liabilities and Equity Cash and due from banks $ 8,200 Demand deposits $ 35,600
Demand deposits at other FIs
9,100
Small time deposits
32,900 Investments 9,600 Jumbo CDs 12,000
Federal funds sold
9,400
Federal funds purchased
3,300 Loans (less reserve for loan losses of 10,400) 74,800 Other liabilities 16,200
Premises
8,900
Equity
20,000
Total assets
$
120,000
Total liabilities/equity
$
120,000
Income Items for MHM Bank
Interest income
$ 9,380 Interest expense 3,856
Provision for loan losses
7,800 Noninterest income 6,044
Noninterest expense
4,300 Taxes (credit) - 132

champagnewallaby382

FIN 3100 Lecture Notes - Lecture 2: Dividend Yield, Standard Deviation, Risk Premium

Document Summary

Get access

Related Documents

COMM 308 Chapter Notes - Chapter 12: United States Treasury Security, Dividend Yield, Squared Deviations From The Mean

ADMS 3531 Chapter Notes - Chapter 1: Capital Loss, Scotiabank, Risk Premium

COMM 2202 Lecture Notes - Lecture 12: Risk-Free Interest Rate, Dividend Yield, United States Treasury Security

Related Questions