Class-1

Q1. On February 1, you bought 100 shares of stock in Francesca corporation for $34 a share and
a year later you sold it for $39 a share. During the year, you received a cash dividend of $1.50 a
share. Compute your HPR and HPY.
Q2. On August 15, you purchased 100 shares for stock in the Cara Cotton Company at $65 a
share and a year later you sold it for $61 a share. During the year, you received dividends of $3 a
share. Compute your HPR and HPY on your investment.
Q3. At the beginning of last year, you invested $4000 in 80 shares of the Chang Corporation.
During the year, Chang paid dividends of $5 per share. At the end of the year, you sold the 80
shares for $59 a share. Compute your total HPY on these shares and indicate how much was due
to the price change and how much was due to the dividend income.
Q4. Suppose you want to have $0.5 million saved by the time you reach age 30 and suppose that
you are 20 years old today. If you can earn 5% on your funds, how much would you have to
invest today to reach your goal?
Q5. Suppose I want to be able to withdraw $5000 at the end of 5 years and withdraw $6000 at
the end of six years, leaving a zero balance in the account after the last withdrawal. If I can earn
5% on my balances, how much must I deposit today to satisfy my withdrawal needs?
Q6. You have been saving up to buy the Godot Company. The total cost will be $10 million.
You currently have about $2.3 million. If you can earn 5 % on your money, how long will you
have to wait? At 16 percent, how long must you wait?
Q7. Suppose you have just celebrated your 19​th birthday. A rich uncle has set up a trust fund for
you that will pay you $150,000 when you turn 30. If the relevant discount rate is 9 percent, how
much is this fund worth today?
Q8. You are offered an investment that will pay you $200 in one year, $400 in the next year,
$600 the next year, and $800 at the end of fourth year. You can earn 12% on very similar
investments. What is the most you should pay for this one?
Q9. You ran a little short on your spring break vacation, so you put $1000 on your credit card.
You can afford only the minimum payment of $20 per month. The interest rate on the credit card
is 1.5 percent per month. How long will you need to pay off the $1000?
Q10. Consider a 3-year, 10% coupon bond with a face value of $1000. The bond pays coupons
annually. If appropriate annual discount rate is 8%, what is the highest price are you willing to
pay for that bond?
Q11. What price do you expect the 3-year, 10% coupon bond with a face value of $1000 to sell
for next year, immediately after the first coupon payment? The appropriate discount rate is still
8%.

Q12.A bank is offering 12 percent compounded quarterly. If you put $100 in an account, how
much will you, how much will you have at the end of one year? What’s the Effective Annual
Rate (EAR)? How much will you have at the end of two years?

Class -2
Q1. Stock A has a beta of 1.20 and Stock B has a beta of 0.8. Suppose r​f​ = 2% and R​M​ = 12%.
(a) According to the CAPM, what are the expected returns for each stock?
(b) What is the expected return of an equally weighted portfolio of these two stocks.

Q2.​ ​The following table provides the market values of stocks in one’s portfolio and
their expected rates of return. What is the expected rate of return for the portfolio?

Stock Infosys RIL ONGC SBI DRL TATA steel

Market Value 30000 20000 40000 50000 20000 40000
E(Ri) 0.18 0.016 0.12 0.20 -0.10 0.10

Q3. ​The weights, returns and variance of returns of two stocks that constitute an investment portfolio
are given below. Find the portfolio return and risk.
Stock E(Ri) Wi Variance
A 0.12 0.40 0.0064
B 0.18 0.60 0.0100

Correlation coefficient between returns of Stock A and Stock B = 0.8

Q4. ​You are thinking about investing your money in the stock market. You have the following
two stocks in mind: stock A and stock B. You know that the economy can either go in recession
or it will boom. Being an optimistic investor, you believe the likelihood of observing an
economic boom is two times as high as observing an economic depression. You also know the
following about your two stocks:
State of the Economy Probability R​A R​B
Boom 10% –2%
Recession 6% 40%

a) Calculate the expected return for stock A and stock B

b) Calculate the total risk (variance and standard deviation) for stock A and for stock B
c) Calculate the expected return on a portfolio consisting of equal proportions in both stocks.
d) Calculate the expected return on a portfolio consisting of 10% invested in stock A and the
remainder in stock B.
e) Calculate the covariance between stock A and stock B.
f) Calculate the correlation coefficient between stock A and stock B.
g) Calculate the variance of the portfolio with equal proportions in both stocks using the
covariance from answer e.
h) Calculate the variance of the portfolio with equal proportions in both stocks using the
portfolio returns and expected portfolio returns from answer c.

Q5. The covariance of the returns on the two securities, A and B, is -0.0005. The standard
deviation of A's returns is 4% and the standard deviation of B's returns is 6%. What is the
correlation between the returns of A and B?
Q6. Consider Securities D and E with the following estimates: E(R​D​) = 8%σ​D​= 12% E(R​E​) =
13%σ​E = 20% Now consider the portfolios that can be formed with D and E, assuming that the
investment is equal between D and E (that is, each has a weight of 50%). What is the portfolio’s
standard deviation if the correlation between D and E for each of the following?
R​ij​ = 1.0 ; 0.3 ; 0; -1
Q7. Consider Securities X and Y with the following estimates: E(R​X ​) = 5% σ​X​= 10% E(R​Y​) =
15% σ​Y = 25%. If the portfolio is comprised of 40% X and 60% Y and if the correlation between
the returns on X and Y is -0.25, what is the portfolio’s expected return and risk?
Q8. Miss Maple is considering two securities, A and B, and the relevant information is given
below:
State of the Economy Probability Return on security A (%) Return on security B
(%)
Bear 0.6 3% 6.5%
Bull 0.4 15% 6.5%

1.Calculate the expected returns and standard deviations of the two securities.
2.Suppose Miss Maple invested $2,500 in Security A and $3,500 in security B. Calculate the
expected return and standard deviation of her portfolio.
3.Suppose Miss Maple borrowed from her friend 40 shares of security B, which is currently sold
at $50, and sold all shares of the security. (She promised her friend she would pay her back in a
year with the same number of shares of security B.). Then she bought security A with the
proceeds obtained in the sales of security B shares and the cash of $6,000 she owned. Calculate
the expected return and standard deviation of the portfolio.
Class -3
1. The preferred stock of the Clarence Company has a par value of $100 and a $9 dividend
rate. You require an 11 percent rate of return on this stock. What is the maximum price
you would pay for it? Would you buy it at a market price of $96?
2. A) The Marks Basketball company earned $10 a share last year and paid a dividend of $6
a share. Next year, you expect the company to earn $11 and continue its payout ratio.
Assume that you expect to sell the stock for $132 a year from now. If you require 12% on
this stock, how much would you be willing to pay for it?

B) Given the expected earnings and dividend payments in above problem, if you expect a selling
price of $110 and require an 8% return on this investment, how much would you pay for
the stock?

C) Over the long run, you expect dividends for the company to grow at 8% and you require 11%
on the stock. Using the infinite period DDM, how much would you pay for this stock?

3. A) The Shamrock Dogfood Company has consistently paid out 40% of its earnings in
dividends. The company’s return on equity is 16 percent. What would you estimate as its
dividend growth rate?

B) Given the low risk in dog food, your required rate of return on SDC is 13 percent. What P/E
ratio would you apply to the firm’s earnings?

C) What P/E ratio would you apply if you learned that SDC had decided to increase its payout to
50 percent?

4. Gentry Can Company’s latest annual dividend of $ 1.25 a share was paid yesterday and
maintained its historic 7 percent annual rate of growth. You plan to purchase the stock
today because you believe that the dividend growth rate will increase to 8 percent for the
next three years and the selling price of the stock will be $40 per share at the end of that
time.

a. How much should you be willing to pay for the GCC stock if you require 12 percent
return?
b. What is the maximum price you should be willing to pay for the GCC stock if you
believe that the 8 percent growth rate can be maintained indefinitely and you require a
12 percent return?
c. If the 8 percent rate of growth is achieved, what will the price be at the end of Year 3,
assuming the conditions in Part b?
Class-4
Q1. Consider a 12%, 15-year bond that pays interest semiannually, and its current price is $675.
What is the promised yield to maturity?
Q2. Consider a zero coupon bond that has a current price of $436.19 and matures in 10 years.
What is its yield to maturity?
Q3. What is the current price of a zero coupon bond with a 6% yield to maturity that matures in
15 years?
Q4. Consider a bond with a duration of 6 years having a yield to maturity of 8% and interest
rates are expected to rise by 50 basis points. What is the percentage change in the price of the
bond? (semiannual)
Q5. Consider a bond with a current yield of 8% and a price of $1,250. What is this bond’s
coupon?
Q6. Consider a bond with a price of $944.44 and a coupon of 8 1/2%. What is the current yield?
Q7. Suppose you have a 15%, 25-year bond traded at $975. If it is callable in 5 years at $1050,
what is the bond’s yield to call? Interest is paid annually.
Class-5
Q1. The following information is available about Don Company

Calculate the following:

1) Interest Coverage Ratio
2) Debt Ratio
3) Inventory Turnover Ratio
4) Earnings per Share
 5) Days Sales outstanding

Q2. The following information is available about Seine Company.

The current prevailing price of the stock is $25.

Find its
1) Interest Coverage Ratio
2) Earnings per Share
3) Inventory Turnover Ratio
4) P-E Ratio
Q3. The following information is available about Marne Company for 2017. All sales are on
credit.

1) Find its Inventory Turnover Ratio

2) Number of Days Sales Outstanding
3) Interest Coverage Ratio
4) Current Ratio
5) Quick ratio

Q4. Ider Corp expects to have $3.73 as earnings per share next year. The cost of equity for Ider is
16%, whereas its dividend yield is 4%. The price per share of Ider is $40. Find its dividend
payout ratio. Find its current P/E ratio.
Q5. ​From the following annual accounts of New Horizontal Limited you are required to
calculate the following ratios and comment on the results, indicating what other
information you require:
1) Gross Profit Percentage
2) Net Profit Percentage
3) Return on Total Assets
4) Quick Asset Ratio
5) Debtors Collection Period
6) Fixed Assets Turnover
7) Return on shareholder’s fund
8) Current Ratio
9) Debt ratio