INTRODUCCIÓN A LAS FI

MÉNDEZ BRIONES
CIÓN A LAS FINANZAS CORPORATIVAS

Tarea 7

ÉNDEZ BRIONES GUSTAVO ISAAC

A01685779

3/10/2020
 10-4 Calulating Returns. Suppose you bought bond with a 4.9% coupon rate one year ago for $1,010. The bond sells for $
a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?

The total dollar return would be the change in price plus the coupon payment.

Total dollar return = (1,052 - 1,010) + (1,000 * 4.9%) =

b. What was your total nominal rate of return on this investment over the past year?

Nominal rate of return = [(1,052 - 1,010) + (1,000 * 4.9%)] / 1,010 =

c. If the inflation rate last year as 3%, what was your total return on this investment?
𝑅𝑒𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒= (1+𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝑟𝑎𝑡𝑒)/(1+𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒)−1
Using the formula:

Real interest rate = 5.83%

10-9
Calculating Returns and Variability. You've observed the following returns on SkyNet Data Corporation's stockover th
a. What was the arithmetic average return on the comapny's stock over this 5-year period

Returns = 19% 24% 11% -9%

Arithmetic average return = 11.60%

b. What was the variance of the company's returns over this period? The standard deviation?

Variance = 1.59% Std Dev = 12.60%

10-10 Calculating Real Returns and Risk Premiums. In problem 9, suppose the average inflation rate over this period was 3
4.1%.
a. What was the average real return in the company's stock?
𝑅𝑒𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒= (1+𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝑟𝑎𝑡𝑒)/(1+𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒)−1
Using the formula:

Real interest rate = 7.72%

b. What was the average nominal risk premium on the company's stock?

Average risk premium = 7.50%

10-18
Return Distributions. Refer back to Table 10.2. What range of returns would you expect to see 68% of the time for lar
Arithmetic Mean Standard deviation
12.10% 19.80%

68% of the time Between 31.90%

95% of the time Between 51.70%

11-8 Returns and Standard Deviations. Consider the following information:

Probability of State of Rate of return if State Occurs

State of economy Economy Stock A Stock B Stock C
Boom 0.75 0.06 0.16 0.33
Bust 0.25 0.14 0.02 -0.06

a. What is the expected return on an equally weighted portfolio of these three stocks?

Expected return = 0.75*[(0.06+0.16+0.33)/3]+0.25*[(0.14+0.02-0.06)/3] =

b. What is the variance of a portfolio nvested 20% each in A and B and 60% in C?

Expected return boom = 24.20% Vaiance =

Expected return bust = -0.40%

11-17
Using the SML. Asset W has an expected return 12.3% and a beta of 1.2. If the risk-free rate is 4%, complete the follo
Illustrate the relationship between portfolio expected return and portfolio beta by plotting the expected returns against

Percentage of Portfolio in Portfolio expected Portfolio

Asset W return beta
Returns vs Betas
18.00%
0% 4.00% 0 16.00%
14.00% f(x) = 0.0691666666666667 x + 0.04
25% 6.08% 0.3
12.00%
50% 8.15% 0.6 10.00%
8.00%
75% 10.23% 0.9 6.00%
100% 12.30% 1.2 4.00%
2.00%
125% 14.38% 1.5 0.00%
0 0.2 0.4 0.6 0.8 1 1.2
150% 16.45% 1.8

11-22 Portfolio Returns and Deviations. Consider the following information about three stocks:
 Probability of State of Rate of return if State Occurs
State of economy Economy Stock A Stock B Stock C
Boom 0.25 0.25 0.35 0.4
Normal 0.55 0.18 0.13 0.03
Bust 0.2 0.03 -0.18 -0.45

a. If your portfolio invested 40% each in A and B and 20% in C, what is the portfolio expected return? The variance?

A B C
Weights 40% 40% 20%

Expected return = 12.15%

Variance = 2.46%
Std Dev = 15.69%

b. If the expected T-bill rate is 3.80 percent, what is the expected rosk premium on the portfolio?

Risk premium = 8.35%

c. If the expected inflation rate is 3.50%, what are the approximate and exact expected real returns on the portfolio? W
premiums on the portfolio?

Approximate real return on the portfolio = 8.65%

Exact real return on the portfolio = 8.36%

Approximate real return on risk premium = 4.85%

Exact real return on risk premium = 4.69%

13-3 Calculating Cost of Debt. Shanken Corp. Issued a 30-year, 5.9% semiannual bond three years ago. The bond curren
rate is 22%.

a. What is the pretax cost of debt?

Settlement 1/1/2000
Maturity 1/1/2027
Price 106
Coupon rate 5.90%
Payments per year 2

Pretax cost of debt = 5.47%

 b. What is the aftertax cost of debt?

Aftertax cost of debt = 4.27%

c. Which is more relevant, the pretax or the aftertax cost of debt? Why?

Aftertax cost of debt is more important because it is the real economic cost for the company.

13-11 Finding the WACC. Given the following information for Huntington Power Co., find the WACC. Ssume the company's

Debt: 17,000, 4.9% coupon bonds outstanding, 2,000 par value, 20 years to maturity, selling for 1
semiannual payments
Common stock: 425,000 shares utstanding, selling for $67 per share, the beta is 0.88
Market: 7% market risk premium and 3.5% risk free rate

Settlement 1/1/2000
Maturity 1/1/2020
Price 105
Coupon rate 4.90%
Payments per year 2

Cost of debt = 4.52%

Cost of capital = 9.66%

D= 35,700,000
E= 28,475,000
D+ E = 64,175,000
WACC = 6.80%
year ago for $1,010. The bond sells for $1,052 today.
estment over the past year?

91

9.01%

𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒)−1

SkyNet Data Corporation's stockover the past five years: 19%, 24%, 11%, -9%, and 13%.
-year period

13%

dard deviation?

rage inflation rate over this period was 3.6% and the average T-bill rate over this period was

𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒)−1
ou expect to see 68% of the time for large-comapny stocks? What about 95% of the time?

and -7.70%
and -27.50%

14.58%

1.25%

he risk-free rate is 4%, complete the following table of portfolios of Asset W and a risk-free asset.
by plotting the expected returns against the betas. What is the slope of the line that results?

Returns vs Betas
0%
0%
0% f(x) = 0.0691666666666667 x + 0.04
Slope = 0.06916667
0%
0%
0%
0%
0%
0%
0%
0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2
 Expected return
0.32
0.13
-0.15

ortfolio expected return? The variance? The standard deviation?

m on the portfolio?

expected real returns on the portfolio? What are the approximate and exact expected real risk

bond three years ago. The bond currently sells for 106% of its face value. The company's tax
r the company.

, find the WACC. Ssume the company's tax rate is 21%.

r value, 20 years to maturity, selling for 105 percent of par; the bonds make

e, the beta is 0.88