MBA 530 - Test 2

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 Author: Calbrenar ID: 160604 Filename: MBA 530 - Test 2 Updated: 2012-07-12 10:25:30 Tags: MBA 530 Folders: Description: MBA 530 Test 2 Show Answers:

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1. Required Rate of Return (bonds)
rd
• r= I
• = to coupon rate if bond sells at par
2. N for Bonds
Number of Years to matury.  *2 for Semiannual
3. Dollars of Interest Paid each year
• INT = PMT
• Coupon Rate x Par Value
4. Discount Bond
Interest > Coupon Rate & Bond < Par Value
Interest < Coupon Rate & Bond > Par Value
6. Semi Annual Bonds
• PMT=PMT/2
• N=N*2
• rd = I/2
7. Current Yield (Bond)
• Pmt / PV
• = Total Yield - Capital Gains Yield
• Bond payout / sale price
8. Capital Gain Yield (Bond)
(ParS - ParP) / ParP
9. Total Rate of Return (Yield) (Bonds)
[Sum of Payments + (ParS - ParP)] / ParP
10. YTM (Yield to Maturity) (Bond)
• Rate of Interest if Held to matury.
• Enter N, PV, PMT, FV
• CPT I/Yr
11. YTC (Bonds)
Yield to Call.  When intrest rates go down corporations will call bonds if they can and replace with cheaper ones.

• Enter N, PV, PMT, FV
• CPT I/Y
12. r* (Bond)
• Real Risk free rate of interest
• = rate on short term treasury bond with no inflation
• int rate on a riskless security assuming no inflation
13. rd = ? (bond)
• r* + IP + DRP + LP + MRP
• = Rrf + DRP + LP + MRP

• IP = Inflation Risk Premium
• DRP = Default "   "
• LP = Liquidity " "
• MRP = Market " "
14. rate of return (stock)
(amount received - amount invested) / amount invested
15. Expected Rate of Return (stock)
• sum of weighted averages
• wi pi  (amount of stock i in portfolio x price of i)
16. Deviation
Subtract expected rate of return from a possible outcome
17. Variance - Sigma2
sum of each deviation x probability
18. Std Deviation
• Square root of variance
• 1 STD = 68.26%
• 2 STD = 95.46%
• 3 STD = 99.74%
19. expected porfolio return
• weighted average of returns in portfolio
• wi = amt invested in stock i * rhati = expected return of stock i
20. diversifiable risk
unique to a firm and can be cancelled out by good things happening to another firm hence eliminated by diversification
21. market risk
not eliminated by diversification.  2008 crash for example
22. relevant risk
stocks contribution to portfolio risk
23. beta
stocks ricks in relation to the market
24. MRP
• MRP = RM - RF
25. Risk Premium for Stock i
• RPi = bi(MRP)
• RPi = bi(RM-RF
26. Required Return (stock)
• Risk Free Return + Risk Premium
• = Rf + bi(Rm-Rf)
• = Rf + bi(MRP)
27. Dt
Dividend at the end of year t
28. D0
Most recent dividend  (not given to purchaser)
29. D1
Initial dividend (for purchaser)
30. P0
• Market price of stock today
• = PV of Future Dividends
31. PHATt
expected price at end of each year t
32. Dividend Yield (Stock)
Di/P0
33. Capital Gains Yield (this year, stock)
34. g (stock)
growth rate in dividends
35. rs (stock)
required rate of return of a stock
36. rHATs (stock)
• Expected rate of return of a stock
• = dividend yield + capital gains yield
37. rBARs (stock)
Actual/Realized rate of return (what you actually got)
38. PHAT0 (stock valuation)
39. PHAT0 (stock valuation)
g = 0
D/rs
40. PHATn (stock)
PV of non constant dividends + PV of Constant dividends
41. Dt (stock)
• Dividend at time t
• P0(1+g)t
42. VPS
Value of Preferred Stock
• = PPS/rPS
• Price of Preferred Stock / return of prevered stock
43. RHATPS
DPS/VPS
44. ri
return of stock i
• rf + (RM - Rf)b
• rf + MRP*b

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