Questions and Problems

Homework Problems are assigned from the “Questions and Problems” section at the end of the textbook chapters read each week. They MUST be solved in an Excel worksheet and submitted. Do not just enter numeric answers or type Excel formulas as comments in the cells; actually solve the problems in the Excel worksheet.

I will attach an example of an acceptable solution using an Excel worksheet

Required Textbook(s) and Additional Materials

Course: Investment Management 9781260203202 Fundamentals of Investments Jordan, Bradford D./ Miller, Thomas W. Jr./ Dolvin, Steven D. 8th / McGraw-Hill Required / New

Problem Questions:

Chapter 4 Problems 8, 9, 10 (pps. 138-139)

Chapter 5 Problems 1, 4, & 10 (pps. 173-174)

Homework Problems

are assigned from the “Questions and Problems” section at the end of the

textbook chapters read each week.

They MUST be solved in an Excel worksheet and

submitted

.

Do not

just enter numeric

answers or type Excel formulas as comments in the cells;

actually solve the problems in the Excel worksheet.

I will attach an

example of an acceptable solution using an Excel worksheet

Required

Textbook

(

s

)

and Additional Materials

Course:

I

nvestment Management

9781260203202

Fundamentals of Investments

Jordan, Bradford D./ Miller, Thomas W. Jr./ Dolvin,

Steven D.

8th / McGraw

Hill

Required / New

Problem Questions:

Chapter

4

Problems

8,

9,

10

(pps.

138

139)

Chapter

5

Problems

1,

4,

&

10

(pps.

173

174)

Homework Problems are assigned from the “Questions and Problems” section at the end of the

textbook chapters read each week. They MUST be solved in an Excel worksheet and

submitted. Do not just enter numeric answers or type Excel formulas as comments in the cells;

actually solve the problems in the Excel worksheet.

I will attach an example of an acceptable solution using an Excel worksheet

Required Textbook(s) and Additional Materials

Course: Investment Management

9781260203202

Fundamentals of Investments

Jordan, Bradford D./ Miller, Thomas W. Jr./ Dolvin, Steven D.

8th / McGraw-Hill

Required / New

Problem Questions:

Chapter 4 Problems 8, 9, 10 (pps. 138-139)

Chapter 5 Problems 1, 4, & 10 (pps. 173-174)

Basic example

Step 1 is to set up a Data Table containing all of the elements listed in the problem.
Next, describe what you are doing.
Finally, solve the problem, listing the equations to show you know what you are doing.
All of your calculations must be done within Excel cells; just listing the solution as a comment will not be accepted.
a. Calculate forward price
Length of forward contract (months) 6 T
Current stock price $ 50.00 S0
Risk-free interest rate (annual) 8% r
Dividend-1 $ 1.00
Timing of Dividend-1 2 months
Dividend-2 $ 1.00
Timing of Dividend-2 5 months
Calculate PV of all dividends
I= $ 1.954 Equation 5.1
These are unacceptable:
Price of forward contract F0 = (S0 – I)*e(r*T) Equation 5.2 F0 = (S0 – I)*e(r*T) = $50.01
= $ 50.01 or
F0 = $50.01
b Stock price $ 48.00
Risk-free interest rate 8%
Length of forward contract 3 months
Calculate PV of all dividends
I= $ 0.9868 Equation 5.1
Price of forward contract F0 = (S0 – I)*e(r*T) Equation 5.2
= $ 47.96
Value of short forward contract= $ 2.003 Equation 5.6

Example 1.1

Ex. 1.1
p. 5
Stock purchase price/share 35 Pt
Stock end-of-year price/share 49 Pt+1
Dividend received 1.40 Dt+1
Total investment 1,400
Number of shares purchased 40
Calculate dividend yield = Dt+1 / Pt
= 4%
Calculate capital gain per share = PT+1 Pt
= 14
Calculate capital gains yield = Capital gain / Pt
= 40%
Calculate total percentage return = Dividend yield + Capital gain yield
= 44%
Calculate total dividends = Dividend Yield * Total investment
= 56
Calculate total capital gain = Capital gain per share * Number of shares purchased
= 560
Calculate total gain = Total dividends + Total capital gain
= 616
Calculate total return on investment = Total gain / Total investment
= 44%
Note: the benefit of setting up this model is that you can change solve similar problems
just by changing only the data items.

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