Fin 534 week 6 homework set 3


 

Directions: Solution the subjoined questions on a severed instrument. Explain how you reached the solution or pomp your effort if a veracious forethought is needed, or twain. Submit your assignment using the assignment associate in the way shell. This homeeffort assignment is cost 100 points.

Use the subjoined knowledge for questions 1 through 8:

The Goodman Industries’ and Landry Incorporated’s hoard costs and dividends, along delay the Market

Index, are pompn underneath. Hoard costs are reputed for December 31 of each year, and dividends cogitate those hired during the year. The negotiate postulates are adjusted to embody dividends.

Goodman Industries                        Landry Incorporated               Market Index

Year  Stock Cost    Dividend        Stock Cost   Dividend          Includes   Dividends

2013   $25.88            $1.73                 $73.13          $4.50                 17.49          5.97

2012     22.13                1.59                    78.45            4.35                  13.17          8.55

2011     24.75                 1.50                   73.13            4.13                  13.01          9.97

2010     16.13                 1.43                   85.88            3.75                   9.65            1.05

2009     17.06                 1.35                   90.00            3.38                   8.40            3.42

2008     11.44                 1.28                   83.63            3.00                   7.05            8.96

1. Use the postulates attached to investigate annual receipts for Goodman, Landry, and the Negotiate Index, and then investigate mediocre annual receipts for the two hoards and the abjuration. (Hint: Remember, receipts are investigated by subtracting the thresabide cost from the end cost to get the chief compel or waste, adding the dividend to the chief compel or waste, and then dividing the end by the thresabide cost. Assume that dividends are already embodyd in the abjuration. Also, you cannot investigate the blame of requite for 2008 owing you do not own 2007 postulates.)

2. Investigate the scale inconsequences of the receipts for Goodman, Landry, and the Negotiate Index. (Hint: Use the pattern scale inconsequence formula attached in the passage, which corresponds to the STDEV operation in Excel.)

3. Estimate Goodman’s and Landry’s betas as the slopes of retrogression lines delay hoard requite on the upright axis (y-axis) and negotiate requite on the lifeless axis (x-axis). (Hint: Use Excel’s SLOPE operation.) Are these betas congruous delay your graph?

4. The promote-free blame on long-term Treasury bonds is 6.04%. Assume that the negotiate promote reward is 5%. What is the required requite on the negotiate using the SML equation?

5. If you formed a portfolio that consisted of 50% Goodman hoard and 50% Landry hoard, what would be its beta and its required requite?

6. What dividends do you forecast for Goodman Industries hoard balance the confer-upon 3 years if you forecast you forecast the dividend to become at the blame of 5% per year for the confer-upon 3 years? In other utterance, investigate D1, D2, and D3. Note that D0 = $1.50.

7. Assume that Goodman Industries’ hoard, presently trading at $27.05, has a required requite of 13%. You succeed use this required requite blame to remittance dividends. Find the confer-upon esteem of the dividend stream; that is, investigate the PV of D1, D2, and D3, and then sum these PVs.

  1. If you intention to buy the hoard, abide it for 3 years, and then hawk it for $27.05, what is the most you should pay for it?

Use the subjoined knowledge for Question 9:

Suppose now that the Goodman Industries (1) trades at a present hoard cost of $30 delay a (2) impress cost of $35. Attached the subjoined attached knowledge: (3) occasion to deadness is 4 months, (4) annualized promote-free blame is 5%, and (5) hostility of hoard requite is 0.25.

9.         What is the cost for a allure discretion using the Black-Scholes Model?