FIN 435 Class Web Page, Spring '13
Weekly SCHEDULE, LINKS, FILES and Questions
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Week |
Coverage, HW, Supplements -
Required |
WSJ Papers for Discussion in the following week |
Videos (optional) |
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Jan 8 |
Q1. Should CEO be separated from board chairman? Q2. Do firms really maximize shareholder values as claimed? Q3. Is globalization good or bad for US economy? Q4. What is agency costs and how to eliminate it? Q1. Examples of derivate. Should SEC add more restrictions in financial market? Q2. Do you know the difference between investment banking and commercial banking? Who are hedge funds? Who are PE funds? Q3. Do you believe in financial market efficiency? What is it? (None) Q1. What is cash flow statement. Q2. List the three categories of cash flow statement Q3. What is FCF? Shall we focus on FCF or NI? Q4. Is negative FCF a bad signal of firm performance? HW of chapter 3: three HW questions assigned 3-1, 3-2 and 3-10 from page 86 to page 87. |
1. Hocking the jewels: pawnshops dipping into deeper pockets Q1: Do you understand the business model of pawnshops? Q2: Why do customers borrow from pawnshop @ 250% interest rate, instead of borrowing from banks @ much lower rate? 2. What ETF managers do Q1. What is ETF? Q2. Why do investors woo after ETF? 3. How a male CEO’s kids affect his workers’ pay Q1. Banks are too big and too risky. What does it mean? Q2. How does the gender and the birth order of the CEO’s new born babies affect his worker’s pay? 4. Boards cozy up to investors Q1: Do you understand the role of board in a firm? Q2. What is say on pay rule in Dodd Frank Act? |
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Jan 15 |
HW of chapter 3 due. Chapter 5 Case Study Questions (second case study) Q1. Can calculate PV, FV, Nper, Rate and PMT Q2. Annuity due and ordinary annuity Q3. Can calculate NPV, NFV Q4. EAR and APR Q1. The components of interest rate Q2. Explain why the interest rate of GE’s 10 year bond > GE’s 2 year notes > Google’s 2 year notes > 2 year Treasury notes > 3 month Treasury bill. Q3. Draw the yield curve at the end of 2005, 2008, and 2012, respectively and explain the differences. Q4. How to explain term structure (yield curve)? Use expectation theory, liquidity premium theory and market segmentation theory. Q5. Can use expectation theory to calculate future interest rate. Q6. The typical shape of yield curve is upward sloping. Why is that? HW of chapter 6: 6-1, 6-2, 6-3, 6-4,
6-5, 6-7 (page 211) |
1. More money funds to report daily Q1. Good or bad? Q2. How do money market funds invest? 2. Inflation alarms may signal real threat Q1. Why inflation is a threat to the economy? Q2. When inflation is approaching, how does the new yield curve look like? 3. Facebook shares rally above $30 Q1. Remember the IPO price? FB will be the next google? 4. As tax hikes loomed, some CEOs sold stock Q1. Why? Suggestions to those CEOs with tons of money about how to invest? |
What is a Yield Curve?
(short but concise) A
letter from Facebook: avoid IPO (fun but informative) |
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Jan 22 |
HW of chapter 6 DUE. Chapter 7 case study (third case study) 1. Can calculate price and YTM. 2. Understand relation between price and YTM. 3. Understand why bond price is changing daily. 4. Can figure out YTC. 5. Can draw graph of price and YTM. 6. Understand why investing in bond is risky as well. Understand the resources of risk in bond market. 7. Can calculate current yield, capital gain yield. 8. Can find bond information on FINRA. |
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FINRA
– Bond market information http://cxa.gtm.idmanagedsolutions.com/finra/bondcenter/default.aspx Treasury
Bond Auction and Market information |
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Jan 29 |
Solutions è Chapter 3 Solution Chapter 3 solution excel Chapter 5 Solution Chapter 5 solution excel Chapter 6 Solution Chapter 6 solution excel Chapter 7 Solution Chapter 7 solution excel Mid
Term (covering chapter 3, 5, 6 and 7) and
the 1st and the 2nd cases due
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Mid Term Exam Part I – Conceptual Study Guide (Close book) Multiple Choice Questions (25*2=50 and the last one
is a bonus question) 1.
Money
markets are markets for 2.
Hedge
fund question 3.
NYSE
vs. NASDAQ
12. Default risk premium, maturity
risk premium and liquidity risk premium question 13. Interest rate question (interest
rate break down) 14. Interest rate
break down. 15. Yield curve question 16. Comparison of interest rates 17. Comparison of interest rates 18. Expectation theory
22.
Bond
concept 23.
Current
yield, YTM 24.
Bond
price change when interest rate change
25. Price and yield 26. Bonus question |
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Feb 5 |
Final
is non-cumulative and starts from here 1st, calculate expected return based on probabilities and corresponding returns 2nd, calculate standard deviation based on probabilities and corresponding returns 3rd, calculate expected return and standard deviation based on probabilities historical returns 4th, Use corr function to calculate correlation based on two stocks’ historical returns. 5th, Understand the concept of correlation and can pick stocks based on correlations 6th,understand what is beta and can calculate beta using slope function 7th, can use CAMP to calculate stock returns. Chapter 9 Case study (not a case study, but a HW) 1st, know dividend growth model 2nd, know when growth rate is non-constant, how to figure out current stock price, stock price in the future and dividend in the future 3rd, the current preferred stock price HW of 9-4 and 9-11, due on 2/19/2013 |
Thanks Will for proving the questions Fun funds at investing clubs Q1: Why
is it that investing clubs and investing in general has declined since 1998?
Especially since the market is now improving? Q2: Why
do individual investors have such a hard time competing against the returns
of hedge funds? Buy stocks or bonds: yes Q1: Why
was there a transition for people to move from bonds to stocks? Q2: Why
would it be beneficial to have both? Insider witness sentenced Q1:
What other actions could be taken in addition to jail time to make sure this
kind of thing doesn’t happen in the future? Q2:
What kind of pressure do you think hedge fund managers are in if they get in
contact with inside information Anxiety stalks proxy season Q1: Do
you think it’s fair that the SEC seems vague on
certain regulations? Q2: Why
is it important for shareholders to have detailed information about executive
pay? |
http://www.youtube.com/watch?v=3ntwyjXZdS0 Efficient Portfolio Frontier |
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Feb 12 |
1st, can calculate cost of equity using dividend growth model Ks = D1/(P0-flotation costs)+g 2nd, can calculate cost of debt Kd= rate(nper, coupon, -(price-flotation), 1000)*(1-tax rate) 3rd, can calculate wacc 4TH, understand what is wacc and the components of wacc 1st, understand what is NPV, IRR, MIRR 2nd, given cash flows, can calculate NPV, IRR and MIRR 3rd, Can choose projects based on NPV and IRR 4th, understand the problems of multi-irr because of un-conventional cash flows Chapter 12 Case Study (not a case study, but a HW) 1st, just like this case study, can understand the cash flows from year 0 to final year 2nd, understand what is free cash flow Note: There is no calculation problems of chapter 12 HW of 10-8 due on 2/19/2013 |
Thanks Will for proving the questions New York Investigates
Credit-Rating Firms 1.
What did S&P do wrong that many states want to sue them for? 2.
What do you think the future of Moody's stock is given the news and their
recent stock drop? Credit Suisse Posts Profit as Its
Focus Shifts 1.
What helped bring in the profit for Credit Suisse? 2.
What can other companies learn from this one, which had extreme losses a year
ago and large profits this year? Currency's Recovery Isn't Without
Pain 1. How are France and Germany both right in regards to their view of the Euro since they have
opposing viewpoints? 2.
How is the euro negatively impacting France's economy? Why does France want
it to go? Hedge-Fund Manager Bites at Apple
Over Cash 1.
Why is Apple holding so much cash and how could not use it impact their stock
value? 2.
What would be an advantage for Apple to issue preferred stock? What would be
a disadvantage? |
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Feb 19 |
Chapter 18 Case Study (call and put option, hard but very interesting) 1st, understand what is call and put option 2nd, understand the pay off of call and put option 3rd, can draw payoff profile of call and put option 4th, can calculate call option price using black-scholes model Review of the Final Exam |
No WSJ this
week. |
Puts and Calls - How to
Make Money When Stocks are Going Up or Down
http://www.youtube.com/watch?v=D9-_Jar2UpQ Call Options Trading for Beginners
in 9 min. - Put and Call Options Explained
http://www.youtube.com/watch?v=q_z1Zx_BALo |
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Feb 26 |
Final
Exam, Exit Exam. Cases due: chapter 18, chapter 11, chapter 8 and chapter 7. HW due: chapter 9 (HW and case), chapter 10 HW, and chapter 12 (case only) Final Exam Study Guide
Conceptual
(Close Book)
Multiple Choice: Conceptual
(25*2=50)
1.
Choose least risky stock, based on beta and
standard deviation (you should compare based on beta, since everybody holds
diversified portfolio) 2.
Concept of Beta and expected return (understand
CAPM) 3.
Given stock returns and market returns, guess for
beta (of course, you can calculate beta using slope function in excel, but it
is closed book section, so just guess) 4.
Can investor eliminate all risk? What type of risk
can be diversified away? So this is a diversification problem 5. The
effect of adding one randomly chosen stock, from the perspective of risk
management? 6. Portfolio of two stocks:
Given correlation coefficient of the two stocks, how can risk change
accordingly? 7. WACC
component questions (three components) 8.
General rank of Ks, Kd
and WACC
10.
WACC and tax relation 11.
IRR
conceptual question (remember, IRR is the breakeven rate) 12.
Multi-IRR problem 13.
Multi Irr problem 14.
Compare IRR, MIRR and NPV 15.
NPV concept
17.
Chapter
12’s conceptual question. Which of the following factors
should be included in the cash flows used to estimate a project’s NPV?
19.
The factors for stock option value 20.
Concept of
call and put option
24. The changes of
price of call option when its factors are changing 25. Hard. Option price
changes versus stock price changes Plus
WSJ paper questions total 6
points Open Book |
Final Exam
Problem Solving Study Guide
Open Book
Multiple Choice: Problems (22*2 =44, plus 2 bonus questions, 2*2.5=5)
1.
Use sumproduct function
to calculate expected returns 2.
Use CAMP to calculate expected returns, all given
directly, except the return. 3.
Calculate portfolio beta, given dollar amount
investment in each stock and beta of each stock 4.
Based on CAPM. Medium difficulty. Has hint. 5. Use stdev to calculate sample standard
deviation. Has hint. 6.
Use stdevp to calculate
population standard deviation. Has hint. 7.
(hard) Assume that your uncle holds just one
stock, East Coast Bank (ECB), which he thinks has very little risk. You agree that the stock is relatively
safe, but you want to demonstrate that his risk would be even lower if he were more diversified. You obtain the following returns data for
West Coast Bank (WCB). Both banks have
had less variability than most other stocks over the past 5 years. Measured by the standard deviation of
returns, by how much would your uncle's risk have been reduced if he had held
a portfolio consisting of 60% in ECB and the remainder in WCB? (Hint: Use the sample standard deviation
formula for ECB, WCB and the portfolio.) 8.
Use P0
= D1/(rs − g) to
calculate stock price 9.
Non-constant dividend growth problem. Calculate current
stock price 10.
Non-constant dividend growth problem. Calculate
stock price in the cutoff year 11.
Again, non-constant dividend growth problem.
Calculate current stock price 12. Use WACC = wd
× rd × (1 − T) + wp × rp + wc ×
rs. All given, except WACC
13.
Calculate after tax cost of debt. This bond is
semi-annual. 14. Use re = D1/(P0 × (1 −
F)) + g to figure out cost of equity 15.
Given CFs, and discount rate, figure out NPV 16.
Given CFs, figure out IRR 17.
Given CFs, and discount rate,
figure out NPV 18.
Call
option’s exercise value calculation using exercise value=max(market price –
strike price, 0) 19.
Calculation option premium using option premium =
option price – exercise value of the option 20.
Exercise
value of put option. Use max(strike-current price,
0) to get it. 21.
Use Option premium = Option value − Exercise value to get option premium 22.
Use
black-scholes model to calculate call option price,
similar to case study question 23.
Bonus
Q1 24.
Bonus
Q2 |
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