HT24 - 13 jan 2024 - Tenta

Sustainability - Which one of the following statements is TRUE?

Select one alternative:

A company’s ESG metrics capture its impact on society.

All statements are true.

Materiality typically refers to the absolute importance of an amount, regardless of the impact it makes on the financial statements.

An externality is a cost or benefit caused by a producer that is not financially incurred or received by that producer.

A company defaults on a green bond if it uses the proceeds for environmentally harmful activities.

Time value of money/Investment decision rules - Which of the following statements is FALSE?

Select one alternative:

Money at different points in time cannot be directly compared unless the discount rate to be used is zero

The Internal Rate of Return of a project may not exist

None of the other answers are correct (this answer should be chosen if you consider that all the other statements are true)

The Law of one price establishes that equivalent invesment opportunities should have the same price

The Payback period rule should always be used when making investment decisions

Portfolio Theory and CAPM - Which of the following statements is FALSE?

Select one alternative:

If CAPM is a valid model, the expected return of a stock with a beta equal to zero is equal to the risk-free rate

Well-diversified portfolios have large firm-specific risk

The tangency portfolio of a given invesment universe is its portfolio of risky assets with the highest Sharpe ratio

The beta of a financial asset can be greater than one

If CAPM is a valid model, the market portfolio is the tangency portfolio

Options - Which of the following statements if FALSE?

Select one alternative:

None of the other answers are correct. (This answer should be chosen if you consider that all the other statements are true)

A put option gives its owner the right to sell a given asset at a fixed price at some future date

A call option gives its owner the right to purchase a given asset at a fixed price at some future date

A call option gives its owner the obligation to purchase a given asset at a fixed price at some future date

An option on the stock of Amazon is at the money if the price of the stock of Amazon is equal to the strike price of the option

Stock Valuation - Which of the following statements is correct?

Select one alternative:

The risk-free rate should always be used as the discount rate in estimating the firm value

Capital invesments should be ignored when computing Free Cash Flows

None of the answers are correct

The dividend model estimates the stock price as the present value of all future dividends

The dividend yield is always equal to the capital gain rate

Bonds - Which of the following statements is FALSE?

Select one alternative:

None of the other answers are correct. (This answer should be chosen if you consider that all the other statements are true).

If the yield to maturity of a bond goes up, its price goes down

If the yield to maturity of a coupon bond is equal to the coupon rate, its price is equal to its face value.

The coupon rate establishes the total amount to be paid to the owner of the bond in coupons over one year

A zero-coupon bond pays coupons

Provided info:

Eriksson Er: 0,13

Eriksson Volatility: 0,4

Tangency portfolio Er: 0,08

Tangency portfolio volatility: 0,16

Risk-free rate: 0,02

Calculation:

Sharpe ratio market portfolio =

(Er market portfolio - Rf) / (Standard deviation of tangency portfolio) =

(0,08) - (0,02) / (0,16) = 0,375

(Er Eriksson - Rf) / (Sharpe ratio market portfolio) =

(0,13 - 0,02) / (0,375) =0,2933333333

Answer: 29,33333333 %

The market portfolio - Suppose that the economy has only two risky assets given by the shares of two companies: Thick and Thin. Thick has 450 shares and the price of each one of them is 15. Thin has 40 shares and the price of each one of them is 150. Compute the weights of the market portfolio in this simple economy. (Round your answers to two decimal digits)

You need to show your intermediate calculations and how you got to your final answer in order to get points for this question. JUST TYPING THE FINAL ANSWER WILL GIVE YOU ZERO POINTS. DO NOT UPLOAD A FILE. IF YOU DO SO, ITS CONTENT WILL BE IGNORED. YOU NEED TO ANSWER ON THE SPACE PROVIDED.

Fill in your answer here:

Provided info:

Thick:

Thick shares: 450

Thick price of each: 15

Thin:

Thin shares: 40

Thin price of each: 150

Step 1: First we have to calculate the total value of the Market Portfolio by adding Thick and Thins values together:

Thick value: 450 * 15 = 6750

Thin value: 40 * 150 = 6000

Total value of Thick and Thin: 6750 + 6000 = 12750

Step 2: To find the weights of each asset in the Market Portfolio, we need to divide each stock value with the total value.

Thick value / total value = 6750 / 12750 =

0,5294117647

Thin value / total value = 6000 / 12750 = 0,4705882353

Answer: 0,53 in Thick and 0,47 in Thin.

Bonds - A zero-coupon bond has face value equal to 1000 and maturity in 15 months. Its yield-to-maturity if expressed as an EAR is equal to 4%. What is the price of this bond? (Answers rounded to two decimal digits)

Select one alternative:

1050.25

1000.00

961.54

None of the other answers are correct

1040.00

952.16 - Besvarad och korrekt

N (time to maturity / months in a year):

15 / 12 = 1,25

Price (of the bond):

1000 / ((1+0,04)^1,25) = 952,1564767

Answer: 952,1564767

Stock valuation: FCF model - A company is expected to generate the following free cash flows over the next four years:

Year                             1         2        3        4

FCF (in millions)       51.5   69.7   77.3   76.5

 After that, the free cash flows are expected to grow at the industry average of 3.6% per year. Using the discounted free cash flow model and a weighted average cost of capital of 13.1%:Assuming that the company has no cash, debt of 306 million, and 44 million shares outstanding, estimate its share price. Round your answer to two decimal digits

Select one alternative:

28.74

710.06

7.72

-2.40

9.18 - Är korrekt

None of the other answers are correct

PV:

51,5 / (1+0,131)^1 = 45,53492485

69,7 / (1+0,131)^2 = 54,48884073

77,3 / (1+0,131)^3 = 53,43080029

(76,5 * (1+0,036) / (0,131 - 0,036) = 834.2526316

(76,5 + 834,2526316) / (1+0,131)^4 = 556,6087319

Enterprise value: 

45,53492485 +  54,48884073 + 53,43080029 + 556,6087319 = 710,0632977

Shareprice:

(710,0632977 - 306) / 44 = 9,183256766

Investment advice - You are an investment advisor and must choose one of the funds below as a recommendation to your clients. The clients will mix the fund chosen with the risk-free asset. The risk-free rate is 4%.

  Expected return (%) Volatility (%)

Fund A 11 25

Fund B 6 15

Fund C 16 30

What fund should you recommend?

Select one alternative:

A

C - Är korrekt

A or B

None of the other answers is correct

B or C

B

Calculate sharpe ratio:

(Expected return - risk-free rate) / Volatility

Fund A = (0,11 - 0,04) / 0,25 = 0,28

Fund B = (0,06 - 0,04) / 0,15 = 0,133

Fund C = (0,16 - 0,04) / 0,3 = 0,4

Answer: 

Fund C has the highest Sharpe ratio and the one i should recommend.

Portfolio Theory - Suppose that in one year, only three possible outcomes can take place. In each one of those possible scenarios the return of the stock of the companies Spin and Bang will take the following values with the indicated probabilities:

Probabilities Spin Bang

0.2          0.09 0.15

0.3         -0.07 0.10

0.5          0.37 0.12

Suppose that you would like to invest in a portfolio of the two and your investment wealth is equal to 100,000 SEK. You would like to allocate 35,000 SEK to Spin and the rest will be invested in Bang. What will be the expected return of your portfolio? (Answers rounded to two decimal digits).

Select one alternative:

12.74%

14.17% - Är korrekt

0.00%

19.63%

16.03%

None of the other answers are correct

Total weight: 100000

Amount Spin: 35000

Amount Bang: 100 000 - 35 000 = 65 000

Calculate:

Weight Spin: 100 000 / 35 000 = 0,35

Weight Bang: 100 000 / 65 000 = 0,65

Er:

Er Spin: (0,2 * 0,09) + (0,3 * -0,07) + (0,5 * 0,37)  = 0,182

Er Bang: = (0,2 * 0,15) + (0,3 * 0,1) + (0,5 * 0,12) = 0,12

Er Portfolio: (0,35 * 0,182) + (0,65 * 0,12) = 0,1417

Answer: 14,17%

Options - Assume that you purchase 1 call option and 2 put options on the stock of the Spanish company "Presentes y Atentos" with a time to maturity of 3 months. The exercise price on the call option is SEK 50 and the exercise price on the put options is SEK 60. If the stock’s price at maturity is SEK 52, what is the total payoff of your options at maturity?

Select one alternative:

-18

0

None of the other answers are correct

50

18 - Är korrekt

156

Provided info:

Call option:

Quantity: 1

Price: 50

Time to maturity (months): 3

Spot price (on maturity date): 52

Put option:

Quantity: 2

Price: 60

Time to maturity (months): 3

Spot price (on maturity date): 52

Payoff call option: 1 * (52 - 50) = 2

Payoff Put option: 2 * (60 - 52) = 16

Value of portfolio: 2 + 16 = 18

Answer: 18

Mortgage payments - You are considering buying a new home. You will need to borrow 237,000 to purchase the home. A mortgage company offers you a 10-year fixed rate at 6% (as an APR with monthly compounding). If you borrow the money from this mortgage company, your monthly payment will be closest to (answers rounded to a whole number):

Select one alternative:

1975

32457

None of the other answers are correct

2631 - Är korrekt

24357

14629

Provided info:

Loan: 237000

Fixed rate (APR monthly): 0,06

Time (years): 10

Monthly rate: 0,06 / 12 = 0,005

Time (Months): 10 * 12 = 120

Calculate EAA: 

237000 /((1 / 0,005) *

(1-(1+0,005)^120))))

= 2631,185896

Answer: 2631,185896 

Internal Rate of Return - Consider a project with the following cash-flows:

Initial outlay: -500 SEK

Year 1 850 SEK

Year 2 125 SEK

Year 3 -500 SEK

What is the IRR of the project? (answers rounded to four decimal digits)

Select one alternative:

None of the other alternatives is correct

1.1211%

C: 9.7255%

30.2466% and 9.7255% - Är korrekt

30.2466%

19.1123%

Rate 1: 0,011211

Rate 2: 0,097255

Rate 3: 0,302466

Rate 4: 0,097255

Rate 5: 0,191123

NPV:

Initial outlay +

(CF1 / ((1+ rate 1 to 5)^year 1) +

(CF2 / ((1+ rate 1 to 5)^year 2) +

       (CF3 / ((1+ rate 1 to 5)^year 3) = NPV

Rate 1: −20,73364409

Rate 2: −0,00008907856875

Rate 3: 0,00004672057179

Rate 4: −0,00008907856881

Rate 5: 5,847034069

Answer: 30.2466% and 9.7255%

Stock Valuation: Dividend Model - Assume a company has a current stock price of 50 and will pay 1.9 as dividend in one year; its equity cost of capital is 8%. What price must you expect the stock to sell for immediately after the firm pays the dividend in one year to justify its current price? (Round your answer to two decimal digits)

Select one alternative:

44.10

None of the other answers are correct

52.10 - Är korrekt

54.00

55.90

51.90

Provided info:

Stock price: 50

Dividend: 1,9

WACC (Cost of capital): 0,08

Calculate price time 1:

50 * (1 + 0,08) - 1,9 = 52,1

Equivalent Annual Annuity - Consider a project with an NPV equal to 150 million SEK and a life span of 5 years. The appropriate discount rate to be used in this computation was estimated to be 1%. What is the Equivalent Annual Annuity (EAA) of the project? (Answers in millions rounded to two decimal digits).

Select one alternative:

0.21

None of the other answers are correct

15000.00

30.91 - Är korrekt

3121.50

20.81

NPV: 150 000 000

Lifespan: 5

Discount rate: 0,01

Calculate EAA:

150 000 000 / ((1 / 0,01) * (1-(1+0,01)^5) = 30905969,94

Answer: 30,90596994

Beta - The expected return of the stock of Verizon is estimated to be equal to 16% and the volatility of the market portfolio is equal to 25%. If the expected return of the market portfolio is equal to 13% and the risk-free rate is 1%, what is the beta of Verizon? (Answers rounded to two decimal digits)

Select one alternative:

1.25 - Besvarad och korrekt

0.12

None of the other answers are correct

0.52

0.48

0.15

Provided info:

Er: Volatility:

Verizon: 0,16 0,13

Market portfolio: 0,13 0,25

Risk-free rate: 0,01

Market risk-premium: 0,13 - 0,01 = 0,12

Solve for Beta: = (0,16 - 0,01) / 0,12 = 1,25

Portfolio Theory

What is the standard deviation for the following portfolio? The portfolio has weight 0.2 in stock A and weight 0.8 in stock B. The correlation between stock A and B is 0,7. While the expected returns are expressed as percentages, the variance was obtained by using rates and not percentages in its calculation. (Round your answer to two decimal digits)

Stocks E[R] Variance = Q^2

A 15% 0.0227

B 11% 0.0123

Select one alternative:

10.27%

0.00%

15.00%

1.25%

11.19% - Är korrekt

None of the other answers are correct

Provided info:

Stocks:

A

B

Er

0,15

0,11

Variance = Q^2

0,0227

0,0123

Weight

0,2

0,8

Standard deviation (Roten ur variance = Q^2)

0,1506651917

0,1109053651

Correlation

0,7

Calculate variance portfolio: 

((((0,2)^2))*0,0227) + (((0,8)^2) * 0,0123) +

2 * 0,2 * 0,1506651917 * 0,7 * 0,8 * 0,1109053651 =

0,01252294549

Calculate stdev portfolio: Roten ur (0,01252294549) = 0,1119059672

Answer: 11,19059672%

Present Value

Calculate the present value of 12,000 monetary units if they are received in 21 months, assuming an APR of 8% with quarterly compounding (answers rounded to the nearest integer).

Select one alternative:

11111

10488

10447 - Är korrekt

None of the other answers are correct

12000

11765

Provided info:

Cashflow: 12000

APR (quarterly): 0,08

Time (months): 21

Periods: 7

r quater: 0,02

PV: 12000 / (1+0,02)^7 = 10446,72214