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FIN 350 Strayer Univeristy Corporate Financial Modelling Questions

Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link.

  1. Identify two reasons for the existence of different valuations produced by the Price-Earnings Method. Which would you use and why?
  2. Briefly distinguish each of the three forms of market efficiency from each other. Which do you think best represents US markets?
  3. Stock ABC has a beta of 1.5, a risk-free rate of 2.5 percent, and a market return of 7.5 percent. What is the expected return for this stock?
  4. Company QRS just paid a dividend of $0.75. It is expected this dividend will grow at a constant rate of 4 percent indefinitely. What is the price of this stock if the required return is 10 percent?
  5. You make the following investments in stocks: $5,000 in GE, $7,000 in BA, and $8,000 in XON. The betas for the stocks are GE: 1.05; BA: 0.97, and XON: 1.24. What is the portfolio beta?
  6. Why would a bank be interested in a long hedge?
  7. Briefly describe the characteristics of a single stock future. What type of investor might be interested in this?
  8. You decided to buy Treasury bill futures contracts with a quoted price was 96-50. When you close this position, the quoted price was 95-25. Determine the profit or loss per contract, ignoring transaction costs.
  9. You decided to sell Treasury bill futures contracts with a quoted price was 92-50. When you close this position, the quoted price was 91-75. Determine the profit or loss per contract, ignoring transaction costs.
  10. You sell S&P 500 stock index futures that specified an index of 1,725. When you close this position, the index specified by the futures contract was 1,815. Determine the profit or loss, ignoring transaction costs.
  11. Would you characterize the U.S. dollar as a freely floating or dirty float system? What characteristics support your answer?
  12. What is direct central bank intervention in the currency markets? Provide an example of this from the last 50 years.
  13. Assume that Canada suddenly experiences high inflation. How might this affect the value of the Canadian dollar according to the purchasing power parity (PPP) theory?
  14. Australia’s central bank decides to increase the value of the Australian dollar against the Japanese yen. How might it use direct intervention to do this?
  15. Assume the following information: i. Mexican one-year interest rate = 15 percent ii. U.S. one-year interest rate = 11 percent iii. If interest rate parity exists, what would be the forward premium or discount on the Mexican peso’s forward rate? Would covered interest arbitrage be more profitable to U.S. investors than investing at home? Explain.
  16. Create a balance sheet for a typical bank, showing its main liabilities (sources of funds) and assets (uses of funds).
  17. The Federal Reserve has increasingly favored the use of Repurchase Agreements as part of its open market operations. Briefly describe these and why the Fed or banks prefer to use them.
  18. Banks engage in proprietary trading as part of their operations. Briefly speculate on why they now must adhere to more stringent trading activity as a result of the 2008-09 financial crises.
  19. Briefly describe two off-balance-sheet activities and why banks favor the use of these.
  20. If you were the CEO of a US bank, would you consider establishing a foreign branch? What might be a concern related to doing so?

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