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Faculty comments:

?Calculating Returns Coupon 8.75% Bond Price 1 Year Ago $1,065 Bond Price Today $990 Face Value $1,000 A. Incorrect, suggest review examples and you can Google the topic.?

?incorrect Calculating WACC Common Stock Weight 65% Debt Weight 35% Cost of Equity 14% Cost of Debt 6% Tax Rate 35% Consider the free tutoring. Also review the examples, thanks.?

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Demonstrate your understanding of financial concepts by completing the following problems. Where appropriate, show or explain your work. You may use Excel to work on the problems.

Problem 1.Calculating returns: A stock with an initial price of $55 per share paid a dividend of $1.75 per share throughout the year, with an ending price of $59. Calculate the percentage total return of the stock.

Problem 2.Calculating returns: One year ago, you bought an 8.75 percent coupon bond for $1,065. Today the bond sells for $990.

1. Calculate the total real rate of return on the investment with a $1,000 face value.
2. Calculate your total nominal rate of return on the investment this past year.

Problem 3.Holding period return: A stock has had returns of ?19.52 percent, 17.82 percent, ?11.93 percent, 21.35 percent, and 6.43 percent over the past five years, respectively. Calculate the holding period return for the stock.

Problem 4.Calculating returns: Last year you bought a share of 7.25 percent preferred stock for $63.75. Your stock's market price is now $66.92. Calculate your total return for last year.

Problem 5.Calculating returns: You bought a stock three months ago for $24.87 per share. The stock pays no dividends and is currently priced at $26.35. Calculate the APR of your investment. What is the effective annual rate (EAR)?

Problem 6.Determining portfolio weights: A portfolio contains 65 shares of Stock A selling for $32 per share and 175 shares of Stock B selling for $26 per share. Calculate the portfolio weight for each stock.

Problem 7.Portfolio expected return: You own a portfolio that has $4,600 invested in Stock Y and $5,200 invested in Stock Z. What is the expected return on the portfolio if the expected returns on these stocks are 9.75 percent and 16.50 percent?

Problem 8.Using the capital asset pricing model (CAPM): A stock has a beta of 1.65, and the projected return on the market is 12.25 percent, with a risk-free rate of 4.75 percent. Calculate the projected return on this stock.

Problem 9.Calculating cost of equity: The Denton Corporation's common stock has a beta of 1.45 and a risk-free rate of 5.75 percent. What is Denton's cost of equity if the projected return on the market is 13 percent?

Problem 10.Calculating the weighted average cost of capital (WACC): If Metro Company has the following features, what is its WACC?

• A target capital structure of 65 percent common stock.
• A target of 35 percent debt.
• Cost of equity is 14 percent.
• Cost of debt is 6 percent.
• The tax rate is 35 percent.

1 Initial price Dividend Ending price 55 1.75 59 Total return (P1+D-P0 /P0) 10.45% 2 Coupon rate P0 P1 Coupon = 8.75% 1065 990 8750.00% Total return = 1.17% Coupon rate P0 P1 Coupon = 8.75% 1065 990 8750.00% Total nominal return 1.17% Nominal return and the real return will be same as there is no infaltion rate given 3 year Return 1 -19.52% 2 17.82% 3 -11.93% 4 21.35% 5 6.43% Holding period return = 2.83% 4 P0 P1 D 63.75 66.92 725% Return = 16.35% 5 P0 24.87 1 P1 26.35 Holding period return = APR (HPR * 4) 5.95% 23.80% Effective return = 26.01% 6 Stock A B Shares Price 65 175 Weight of stock A Weight of stock B 32 26 31.37% 68.63% 7 Stock X Y Total value weight 4600 5200 9800 Return on porfolio = 46.94% 53.06% 13.33% 8 Beta Market return Risk free rate 1.65 12.25% 4.75% Using CAPM Return = Return = Risk free rate + beta * (Market return - Risk free rate 17.13% 9 Beta Market return Risk free rate 1.45 13.00% 5.75% Using CAPM Return = Return = Risk free rate + beta * (Market return - Risk free rate 16.26% 10 Weight of common stock Weight of debt 65% 35% 2 Cost of equity Cost of debt 14% 6% WACC = = Weight of debt * cost of debt *(1-taxrate) + cost of e 7.44% 3 4 Total valueweight 2080 31.37% 4550 68.63% 6630 Return 9.75% 16.50% Market return - Risk free rate) Market return - Risk free rate) 5 debt *(1-taxrate) + cost of equity * weight of equity 6