國際金融seminar 1

1、seminar 1,2,1 topic 3,you take out a loan at an apr of 12% with monthly compounding. what is the effective annual rate on your loan,3,1 answer,interest rates on loans and saving accounts are usually stated in the form of an annual percentage rate (apr), (e.g., 18% per year) with a certain frequency

2、of compounding (e.g., monthly). effective annual rate (eff): compounding is only once per year,4,1 answer,the general formula for the effective annual rate is: where m the number of compounding periods per year. note that as the frequency of compounding increases, so does the effective annual rate,5

3、,2 topic 3,what is the present value of $100 to be received in four years at an interest rate of 6% per year,6,2 answer,大連海事大學交通運輸管理學院 王冰,7,3 topic 3,suppose you deposit $1,000 now and then $2,000 a year from now. how much will you have two years from now, if the interest rate is 10% per year,8,3 an

4、swer,fv of the initial $1,000 = $1,000 * 1.12 = $1,210 fv of the $2,000 = $2,000 * 1.1 = $2,200 total fv = $3,410,9,4 topic 4,suppose the protojean project is expected to have a third-year cash flow of only $10,000 instead of $30,000. if all other cash flows are the same and the discount rate is sti

5、ll 8% per year, what is its npv,10,4 answer,a projects net present value is the amount by which the project is expected to increase the wealth of the firms current shareholders as a criterion invest in proposed projects with positive npv,11,4 answer,12,4 answer,where k is the cost of capital,13,5 to

6、pic 4,what would be the npv of the pc1000 project if the variable costs are $4,000 per unit instead of $3,750,14,5 answer,depreciation refers to two very different but related concepts: the decrease in value of assets, and the allocation of the cost of assets to periods in which the assets are used,

7、15,5 answer,straight-line depreciation the equipment that depreciates over 7 years, is purchased at a cost of $2.8 million and will have a salvage value of $0, will depreciate at $0.4 million per year: ($2.8 $0)/ 7= $0.4 million annual straight-line depreciation expense,16,5 answer,17,5 answer,it is

8、 important to remember that when making financial decisions only timed cash flows are used depreciation is an expense, but is not a cash expense, and must be excluded,18,5 answer,cash flow = revenue cash expenses taxes cf = $20 ($19.5 $0.4) - $0.2 = $0.7 million cash flow = revenue total expenses ta

9、xes + noncash expenses = net income + noncash expenses cf = $0.3 + $0.4 = $0.7 million,19,5 answer,20,6 topic 4,what would be the break-even volume for the pc1000 project if the cost of capital is 25% per year instead of 15% per year,21,6 answer,a particularly interesting question is at what sales v

10、olume the npv of the project would be zero. this is the projects break-even point, which means the point of indifference between accepting and rejecting the project,22,23,6 answer,solve for pmt that makes npv = 0,24,6 answer,25,6 answer,cash flow = net profit + depreciation = (1-t)(p vc)q fc) + d =

11、0.6(5,000-3750)q-3,500,000) + 400,000 = 1,435,757 q = 4,181 units per year,26,7 topic 5,under what circumstances might two 25-cent coins have different values,27,7 answer,one of them might be a rare coin that is especially valuable to collectors. alternatively, one of them might be slightly worn, so

12、 that a soda machine will reject it. to a thirsty person, the nonworn coin is more valuable,28,8 topic 5,suppose that the exchange rate is $0.011 to the yen. how could you make arbitrage profits with your $10,000 if the dollar price of gold is $1,000 per ounce and the yen price is 100,000 per ounce,

13、29,8 answer,law of one price: in a competitive market, if two assets are equivalent, they will tend to have the same price the law of one price is enforced by a process called arbitrage. arbitrage is the purchasing of a set of assets, and immediate sale of another set of assets, in such a way as to

14、earn a sure profit from price differences,30,8 answer,the law of one price also applies to foreign exchange markets. triangular arbitrage if three currencies are freely convertible in competitive markets, then it is enough know any two exchange rates to compute the third exchange rate,31,8 answer,32

15、,8 answer,take $10,000, buy 10 ounces of gold for $1,000 per ounce; sell 10 ounces of gold in japan for 1,000,000 yen (100,000 per ounce); take 1,000,000 yen and exchange it into dollars worth $11,000. congratulations, you have just make an arbitrage profit of $1,000,33,9 topic 5,you observe that th

16、e dollar prices of the peso and the shekel are $0.20 per peso and $0.30 per shekel. what must be the exchange rate between pesos and shekels,34,9 answer,ra/c = ra/b * rb/c ra/b = 1/rb/a this equilibrium relationship must hold (or an arbitrage will immediately reestablish the equilibrium) rp/$ = 1/r$

17、/p = 1/0.2 = 5 rp/s = rp/$ * r$/s = 5 * 0.3 = 1.5,35,10 topic 5,the def corporation announces that over the next few years it will spend several billion dollars on developing a new product. the firms stock price falls dramatically after the announcement. according to the efficient markets hypothesis

18、, what is the reason for the drop in price? if you were the president of def corporation, what conclusions would you draw from the decline in your firms stock price,36,10 answer,the efficient market hypothesis states an assets current price reflects all publicly available information about future ec

19、onomic fundamentals affecting market price 股票的價格能充分反映該資產(chǎn)的所有可獲得的信息，即信息有效，當信息變動時，股票的價格就一定會隨之變動,37,10 answer,according to the emh, the price drop reflects a predominant view in the marketplace that dfc corporations proposed new product is not worth developing. if you were ceo and believed that the mark

20、et analysts had as much information as you did, you might reconsider the desirability of developing the new product,38,10 answer,however, if you had superior information about the new product that the market analysts were not aware of, then you might go ahead with the product development despite mar

21、ket opinion. alternatively, you might make the information you have public in order to gauge the reaction of the market to this new piece of information,39,11 topic 6,what will the 20-year pure discount bonds price be after two years, assuming the yield stays at 6% per year,40,11 answer,大連海事大學交通運輸管理

22、學院 王冰,41,12 topic 6,using the prices for pure discount bonds as in the following table, what would be the price and yield to maturity on a two-year coupon bond with a coupon rate of 4% per year,42,12 answer,there are two alternative procedures that we can use to arrive at a correct value for the sec

23、urity. procedure 1: multiply each of the two promised cash payments by its corresponding perdollar price and then adds them up,43,12 answer,procedure 2: get the same result by discounting each years promised cash payment at the yield corresponding to that maturity,44,13 topic 6,suppose you buy a 30-

24、year pure discount bond with a face value of $1,000 and a yield of 6% per year. a day later market interest rates rise to 7% and so does the yield on your bond. what is the proportional change in the price of your bond,45,13 answer,大連海事大學交通運輸管理學院 王冰,46,13 answer,大連海事大學交通運輸管理學院 王冰,47,13 answer,change

25、 in price = -24.55% %change in interest rates =16.67% the ratio of these percentage changes gives us an elasticity, which measures the sensitivity of the bond price to a change in the yield to maturity,48,14 topic 6,suppose you purchase a treasury bill that matures in three months. the bill is a pur

26、e discount instrument paying its face value of $100,000 at maturity. if the bill is priced to yield 1% over the three months, or an apr of 4% with quarterly compounding, what is its current selling price? convert the bills yield into an effective annual rate,49,14 answer,discounting the face value b

27、y the 1% rate of return we arrive at the selling price of 100,000/(1 + 1%) = 990,09.901 the effective annual rate is,50,15 topic 6,assume a fifty-year zero-coupon bond with $1,000 face value is priced to yield 10%. if the yield were to instantly drop to 5% what would be the new price for the bond? h

28、ow does the change in yield compare relatively to the change in the price,51,15 answer,the bonds price at the 10 and 5 percent yields are,52,15 answer,so a 50 percent drop in the bonds yield produces over a 1,000 percent (factor of 10 times) increase in the price. as you can see very long-term zero-

29、coupon bond prices are very sensitive to changes in yields,53,16 topic 6,what is the current yield on a five-year 5% coupon bond priced to yield 7%? assume annual compounding. face value is $100,54,16 answer,the current yield is the annual coupon divided by the bonds price. first we need to compute

30、the price. at a ytm of 7% the price of the bond, per $100 of face value, is: so the current yield is: 5/91.8 = 5.46,55,17 topic 6,suppose you want to know the price of a 10-year 7% coupon treasury bond that pays interest annually. you have been told that the yield to maturity is 8%. what is the pric

31、e (face value is $100)? what is the price if coupons are paid semiannually, and the yield to maturity is 8% per year? now you have been told that the yield to maturity is 7% per year. what is the price? could you have guessed the answer without calculating it,56,17 answer,the price is: with semiannu

32、al coupons the price is,57,17 answer,bond pricing principle #1: (par bonds) if a bonds price equals its face value, then its yield-to-maturity = current yield = coupon rate. price = 100. when the coupon rate and yield to maturity are the same, the bond sells at par value (i.e. the price equals the f

33、ace value of the bond,58,18 topic 7,the rusty clipper fishing corporation is expected to pay a cash dividend of $5 per share this year. you estimate that the market capitalization rate for this stock should be 10% per year. if its current price is $25 per share, what can you infer about its expected growth rate of dividends,59,18 answer,g =10% - 5/25 = 0.1 the capital gains yield is equal to the dividend growth rate, that is, the stock price is expected to grow at the same rate as dividends. a negative 10% growth rate infers that the stock price must fall at a 10% rate,60,19 top