Finance 18

Question Description

Question 1Use Python to answer this question.(a) Select a stock and obtain the stock prices for a one-year period. Create a histogram ofits daily returns.(10 marks)(b) Calculate the daily price volatility of the stock and explain its significance.(10 marks)(c) Find the chain of call and put options available on this stock using either Eikon or theinternet. Describe what a call option is and explain the information given for each calloption.(10 marks)Question 2Use Excel in your calculations. May purchases a house for $2.5 million and makes a downpayment of 40% of the purchase price. She borrows the rest from the bank on a 25-year loan,which charges her 1.2% for the first year and 1-year SIBOR + 0.35% thereafter.The monthly payment of a variable-rate loan is calculated as if it is a fixed-rate loan on theoutstanding loan balance and time remaining on the loan, wheneverFIN201 Tutor-Marked AssignmentSINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 3 of 4Question 3Use Excel in your calculations. The yield on 10 year Singapore Treasury bonds is 3% and themarket return is 5%. You are studying UniSUSS stock which has a beta of 1.2. UniSUSS hasjust paid a dividend of 1.20 and expects dividends to grow at a rate of 4% per annum for thenext 5 years, and to slow down to 2% growth per annum thereafter.(a) Calculate the discount rate you should apply to UniSUSS stock.(5 marks)(b) What is the intrinsic value of UniSUSS stock?(10 marks)(c) If dividends stop growing after the first 5 years, what is the intrinsic value ofUniSUSS stock?(5 marks)Question 4Answer the following questions using Python.Trunk Company plans to invest in Project A with the following estimated annual cash flows:Yr 1 $ 20,000Yr 2 $ 90,000Yr 3 $ 180,000Yr 4 $ 220,000Yr 5 $ 150,000The project costs $500,000. The required return for this project is 5% compounded quarterly.Trunk Company looks at another Project B which might potentially be better than Project A.Project B has the following cash flows:Yr 1 $ 150,000Yr 2 $ 220,000Yr 3 $ 180,000Yr 4 $ 90,000Yr 5 $ 20,000This project also costs $500,000. The required return for this project is 5% compoundedquarterly, same as Project A.(a) Compute the IRR of Projects A and B, and propose whether to accept or reject eachproject, assuming there are unlimited funds. Explain your decision.(10 marks)FIN201 Tutor-Marked AssignmentSINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 4 of 4(b) Calculate the NPV of each project. Propose whether to accept or reject each projectbased on NPV, and choose one project, assuming the Company has funds only for oneproject. Explain your decision.(10 marks)(c) Explain why one of the projects is superior although the cash flows are the sameexcept that they are received in different years. What should the cost of the inferiorproject be in order to make you indifferent to either project?What is the resulting annual discount rate of the inferior project?(10 marks)

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