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updated 6.8.2000:
(Higgins)
1. Explain
a) convenant
b) junk bond
c) eurodollar
d) preferred stock
e) tax shields
2. Explain parameters of an option.
How/why does volatility of hedged
currency or asset effects on the
option?
3. A loan 100 mio usd will paid by a
bond. How many bonds should you
sell if the interest is 7%, maturity 5
yrs and price 1000 usd. If the
investors wants 9% intrest, how many
bonds? Explain call provision?
4. Pricing of Enso stock. If market
capitalization is 15 %, dividend 3 FIM
and growth of dividend 9 %. Whats
correct price? Whats the effect of
Enso paying loans or borrowing on
a) firm value
b) debt value
c) equity value
updated 22.5.2000:
1. Explain parameter defining an option. How and why the velocity of the currency or asset influences the value of the option ?
2. Your bought a yen-denominated bond at the beginning of the year for 100 000 yen. The bond paid 3% annual interest and was trading for yen at year end. The exchange rate was 1$ yen at year end.
a. what holding period return, measured in yen, did you earn at the bond ?
b. what partion of the dollar return was due to the yen return as oppesed to change in currency values ?
3. You forecast the ENSO will pay dividences of FIM 3 a share next year and that dividends will grow at the rate of 9% a year.
a. what price yu would expect to see for ENSO stock if the market capitalization rate is 15% ?
b. What qualitative factors may affect the valuation ?
4, What market signaling tells: if equity issue / in case debt issue ?
Explain firm valuation. What is liquidation and going concern values ? Which other parameters are needed in acquivisitions ?
Face value $ X, common rate X%, maturity X years. Company takes $X loan. How many shares need to be issued to cover the loan ?
Value the company XYZ as December 31, 1997 compared to compares A, B, C, D. (Different ratios given for each company)
Return on Equity 16.1 29.1 27.0 20.5 1.1
Liabilities to total equity 44.2 20.9 27.9 56.6 60.4
5 years growth 18.3 23.9 31.5 7.1 -16.0
Price/ Earnings 15.4 12.8 11.7 22.2
MV/EBIT(1-tax) 15.5 14.2 14.3 26.5
MVequity/ BVequity 4.5 3.5 2.3 1.1
MV/firm/ BV firm 3.8 2.8 1.6 1.0
MV=Market value BV=Book value
1) explain the following terms:
- Covenants
-Junk bond
- Eurodollar
- Preferred stock
- Tax shield
2) Explain the rationale of the following symbol( Beta J ) that is, discuss
where it comes from and how it is used.
3) Assume that you value a company on a free cash flow basis. Define the free
cash flow that you have to calculate and also the cost of capital that you use
for discounting.
4) You forcast that Enso pays a dividend of Fim 3 a share next year and that the
dividends will grow with a tate of 9% a year.
a) What price would you expect to see Enso:s share sell at if the market
capitalisation rate is 15%
b) What qualitative factors may affect the valuation.
1) You buy a bond for 100 000 Yen. The interest rate is 3% ,maturity 1 year and
par value 110 000 Yen.
a) what is your return rate in Yen
b) what is your return rate in $ if the rate in the beginning is 1$=100 Y
and in the end 1$=100Y
c) how big part of the profit comes from the change in exchangerate
2) Value the following company compared to its competitors
3) How does the volatility of an asset or an currency influence the value of
hedging an option
4) unohtunut