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1

Finance

1.A. Use the stocks of Apple, SAP, IBM, Oracle, and Amazon Download the historical data of weekly stock prices and S&P 500 index prices from year 2017-2019 on the website of yahoo finance and save it on an excel file.

B. Use a different sheet to save the market adjusted prices of Apple, SAP, IBM, Oracle, and Amazon t and the index. For each stock, compute the price changes using the current week prices minus the previous week's prices. Create a new column for each stock which takes the value of one if the price changes are positive, zero otherwise.

C. Use another sheet to stack up all info of price changes (1/0), ticker, and industry. This table should include three columns (stock’s ticker, price changes, industry). Create pivot table to get the price change information across stocks and industry.

2.3. At a rate of interest (i) where i>0, a 36-year annuity-immediate with annual payments of $4 has the same present value as an eighteen-year annuity- immediate with annual payments of $5. In how many years does money double at the rate of interest i?

3.What is the cost of equity capital for PCP based on the CAPM (Capital Asset Pricing Model), and the information given here:

Berkshire Hathaway’s cost of equity was 9.2%, which reflected a beta of 0.90, an expected market return of 9.90%, and a risk-free rate of 2.89%. The yield on corporate bonds rated AA was 3.95%—and after a 39% expected marginal tax rate, the cost of debt would be 2.3%. Weights of capital were 16.9% for debt and 83.1% for equity. In contrast, the beta for PCP was 0.38. Analysts expected that PCP’s cash flows would grow indefinitely at about the long-term expected real growth rate of the U.S. economy, 2.5%.

  1. 5.55%
  2. 6.65%
  3. 9.20%
  4. 11.80%

4.Imagine that 50 years ago, your aunt made an investment of $10 into an account that earned 12% each year. What is the effect of compounding? (Round to 2 decimal places, do not include dollar signs in your response.) 

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1.The adjusted price data for the index and Apple,SAP,IBM,Oracle and Amazon was downloaded from the Yahoo Finance site The binary compuation was done using an IF statement

IF(price this week-price prev week>0,1,0)

The PIVOT table is inserted selecting industry as row and stock ticker and price change as columns.

Please use this google drive link to download the answer file.       

https://drive.google.com/file/d/1shfzRokDiAgzw9QmCKLddo2m7bPXgF9f/view?usp=sharing

Note: If you have any trouble in viewing/downloading the answer from the given link, please use this below guide to understand the whole process. 

https://helpinhomework.org/blog/how-to-obtain-answer-through-google-drive-link 

2.Present value of 36 year Annuity immediate of $4 =Present value of 18 year Annuity immediate of $5

So,

4/i*(1-1/(1+i)^36) = 5/i*(1-1/(1+i)^18) (as i is not equal to zero, dividing both sides by i and simplifying)

4-4/(1+i)^36 = 5- 5/(1+i)^18

=> 5*(1+i)^18 - (1+i)^36 - 4 = 0

Taking (1+i)^18 =x

5*x-x^2-4=0

or x^2-5*x+4=0

Solving the qudratic equation x= 1 or x =4

So, either (1+i)^18 = 1 => i=0 which is not possible

or (1+i)^18 = 4

Taking square root of both sides

=> (1+i)^9 = 2 (as i is positive, value of (1+i)^9 cannot be -2)

3.

CAPM = Cost of Equity = risk free rate + beta*Market Risk Premium

= 2.89% + .38*(9.90-2.89)%

=5.55%

4.Compounding of interest means interest is earned not only on principal amount but also on the interest amount earned every year , thus compound interest is interest on interest

Here Amount deposited = $10 , r = rate of interest = 12% , n = no of years = 50

Thus FV = PV(1+r)^n

=10(1+12%)^50

=10(1+0.12)^50

= 10(1.12)^50

= 10 x 289.002

= 2890.02 $

Thus after 50 years amount in account if interest is compounded annually = 2890.02 $

Instead of compound interest if account was earning simple interest than

Interest = 10 $ x 12% x 50

= 60 $

Thus after 50 years amount in account = 10 + 60 = 70$

Thus it can be seen that if interest is compounded , than it will generate huge wealth

Ans: Amount after 50 years = 2890.02

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