hi..please help..so i took a test and i got all of it wrong and im not sure how to do this problems..this is Investment class..please explain every step because im going to study using this material.thank you

Fall 2010 4. Compare and contrast open end ve closed-end mutual funds will sell as long you want to buy the share, management comparin thom to you, while closed end mutual funds Preferred stocks on any public traced securities such as cquity, bond therand's count or back with vestment preferred stocks; options, eton Part II (15 points each): 5. You invest $10.000 each in two separate funds. The first fund is the which has a front-end load of 6% and a back-end load of 2.5%. The fund ratio is 2%. The second fund is the Performance (PER) Fund which has loads, but the annual expense ratio is 5%. After you liquidate your holding identical amounts coming in from both funds. HL's annual period has been 14%. coming in from both funds HL's annual return over your A) What annual return must have PER generated if you invested for you HL 10,000 10,000 wek-end load of 2 596 The fund's annual expense The first fund is the Heavy Load (HL) Fund und which has no front or back end squidate your holdings, you end up with PER: 10,000 9500 1-0.05) 9500-10000 --5% Ing frut 6% 2.5% 10,000 21 910 ex 84% B) What annual return must have PER generated if you invested for 10 years? 10,000 (1-0.05) 5987.37 5987,3770000 10,000 - -40.13% c) In order to keep up with HL's performance, what needed to happen to the return from PER when investment period increased from 1 to 10 and why? HL=10,000 (1-.06%) (17.14-.02)' (1-0.0150 =7698.6 T PER=10,000 (105) = 7698.22 The Per hooded to savest up to 5 year and loment to keep up with HL's performance Page 2 6. The following stocks are used to construct indexes VINDX, PINDX, and NDX described Current Number of Shares Price Outstanding $10 400 $20 300 $:30 100 VINDX is a value weighted index with a current level of 1,000 Aand 13 increase by 10% and decreases by 20 what would be the new index level er these price changes? A 4400 3000 13,000/1000 = 13 A) 6600 2400 13,400 C 1020.77 13400-13000 13,000 - 3.10% - 1030.77 B) PINDX is a price weighted index with a current level of 250. Stock C undergoes a 3-for-1 split before any price change. Then A and B increase by 10% and decreases by 20%. What will be the new index level? 57-60- A 11 60 -5% B 22 c 24 C) ENDX is an equal weighted index. Why is it difficult to maintain this index? Explain by describing what adjustments the index need when A and B increase by 10% and C decreases by 20%. A 10 11 B 20 22 C 30-24 10+ 0 + (-20) Simplex Comen specte 2019 You are bearish on Rock Bottom (ROBO) stock. It is currently trading at $50 per share. You have $10,000 and want to short as much of the stock as you can. The initial marin requirement for shorting is 40%. The broker does not pay any interest on funds you keep in your account How many shares can you short, if you use all your funds? 10000 - 200 shares MVE MU= 10000 50 shares 1+ 40% MV=7142.86 10,000 x 4006 4000 Within the first week of your investment ROBO stock price comes within 10 cents of generating a margin call. What must be the trading price for ROBO at that point? The maintenance margin requirement on short sales is 25%. MV 3500 - 2.25 14,000 200P 250P= 14,000 250 $56 c) One month after you short ROBO, the share price is down by 20% and the company pays a cash dividend of $2 per share. You close out your position that day. What is your percentage return? 50-20%=440 x 200 8,000 2x 200-400 8400-10000 10,000 .- -16% 8. Simplex Corporation (SC) shares are currently trading at $20. EP in the coming year is expected to be 34. The payout ratio is 40% and the firm's return on equity is 25% per year. ROE A) If the current stock price reflects the intrinsie value as computed using the constant growth dividend discount model (DOM). what rate of return are simplex's investors requiring? 20= 1.6 ragt rofft 20 D = 4 (40%) g= 25% (1-40%) g= 15% 7 223% B) What would happen to the stock price if the payout ratio was increased to 60% and why? D = 46,607 - 24 204 = $18.46 Po=225.10 9-25% (1-60% g= 40% C) What is the present value of growth opportunities for Simplex? PVGO= Po-er 20- = 2.61, Part (20 points each: Complex Corporation stock paid as dividend today. The dividends are expected to increase at a rate of 20for the next 2 years. The risk free rate is expected market retur 13 and the beta for CC is 1.5. The company has an earnings retention ratio What is the value of CC stock if dividends are expected to increase at a rate of after the first 2 years? r=5% +1.5(13%-5%) = 17% R$ 31.2012 4.32(1.05) 4.54 2702 2 . 4.54 3.6(1.05) - .05 Po=? -17-05 = 31,5 B) What is the value of CC stock if dividend growth rate beyond year 2 cannot be predicted at this time but 3 companies that are comparable to what CC is expected to look like in 2 years have an average forward looking P/E ratio of 8.5. (Forward looking P/E ratio is calculated using next year's expected earnings.) PErechio = PO o EPS D 14,32 - 2143 Page 6 Fall 2010 4. Compare and contrast open end ve closed-end mutual funds will sell as long you want to buy the share, management comparin thom to you, while closed end mutual funds Preferred stocks on any public traced securities such as cquity, bond therand's count or back with vestment preferred stocks; options, eton Part II (15 points each): 5. You invest $10.000 each in two separate funds. The first fund is the which has a front-end load of 6% and a back-end load of 2.5%. The fund ratio is 2%. The second fund is the Performance (PER) Fund which has loads, but the annual expense ratio is 5%. After you liquidate your holding identical amounts coming in from both funds. HL's annual period has been 14%. coming in from both funds HL's annual return over your A) What annual return must have PER generated if you invested for you HL 10,000 10,000 wek-end load of 2 596 The fund's annual expense The first fund is the Heavy Load (HL) Fund und which has no front or back end squidate your holdings, you end up with PER: 10,000 9500 1-0.05) 9500-10000 --5% Ing frut 6% 2.5% 10,000 21 910 ex 84% B) What annual return must have PER generated if you invested for 10 years? 10,000 (1-0.05) 5987.37 5987,3770000 10,000 - -40.13% c) In order to keep up with HL's performance, what needed to happen to the return from PER when investment period increased from 1 to 10 and why? HL=10,000 (1-.06%) (17.14-.02)' (1-0.0150 =7698.6 T PER=10,000 (105) = 7698.22 The Per hooded to savest up to 5 year and loment to keep up with HL's performance Page 2 6. The following stocks are used to construct indexes VINDX, PINDX, and NDX described Current Number of Shares Price Outstanding $10 400 $20 300 $:30 100 VINDX is a value weighted index with a current level of 1,000 Aand 13 increase by 10% and decreases by 20 what would be the new index level er these price changes? A 4400 3000 13,000/1000 = 13 A) 6600 2400 13,400 C 1020.77 13400-13000 13,000 - 3.10% - 1030.77 B) PINDX is a price weighted index with a current level of 250. Stock C undergoes a 3-for-1 split before any price change. Then A and B increase by 10% and decreases by 20%. What will be the new index level? 57-60- A 11 60 -5% B 22 c 24 C) ENDX is an equal weighted index. Why is it difficult to maintain this index? Explain by describing what adjustments the index need when A and B increase by 10% and C decreases by 20%. A 10 11 B 20 22 C 30-24 10+ 0 + (-20) Simplex Comen specte 2019 You are bearish on Rock Bottom (ROBO) stock. It is currently trading at $50 per share. You have $10,000 and want to short as much of the stock as you can. The initial marin requirement for shorting is 40%. The broker does not pay any interest on funds you keep in your account How many shares can you short, if you use all your funds? 10000 - 200 shares MVE MU= 10000 50 shares 1+ 40% MV=7142.86 10,000 x 4006 4000 Within the first week of your investment ROBO stock price comes within 10 cents of generating a margin call. What must be the trading price for ROBO at that point? The maintenance margin requirement on short sales is 25%. MV 3500 - 2.25 14,000 200P 250P= 14,000 250 $56 c) One month after you short ROBO, the share price is down by 20% and the company pays a cash dividend of $2 per share. You close out your position that day. What is your percentage return? 50-20%=440 x 200 8,000 2x 200-400 8400-10000 10,000 .- -16% 8. Simplex Corporation (SC) shares are currently trading at $20. EP in the coming year is expected to be 34. The payout ratio is 40% and the firm's return on equity is 25% per year. ROE A) If the current stock price reflects the intrinsie value as computed using the constant growth dividend discount model (DOM). what rate of return are simplex's investors requiring? 20= 1.6 ragt rofft 20 D = 4 (40%) g= 25% (1-40%) g= 15% 7 223% B) What would happen to the stock price if the payout ratio was increased to 60% and why? D = 46,607 - 24 204 = $18.46 Po=225.10 9-25% (1-60% g= 40% C) What is the present value of growth opportunities for Simplex? PVGO= Po-er 20- = 2.61, Part (20 points each: Complex Corporation stock paid as dividend today. The dividends are expected to increase at a rate of 20for the next 2 years. The risk free rate is expected market retur 13 and the beta for CC is 1.5. The company has an earnings retention ratio What is the value of CC stock if dividends are expected to increase at a rate of after the first 2 years? r=5% +1.5(13%-5%) = 17% R$ 31.2012 4.32(1.05) 4.54 2702 2 . 4.54 3.6(1.05) - .05 Po=? -17-05 = 31,5 B) What is the value of CC stock if dividend growth rate beyond year 2 cannot be predicted at this time but 3 companies that are comparable to what CC is expected to look like in 2 years have an average forward looking P/E ratio of 8.5. (Forward looking P/E ratio is calculated using next year's expected earnings.) PErechio = PO o EPS D 14,32 - 2143 Page 6