Using only these formulas and your knowledge of finance:

(1) FV_n = PV₀(1 + r)ⁿ

(2) PV₀ = FV_n / (1 + r)ⁿ

(3) n = ln (FV/PV) / ln (1 + r)

(4) r = (FV_n/PV₀)^(1/n) - 1

(5) FV_n = PMT [((1 + r)ⁿ - 1) / r]

(6) PV_t = PMT_(t+1) [(1 - 1/(1 + r)ⁿ) / r]

(7) PV_t = PMT_(t+1) / r

(8) Bond Price (P_B) = Coupon PMT [(1 - 1/(1 + r)ⁿ) / r] + Par / (1 + r)ⁿ(See #s 6 and 2 above)

(9) Current Yield = Annual Coupon PMT / P_B

(10) YTM = (Par/P_B)^(1/n) 1 (See #4 above)

(11) YTM (Coupon + (Par P_B)/n) / [.4 Par + .6 P_B] (Approximation Formula)

(12) Div_(t+1) = Div_t(1 + x) where x may or may not be equal to g

(13) P_t =Div_(t+1) / (r g) (Growing Perpetuity) (14) P₀ =Div₁/(1+r)¹+ + (Div_t + P_t)/(1+r)^t

(15) P_t =Div_(t+1) / r (See #7 above) (16) r = (Div₁/P₀) + g

(17) profit = ending value + distributions-original cost (18) HPR = (profit or loss)/ original cost

(19) simple annual return = HPR/n (20) EAR = (1 + HPR)^(1/n) - 1

(21) Portfolio: p = W₁₁ ++ W_nn For two-asset portfolio: p = W₁₁ + (1 W₁)₂

(22) E(r_p) = W₁E(r₁) ++ W_nE(r_n) For two-asset portfolio: E(r_p) = W₁E(r₁) + (1 W₁)E(r₂)

(22) (R_e) = E(r_i) = r_f + _i [E(r_m) - r_f]

(23) current ratio = current assets / current liabilities

(24) cash coverage ratio = (EBIT + depreciation) / interest expense

(25) total asset turnover = sales / total assets

(26) (net) profit margin = net income / sales

(27) return on assets = net income / total assets

(28) return on equity = net income / total owners equity

(29) earnings per share (EPS) = net income / number of outstanding shares

(30) price earnings ratio = price per share / earnings per share

(31) market to book ratio = market value per share / book value per share

(32) return on equity = (net income / sales ) * (sales / total assets) * (total assets / total equity)

Answer these questions:

1. The total return on any investment has two possible components. They are the ____________ part and the _________ part. For stocks the ___________ part is represented by the ______________ and the ___________ part represents the __________________.

2. Which of the following does not belong? (a) residual claim (b) first in line (c) stocks (d) equities

3. Identify on the income statement where the claim of shareholders falls. What does this tell you about owning stocks?

4. Make up an example with a total return, the current PPS and next years expected PPS and DPS to illustrate that r = (D₁/P₀) + g.

5. If the total return on a share of stock is 8%, next years expected dividend is $2.50 and the current stock price is $50.00, what is the expected capital gain yield on this stock?

6. A stock just paid a dividend of $2.00 per share. Dividends are expected to grow by $0.50 per share for each of the next 5 years at which time you expect to be able to sell the stock for $45.40. Draw the time line for the cash flows just described. If you want to earn a minimum of 10% on this stock, what is the most that you would be willing to pay for a share today?

7. XYZ Corporations most recent dividend was $1.50 with dividends expected to grow by 5% per year hereafter. If your minimum required rate of return is 7%, what is the most that you would be willing to pay for a share today?

8. Owl Industries most recent dividend was $2.00 per share. Dividends are expected to grow at an annual rate of 12% for the next 3 years and then at 4% thereafter. Draw the time line for the CFs just described. If you want to earn a minimum rate of return of 12% on this stock, what is the most that you would be willing to pay for a share today?