Why isn't my project done yet? I need to submit it by tomorrow.

Problem 1

Pick a stock of your choice ( NETFLIX) which you think is likely to be in a high-growth stage and which has publicly-available financial statements for fiscal year 2017. From financial statements, obtain Total Revenue, EBIT, Capital Expenditures, Net Working Capital, Depreciation, and the Debt-to-Equity ratio (use Long-term debt as a measure of total debt) for fiscal year 2017. Pick a stock of your choice which you think is likely to be in a high-growth stage and which has publicly-available financial statements for fiscal year 2017. From financial statements, obtain Total Revenue, EBIT, Capital Expenditures, Net Working Capital, Depreciation, and the Debt-to-Equity ratio (use Long-term debt as a measure of total debt) for fiscal year 2017. Make sure the company has positive debt and positive EBIT. The income statement numbers should be for the entire year, not just for the fourth quarter. (Note: possible sources for financial statements include the companys website, finance.yahoo.com, or the Securities and Exchange Commission (www.sec.gov).) Assume that the stock will be in a high growth stage over the next 8 years (2018-2025), after which it will reach a stable, lower-growth phase in year 9 (year 2026), which will last into the indefinite future. In addition, assume the following parameters: The tax rate = 34%. T-bill rate = 6.5 percent Market risk premium = 5.5 percent. High-growth phase: Expected growth rate in EBIT, Capital Expenditures, Revenues, NWC, and Depreciation: 7.5%. Equity Beta during the high growth period: 1.34. Cost of debt = 8.75% Debt-to-equity stays constant over the high-growth phase. Stable growth phase: Expected growth rate in FCFF = 4.5% Equity Beta during stable growth phase: 1.12 Cost of debt = 7.5% Debt-to-equity ratio in the stable growth phase will fall to 60% of what it was in the high-growth phase Capital expenditures are offset by depreciation. Use the FCFF approach to calculate the enterprise value of the firm, the equity value of the firm, and the intrinsic share value as of the end of 2017. 2 Problem 2

Let M be the month of your birthday. (The month of my birthday is May)

Define D = M if M > 5; and D = M + 5 if M 5. For Questions A-D below, assume that currently the yield curve for default-free zero coupon bonds is as follows: Maturity (Years) YTM 1 D%

2 D + 1%

3 D + 2%

4 D + 3% A. What are the implied one-year forward rates? B. Assume that the pure expectations hypothesis of the term structure is correct. If market expectations are accurate, what will be the pure yield curve (that is, the yields to maturity on one-, two-, and three-year zero coupon bonds) exactly one year from now? C. If you purchase a two-year zero coupon bond now, what is the expected total rate of return over the next year? What if you purchase a three-year zero coupon bond? Ignore taxes. D. Consider a 7% coupon bond which matures in four years. The bond pays coupons annually. What is the duration of the bond? Problem 3

Choose a stock that you would like to study that currently has an extensive set of liquid put and call options. You can check whether the stock has listed options at https://finance.yahoo.com. Select a single option maturity date between 12/15/2018 and 6/15/2019, and gather data on the ten call options expiring on that date that have strike prices closest to the current stock price. The data items youll want to gather include the following: (1) strike price; (2) last trade price for each of the ten call options; (3) last trade price for the stock; (4) maturity, in years, for the ten contracts; and (5) implied volatility as reported by Yahoo Finance. (Note: if Yahoo Finance reports zero trading volume for an option contract, use the average of the contracts bid and ask prices to measure the last trade price.) A. Write a formula in Excel for the Black-Scholes option value of a call, and then use either Solver or Goal Seek to calculate the implied volatility for each of the ten call options. In your calculations, you can assume the following: Dividend yield is zero Annualized, continuously-compounded risk-free rate is equal to the 1-year Treasury rate (see www.treasury.gov for data). 3 B. Compare the implied volatilities you calculated against the ones reported in Yahoo Finance. Are they the same? If not, what might explain the discrepancy? C. Graph the implied volatilities for the 10 options against the moneyness of the contract (measured as the ratio of stock price to option strike price). Describe the shape of your graph. Based on the results, what can you say about market demand for the different options and about the accuracy of your Black-Scholes