Practice Question (2 hours):

Q1. A year ago an investor bought 150 shares of a mutual fund at $6.50 per share. Over the past
year the fund has paid dividend of $0.50 per share and capital gain distribution of $65 per share
Find the investors holding period return if the fund now has a NAV of $8.00 Find the holding
period return assuming the dividends and capital gains distributions are reinvested into additional
shares of the fund at an average price of $7.50 per share

Q2. Consider a put contract on a T-Bond with an exercise price of 120-24. The contract
represents $100,000 of bond and has a premium of $300. The actual T-Bond price is currently
90-12. Can you earn a riskless profit, what is your strategy?

Q3. Calculate the duration of a $1,000, 5% coupon bond with two years to maturity. Assume that
all market interest rates are 6%. Calculate the expected price change if interest rates drop to
5.75% using the duration approximation. Calculate the actual price change using discounted cash
flow.
Q4. Consider a bond with a 6% annual coupon and a face value of $1,000. Complete the following
table: What relationship do you observe between yield to maturity and the current market value
Years to Maturity

Yield to Maturity

Current Price

Q5.If the investment bankers retained $1.10 per share as fees, offer price is $14 and closing price
in the aftermarket is $20. Calculate the underpricing for eBay.

Q6. LC is selling at $15.00 per share. The most recent annual dividend paid was $0.50. Using the
Gordon Growth model, if the market requires a return of 12%, using Gordon dividend growth
model calculate what is the expected dividend growth rate for LC?

Q7. NTC Industries just went public. As a growing firm, it is not expected to pay a dividend for
the first five years. After that, investors expect NTC to pay an annual dividend $2.00 per share,
with no growth. If the required return is 12%, what is the current stock price?

Q8. XXX Ltd expected to experience a 20% growth rate over the next 4 years and pay no
dividend over that time period. Growth will then fall to 5 percent. What is XXX price given the
expected market return is 10%, nominal risk free rate is 4%, if the expected dividend in year 4 is
projected to be RM1.50 per share and XXX beta is 0.3.
Q9. Analysts are projecting that CB Railways will have earnings per share of $3.50. If the
average industry P/E ratio is about 15, what is the current price of CB Railways?
Q10. If expected inflation drops in Europe so that interest rate fall there, predict what will
happen to the exchange rate for the US dollar? Explain.
Q11. The current exchange rate is 0.83 euros per dollar, but you believe the dollar will decline to
0.75 euros per dollar. If a euro-denominated bond is yielding 4%, what return do you expect in
U.S. dollars?
Q12. Short-term rates are 2% in Japan and 4% in the United States. The current exchange rate is
115 yen per dollar. If you can enter into a forward exchange rate of 125 yen per dollar, how can
you arbitrage the situation?

ALL THE BEST!