Description
Question 1
Use Python to answer this question.
(a) Select a stock and obtain the stock prices for a one-year period. Create a histogram of
its daily returns.
(10 marks)
(b) Calculate the daily price volatility of the stock and explain its significance.
(10 marks)
(c) Find the chain of call and put options available on this stock using either Eikon or the
internet. Describe what a call option is and explain the information given for each call
option.
(10 marks)
Question 2
Use Excel in your calculations. May purchases a house for $2.5 million and makes a down
payment of 40% of the purchase price. She borrows the rest from the bank on a 25-year loan,
which charges her 1.2% for the first year and 1-year SIBOR + 0.35% thereafter.
The monthly payment of a variable-rate loan is calculated as if it is a fixed-rate loan on the
outstanding loan balance and time remaining on the loan, whenever
FIN201 Tutor-Marked Assignment
SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 3 of 4
Question 3
Use Excel in your calculations. The yield on 10 year Singapore Treasury bonds is 3% and the
market return is 5%. You are studying UniSUSS stock which has a beta of 1.2. UniSUSS has
just paid a dividend of 1.20 and expects dividends to grow at a rate of 4% per annum for the
next 5 years, and to slow down to 2% growth per annum thereafter.
(a) Calculate the discount rate you should apply to UniSUSS stock.
(5 marks)
(b) What is the intrinsic value of UniSUSS stock?
(10 marks)
(c) If dividends stop growing after the first 5 years, what is the intrinsic value of
UniSUSS stock?
(5 marks)
Question 4
Answer the following questions using Python.
Trunk Company plans to invest in Project A with the following estimated annual cash flows:
Yr 1 $ 20,000
Yr 2 $ 90,000
Yr 3 $ 180,000
Yr 4 $ 220,000
Yr 5 $ 150,000
The project costs $500,000. The required return for this project is 5% compounded quarterly.
Trunk Company looks at another Project B which might potentially be better than Project A.
Project B has the following cash flows:
Yr 1 $ 150,000
Yr 2 $ 220,000
Yr 3 $ 180,000
Yr 4 $ 90,000
Yr 5 $ 20,000
This project also costs $500,000. The required return for this project is 5% compounded
quarterly, same as Project A.
(a) Compute the IRR of Projects A and B, and propose whether to accept or reject each
project, assuming there are unlimited funds. Explain your decision.
(10 marks)
FIN201 Tutor-Marked Assignment
SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 4 of 4
(b) Calculate the NPV of each project. Propose whether to accept or reject each project
based on NPV, and choose one project, assuming the Company has funds only for one
project. Explain your decision.
(10 marks)
(c) Explain why one of the projects is superior although the cash flows are the same
except that they are received in different years. What should the cost of the inferior
project be in order to make you indifferent to either project?
What is the resulting annual discount rate of the inferior project?
(10 marks)
FIN201
Financial Mathematics
Tutor-Marked Assignment/TMA01
January 2018 Presentation
FIN201
Tutor-Marked Assignment
TUTOR-MARKED ASSIGNMENT (TMA)
This assignment is worth 25% of the final mark for FIN201, Financial Mathematics.
The cut-off date for this assignment is 9 April 2018, 2355 hours.
Question 1
Use Python to answer this question.
(a)
Select a stock and obtain the stock prices for a one-year period. Create a histogram of
its daily returns.
(10 marks)
(b)
Calculate the daily price volatility of the stock and explain its significance.
(10 marks)
(c)
Find the chain of call and put options available on this stock using either Eikon or the
internet. Describe what a call option is and explain the information given for each call
option.
(10 marks)
Question 2
Use Excel in your calculations. May purchases a house for $2.5 million and makes a down
payment of 40% of the purchase price. She borrows the rest from the bank on a 25-year loan,
which charges her 1.2% for the first year and 1-year SIBOR + 0.35% thereafter.
The monthly payment of a variable-rate loan is calculated as if it is a fixed-rate loan on the
outstanding loan balance and time remaining on the loan, whenever the variable rate is
changed.
(a)
Compute the monthly payment she has to make in the first year. What is the loan
balance remaining at the end of one year?
(8 marks)
(b)
Calculate the monthly payment she has to make in the second year assuming the 1year SIBOR is 1.7%. What is the loan balance remaining at the end of two years?
How much was the interest and principal repayment made at the end of two years?
(8 marks)
(c)
What is SIBOR? From your understanding of SIBOR, explain if the (mortgage) loan
rate can ever be less than SIBOR?
(4 marks)
SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS)
Page 2 of 4
FIN201
Tutor-Marked Assignment
Question 3
Use Excel in your calculations. The yield on 10 year Singapore Treasury bonds is 3% and the
market return is 5%. You are studying UniSUSS stock which has a beta of 1.2. UniSUSS has
just paid a dividend of 1.20 and expects dividends to grow at a rate of 4% per annum for the
next 5 years, and to slow down to 2% growth per annum thereafter.
(a)
Calculate the discount rate you should apply to UniSUSS stock.
(5 marks)
(b)
What is the intrinsic value of UniSUSS stock?
(10 marks)
(c)
If dividends stop growing after the first 5 years, what is the intrinsic value of
UniSUSS stock?
(5 marks)
Question 4
Answer the following questions using Python.
Trunk Company plans to invest in Project A with the following estimated annual cash flows:
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
$
$
$
$
$
20,000
90,000
180,000
220,000
150,000
The project costs $500,000. The required return for this project is 5% compounded quarterly.
Trunk Company looks at another Project B which might potentially be better than Project A.
Project B has the following cash flows:
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
$
$
$
$
$
150,000
220,000
180,000
90,000
20,000
This project also costs $500,000. The required return for this project is 5% compounded
quarterly, same as Project A.
(a)
Compute the IRR of Projects A and B, and propose whether to accept or reject each
project, assuming there are unlimited funds. Explain your decision.
(10 marks)
SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS)
Page 3 of 4
FIN201
Tutor-Marked Assignment
(b)
Calculate the NPV of each project. Propose whether to accept or reject each project
based on NPV, and choose one project, assuming the Company has funds only for one
project. Explain your decision.
(10 marks)
(c)
Explain why one of the projects is superior although the cash flows are the same
except that they are received in different years. What should the cost of the inferior
project be in order to make you indifferent to either project?
What is the resulting annual discount rate of the inferior project?
(10 marks)
—- END OF ASSIGNMENT —-
SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS)
Page 4 of 4
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