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FR1101 Week9 Tutorial

The document contains problem sets related to finance and investment, focusing on valuation by comparables, the dividend discount model, growth opportunities, and the Capital Asset Pricing Model (CAPM). It includes tasks such as calculating P/E and P/B ratios for Entergy and comparables, evaluating statements about stock pricing, and analyzing expected returns based on market conditions. The exercises aim to deepen understanding of financial concepts and their practical applications.

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Ahmed Mousa
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3 views9 pages

FR1101 Week9 Tutorial

The document contains problem sets related to finance and investment, focusing on valuation by comparables, the dividend discount model, growth opportunities, and the Capital Asset Pricing Model (CAPM). It includes tasks such as calculating P/E and P/B ratios for Entergy and comparables, evaluating statements about stock pricing, and analyzing expected returns based on market conditions. The exercises aim to deepen understanding of financial concepts and their practical applications.

Uploaded by

Ahmed Mousa
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

S4Q3 S4Q4 S4Q5 S4Q19 S8Q9

FR1101: Finance and Investment


Week 9 - Tutorial
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Section 4 Problem Set Q3

Valuation by comparables (S4.2) Look up P/E and P/B ratios


for Entergy (ticker symbol ETR), using Yahoo! Finance or another
Internet source. Calculate the same ratios for the following
potential comparables: American Electric Power (AEP),
Eversource Energy (ES), and Southern Company (SO). Set out the
ratios in the same format as Table 4.2. Are the ratios for these
electric companies tightly grouped or scattered? If you didn’t know
Entergy’s stock price, would the comparables give a good estimate?
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Section 4 Problem Set Q3 (Cont’d)


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Section 4 Problem Set Q4

Dividend discount model (S4.3) True or false?


a. All stocks in an equivalent-risk class are priced to offer the
same expected rate of return.
b. The value of a share equals the PV of future dividends per
share.
c. The value of a share equals the PV of earnings per share
assuming the firm does not grow, plus the NPV of future
growth opportunities.
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Section 4 Problem Set Q5

Dividend discount model (S4.3) Respond briefly to the following


statement: “You say stock price equals the present value of future
dividends? That’s crazy! All the investors I know are looking for
capital gains.”
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Section 4 Problem Set Q19

Growth opportunities (S4.5) If company Z (see Problem 8) were


to distribute all its earnings, it could maintain a level dividend
stream of $15 a share. How much is the market actually paying
per share for growth opportunities?
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Section 8 Problem Set Q9

CAPM (S8.2) The Treasury bill rate is 4%, and the expected
return on the market portfolio is 12%. Using the CAPM:
a. Draw a graph similar to Figure 8.3 showing how the expected
return varies with beta.
b. What is the risk premium on the market?
c. What is the required return on an investment with a beta of
1.5?
d. If an investment with a beta of 0.8 offers an expected return
of 9.8%, does it have a positive NPV?
e. If the market expects a return of 11.2% from stock X, what is
its beta?
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Section 8 Problem Set Q9 (Cont’d)


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The End

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