Homework Help for Finance

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Signed a deal with Under Armour, where UA will pay Curry $4M every year, starting from 1/1/2023, for 5 years. In return, UA expects to make $2M, $5M, $10M, $20M and $30M profit from Curry's brand for the 5 years. Suppose the profits are earned on the first day of each year from 2024 to 2028. The discount rate is 10% per year. What was the NPV of this contract for Stephen Curry at the time of 1/1/2023?

How does the efficient market hypothesis (EMH) impact portfolio management and investment strategy?

Symon's Suppers Co. has announced that it will pay a dividend of $4.15 per share one year from today. Additionally, the company expects to increase its dividend by 4 percent annually. The required return on the company's stock is 10.2 percent. What is the current share price?

You will deposit $2,000 today. It will grow for five years at 12% interest, but compounded semi-annually. You will then withdraw the funds annually over the next four years at the end of each year, with an annual interest rate of 8%.

Your annual withdrawal will be approximately ______.

Roy Bemmer, 54, has lots of concerns about his finances such as "should I chance taking

$5,000 and investing it aggressively?" and "How well am I able to retire at age 60 or 62?" Bemmer is also very concerned about unemployment. His income last year was $83,866, but he expects to earn only $27,000 this year. Earlier this year, he was downsized and

took early retirement in order to keep his medical benefits. He was also laid off previously in the late 1990s. Right now, he is living "paycheck to paycheck."

Bemmer is currently working in a series of temporary jobs with variable hours, so his monthly income is unpredictable. His financial goal for the near term is to save as much as possible for retirement and accumulate liquid assets in case he becomes unemployed again. Within ten years, he wants to purchase a new $25,000 vehicle and take vacations costing $3,000 to $5,000 per year. After that, retirement is on the horizon. Bemmer would like to live off his investments and Social Security.

Fortunately, Bemmer has accumulated significant assets to help achieve his goals. His net worth is $700,200. This includes $406,172 in a former employer's 401(k), $102, 413 in seven different mutual funds, $5,750 in savings and checking accounts, and $25,865 in

14 certificates of deposit. Approximately 90% of Bemmer's portfolio is invested in growth or growth and incomemutual funds, including five different Vanguard funds and five different Fidelity funds. Bemmer's $110,000 house is owned free and clear, along with $30,000 of property and a $20,000 car, and he has no other debts.

Bemmer's monthly expenses were not listed. He did note, however, that he put 15% of his salary, when he was working, into a 401(k). Currently, he invests all surplus funds in two Vanguard index funds. Bemmer's financial data is meticulously kept in a series of computer-generated tables. He is single, lives alone, and has no financial dependents.

As for insurance, Bemmer has $14,000 of life insurance. His former employer pays all but $24 a month toward the cost of major medical health coverage and he has $500,000 of auto and homeowner's liability. He has never had disability coverage and wonders if he should buy a long-term care insurance policy since he will have nobody to care for him when he gets older. Bemmer has a will that was last reviewed in 1994.

Give 5 financial recommendations

Luca Gerber recently became the chief investment officer for the Ludwigs Family Charity, a mid-size private foundation in Switzerland. Prior to assuming this role,
Gerber was a well-known health care industry analyst. The Ludwigs ’ family fortune is primarily the result of entrepreneurship. Gerhard Ludwigs founded ABC Innovations (ABC), a biotech company dedicated to small cell lung cancer research. The foundation’s portfolio is fifteen percent invested in ABC.
Gerber initially feels that fifteen percent investment in ABC is high. However, upon review, he decides it is appropriate based on Ludwigs’ involvement and their past
success with similar ventures. Gerber makes a mental note to himself to closely monitor the investment in ABC because he is not familiar with small-cap startup companies.
The remaining 85 percent of the foundation’s portfolio is invested in equity of high quality large-cap pharmaceutical companies. Gerber deems this allocation appropriate and is excited that he is able to continue to use his superior knowledge of the healthcare industry.

For the past two years, ABC has been dedicated to Project M, an effort directed at developing a drug for the treatment of relapses in small cell lung cancer. Project M has delayed its Phase Two trials twice. Published results from Phase One trials have raised some concerns regarding the drug. In its last two quarterly investors’ conference calls,
ABC’s CEO was very cautious in discussing expectations for Project M. ABC’s stock price decreased by over 20 percent during the past six months. Gerber believes that the research setbacks are temporary because of ABC’s past success with projects. He expects that ABC will begin Phase Two within a year, and also believes that once Project M goes into Phase Two, ABC’s stock price should reach a new 52- week high
of CHF 80.

Soon after deciding to hold the stock, Gerber reads an article by ABC’s chief scientist in which certain scientific results from Project M are detailed. As a conclusion, the
article states: “Although we still have some major obstacles to overcome, the Project M team has seen positive signs that a treatment for small cell lung cancer is achievable. ” While Gerber has difficulty interpreting the scientific results, he feels reassured after reading the concluding statement. Today, ABC announces the news that it will no longer pursue Project M, citing early signs of failure of the project. As a result of the announcement, the stock price drops by 50 percent. Gerber is stunned. He reviews the company’s history and notes that ABC has been up front about its struggles to solve the Project M issues. Gerber now realizes that he has been ignoring all the signs and feels a tremendous regret for not having sold the foundation’s investment in ABC earlier.

1. Discuss how Gerber displayed overconfidence bias and cite one example to support this statement. Distinguish between the availability bias and the over confidence bias. (15 marks)

2. Indicate which bias is illustrated by Gerber’s focus on the achievement of a 52- week high of CHF 80. Discuss how Gerber could have mitigated its impact. (15 marks)

3. Determine whether Gerber displayed confirmation bias when reviewing the chief scientist’s article. Justify your answer with one reason. Answer Question in the template provided below: (15 marks)

Determine whether Gerber displayed confirmation bias when reviewing the chief scientist’s article(circle one)
Justify your answer with one reason
   Agree
   Disagree

Tiffany Jordan is a hedge fund manager with a history of outstanding performance. For the past 10 years, Jordan’s fund has used an equity market neutral strategy (long/ short strategy that strives to eliminate market risk; i.e., beta should be zero) which has proved to be effective as a result of Jordan’s hard work. An equity market neutral strategy normally generates large daily trading volume and shifts in individual security positions. Jordan’s reputation has grown over the years as her fund has consistently beaten its benchmark. Employee turnover on Jordan’s team has been high; she has a tendency to be quick to blame, and rarely gives credit to team members for success. During the past twelve months, her fund has been significantly underperforming against its benchmark.

In March 2023, the management team of Londonderry Air (LA), met to discuss a proposal to purchase five short-haul aircraft at a total cost of $25 million. There was general enthusiasm for the investment, and the new aircraft were expected to generate an annual cash flow of of $4 million for 20 years.

Joe has just retired.  He is 55 years old.  He wants to figure out how much he can withdraw from his account each year starting today and increasing at the rate of inflation, assuming his life expectancy is 85 and that he wishes to leave $120,000 to is favorite charity when he dies.  Assume a nominal rate of return of 8% with inflation of 3.5%.  Joe’s retirement account today is valued at $3.0 million.  Verify with a schedule of annual cash flows – assume all money moves at the beginning of the year.

Run a two-way data table that varies inflation from 2.5-7% (increments of 0.5%) and his nominal rate of return between 4-10% (increments of 0.5%).  Analyze your findings with reference to his initial withdrawal amount.   What is the worse case scenario?  How does the amount he wishes to leave impact the amount he can withdraw – analyze with a one-way data table varying the amount from $70,000 to $150,000 in increments of $10,000.  Examine how his retirement age impacts the amount he can withdraw.  You should use a 1 way data table to examine this

Consider the following information about the various states of economy and the returns of various investment alternatives for each scenario. Answer the questions that follow.
   % Return on T-Bills, Stocks and Market Index
       State of the Economy
Recession Below Average Average Above Average Boom
Probability T- B ills
0.2 7 0.1 7 0.3 7 0.3 7 0.1 7
Phillips
-22 -2
Pay- Rubber- up made
28 10 14.7 -10
Market Inde x
-13 1
                     20 0 7 15 35 -10 45 29 50 -20 30 43
                Mean
                   Standard Deviation
           Coefficient of Variation
      Covariance with MP
                Correlation with Market Index
             Beta
                CAPM Req. Return
          Valuation (Overvalued/Undervalued/Fairly Valued)
       Nature of stock (Aggressive/Defensive)
                Question 1 (18 marks)
Fill the parts in the above table that are shaded in yellow. You will notice that there are nine line items. Each line item is worth 2 marks

Question 2 (8 marks)
Using the data generated in the previous question (Question 1);
RELEASED BY THE CC, MGMT2023, SEMESTER 1, 2022 2

a) Plot the Security Market Line (SML)
b) Superimpose the CAPM’s required return on the SML
c) Indicate which investments will plot on, above and below the SML?
d) If an investment’s expected return (mean return) does not plot on the SML, what does
it show? Identify undervalued/overvalued investments from the graph (2 marks)

Question 3 (4 marks)
From the information generated in the previous two questions;
a) Identify two investment alternatives that can be combined in a portfolio. Assume a 50-
50 investment allocation in each investment alternative
b) Compute the expected return of the portfolio thus formed
c) Compute the portfolio’s beta. Is the portfolio aggressive or defensive?
(1 mark) (1 mark) (2 marks)

Death for (x) is distributed such that the probability that an individual dies in the next 3 months is always the same regardless of their age. The probability that (x) will survive for 5 years is 35.8486%. What is the APV (the EPV) of the payout of a 1.5 year term life insurance policy on (x) if it pays $300,000 at the end of a quarter in which (x) dies? Use an annual interest rate of 8% compounded monthly