Corporate Finance Spreadsheet Templates

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Problem 10-7 Problem 10-14 Problem 10-18

Fundamentals of Corporate Finance by Brealey, Myers, and Marcus -- Fourth Edition Copyright 2004 Irwin/McGraw-Hill and KMT Software, Inc. (www.kmt.com)

File: 62567428.xls

Copyright 1999 Irwin/McGraw-Hill

Printed: 07/09/2011

Fundamentals of Corporate Finance

Brealey, Myers, and Marcus 4th Edition
Problem 10-7 Objective Construct market indexes Student Name: Course Name: Student ID: Course Number: The accompanying table shows the complete history of stock prices on the Polish stock exchange for 9 weeks in 1991. At that time only 5 stocks were traded. Construct two market indexes, one using weights as calculated in the Dow Jones Industrial Average, the other using weights as calculated in the Standard and Poor's Composite Index. Prices (in zlotys) for the first 9 weeks' trading on the Warsaw Stock Exchange beginning in April 1991. There was one trading session per week. Only five stocks were listed in the first 9 weeks. Stock Krosno Exbud Kable (Glass) (Construction) (Electronics) 2200 1000 1000 59.5 149 80 53.5 164 80 49 180 80 47 198 79.5 51.5 217 80 56.5 196 80 62 177 80 60 160 80.5 54 160 72.5

Week 1 2 3 4 5 6 7 8 9

Tonsil (Electronics) 1500 85 76.5 69 62.5 56.5 56 61.5 67.5 61

Prochnik (Garments) 1500 56 51 46 41.5 38 41.5 45.5 50 45.5

Solution
Problem 10-7 Instructions Use the MS Excel AVERAGE function to calculate the average price of stocks for the DJIA method and use the MS Excel SUMPRODUCT function to calculate the total market value for the S&P 500 method. Dow Jones Method Average price of stocks in market % change in average stock price Index (using DJIA method)

Week

1 FORMULA 2 FORMULA 3 FORMULA 4 FORMULA 5 FORMULA 6 FORMULA 7 FORMULA 8 FORMULA 9 FORMULA S&P 500 Method

#VALUE! FORMULA #VALUE! FORMULA #VALUE! FORMULA #VALUE! FORMULA #VALUE! FORMULA #VALUE! FORMULA #VALUE! FORMULA #VALUE! FORMULA

Week 1 2 3 4 5 6 7 8 9

Total Market Value of Stocks FORMULA FORMULA FORMULA FORMULA FORMULA FORMULA FORMULA FORMULA FORMULA

% change in total market value

Index using S&P Method

#VALUE! FORMULA #VALUE! FORMULA #VALUE! FORMULA #VALUE! FORMULA #VALUE! FORMULA #VALUE! FORMULA #VALUE! FORMULA #VALUE! FORMULA

File: 62567428.xls

Copyright 2004 Irwin/McGraw-Hill

Printed: 07/09/2011

Fundamentals of Corporate Finance

Brealey, Myers, and Marcus 4th Edition
Problem 10-14 Objective Calculate expected rate of return and standard deviation of a stock Student Name: Course Name: Student ID: Course Number: The common stock of Leaning Tower of Pita, Inc., a restaurant chain will generate the following payoffs to investors next year: Dividend $5.00 $2.00 $0.00 Stock Price $195 $100 $0

Boom Normal economy Recession

The company goes out of business if a recession hits. Calculate the expected rate of return and standard deviation to Leaning Tower of Pita shareholders. Assume for simplicity that the three possible states of the economy are equally likely. The stock is selling today for $80.

Solution
Problem 10-14 Instructions Enter formulas to calculate the expected rate of return on the stock. Use the MS Excel STDEVP function to calculate the standard deviation. Stock price today $90.00 Expected return each scenario FORMULA FORMULA FORMULA FORMULA FORMULA

Boom Normal economy Recession Expected rate of return Standard Deviation

File: 62567428.xls

Copyright 2004 Irwin/McGraw-Hill

Printed: 07/09/2011

Fundamentals of Corporate Finance

Brealey, Myers, and Marcus 4th Edition
Problem 10-18 Objective Analyze the risk of a portfolio Student Name: Course Name: Student ID: Course Number: Use the data below and consider portfolio weights of .60 in stocks and .40 in bonds. Rate of Return Scenario Recession Normal Boom Probability 0.2 0.6 0.2 Stocks -5% 15% 25% Bonds 14% 8% 4%

a. What is the rate of return on the portfolio in each scenario? b. What is the expected return and standard deviation of the portfolio? c. Would you prefer to invest in the portfolio of stocks only or in bonds only?

Solution
Problem 10-18 Instructions Enter formulas to calculate the rates of return for each scenario and the expected return on the portfolio. Stocks Bonds Weights 0.6 0.4

a. What is the rate of return on the portfolio in each scenario? Recession Normal Boom FORMULA FORMULA FORMULA

b. What is the expected return and standard deviation of the portfolio? Expected return FORMULA Variance #VALUE! Standard Deviation #VALUE! c. Would you prefer to invest in the portfolio of stocks only or in bonds only? (These numbers are from problem 17) Expected Return 13.00% 8.40% 10.24% Standard Deviation 9.8 3.2 4.6

Stocks Bonds Portfolio

File: 62567428.xls

Copyright 2004 Irwin/McGraw-Hill

Printed: 07/09/2011