5 Past Exams

UNIVERSITY OF SOUTHERN DENMARK
FACULTY OF SOCIAL SCIENCES
Financing 10 ECTS
Campus Odense and Slagelse
January 6, 2017
1. Task maker: Kenneth Schultz

2. Handed out: Physical in the exam room.
3. Delivered: Only digital delivery can be made. The answer is delivered through
SDUassignment on Blackboard. The gift must be delivered in PDF format.
4. All pages incl. the front page must be affixed to Exam No.
5. All pages must be numbered.
Duration: 5 hours.
Location: SDU. The test will be conducted using its own PC, which must be able
to access the university's wireless network. Internet access: Internet may only be
used to access SDU Assignment upon delivery. In addition, the Internet may not
be used during the test.
Delivery of assignment: Physical in the exam room.
Submission of an answer: Only digital delivery can be made. The answer is
delivered through SDUassignment on Blackboard. The task must be delivered in
PDF format.
Aids: All aids are allowed. Internet use is not allowed. It is not allowed to
communicate with others.
The exam tests the achievement of the measurements for all the points listed
(according to the target description) by random checks.
Page 1
General information:
The task set contains 4 tasks and associated subtasks.

The tasks can be solved independently. The weight indicated for each task is only assigned to
help the student's time for the answer. The weighting is not binding on censorship, as the
grade will be determined onthe subject by achievement of the targetaccording to the
course description. Note in particular the following excerpts from the goal description of
the subject description:
"The answer must contain the necessary explanatory and detailed text and, moreover, be clear and
clear. Assumptions, formulae and justifications must also be clearly stated in the reply. This means that
even if the standard functions in Excel or in other calculators are used, theoretical pre-meal must be
indicated. This also means that the student must specify the variables included in the answer and be
inserted into the formulas used."
When theoretical formula is entered, at least specimust be given formula number from
syllabus literature and formula collection. If appropriate, the formula itself can also be
copied into the answer session. Formulas from sources outside of syllabus literature may not
be used unless the formula uses notation, dis consistent with formulacollection, syllabus
literature, and tasks.
The notation used in the reply shall also be indicated, as well as a note on the two main types
of notation. The selected notation must be consistent throughout the task. In addition to
this,the answer clearly distinguishes between inputs (e.g. information from task text),
intercompany bills and façade.
All closings that are numerically greater than 1 must be given with a minimum of 4 decimal
places, with less than dollars and pennies, where the facit must be given to two decimal
places. All endfacite numerically less than 1 must be indicated by a minimum of 4 significant
digits. Remember that interim bills must not be rounded, as this will make the final façade
inaccurate.
Page 2
Exercise 1 (30%)
Suppose you are on the capital market in KroneLand by time t=0. In KroneLand, only
3 risky assets are held, which are shares K, L and M. In the capital market,
shortsales arepossible.
The expected return on the three shares in the next period (from t = 0 to t =1) is
as indicated in table 1.1 below:
Table 1.1: Expected Next Period Return

K 0,1700
L 0,1400
M 0,2100
It can also be stated that the correlation between the returns on the three shares in
the next period is as shown in table 1.2 below:
Table 1.2: Correlation between return on shares

K L M
K 1,0000 0,1100 0,5900
L 0,1100 1,0000 0,0950
M 0,5900 0,0950 1,0000
Furthermore, it is stated that the standard deviation of the return on the shares in
the next period is as shown below in Table 1.3:
Table 1.3: Standard deviation of returns

K 0,1350
L 0,3100
M 0,1900
Exercise 1.1
Determine the tangent portfolio1 of the three risky shares and the expected return
on the tangent portfolio in the next period. Also determine the standard deviation
of this return.
Exercise 1.2
Determine the minimum variance portfolio2 of the three shares and the expected
return on this portfolio in the next period. Also determine the standard deviation of
the return on the minimum variance portfolio.
Exercise 1.3
In a chart, draw a graph that shows the rand portfolios.
1
I.e. the weight of each of the three shares in the tangent portfolio.
2
I.e. the weight of each of the three shares in the minimum variance portfolio.
Page 3
Exercise 1.4
In the chart where the graph on the number of work areas is displayed, the graph is
displayed in the field. task 1.3 is shown, the scope showing the
all the possible portfolios that can be formed from the three shares are clearly
shaded.
Exercise 1.5
On the graph of the rand portfolios, according to exercise 1.3, the effective rand of
the three risky shares should be marked.
Exercise 1.6
Draw in the same chart as the graph under exercise 1.3, the efficient rand of the
three risky stocks and the risk-free asset.
Exercise 1.7
Determine the equation for the efficient rim, see exercise 1.6.
It is now stated that the total market value of the three shares at time t = 0
is as indicated in table 1.4 below:
Table 1.4: Total Market Value of Shares

Market value (mio.kr)
K 6.247,82
L 887,54
M 2.864,64
Exercise 1.8
Explain whether the CAPM model applies in the current capital market.
Exercise 1.9
Assuming that CAPM is met in the current capital market, please note the
equation for OVR in the current capital market
Exercise 1.10
Calculate the beta value for stock K and briefly and accurately explain what
the beta value measures.
Exercise 2 (30%)
The task must disregard tax and VAT. All budgetary information is in constant terms
in the expected price level per 100 000 units. January 1, 2017.
Bente Kahvi has worked for many years as a manager at a well-known Copenhagen
café. Bente Kahvi, however, is unhappy with thecafé's new owner and is therefore
considering quitting her job and buying her own café. At a Copenhagen real estate
agency, a café in Gothers street of 95 m2 has just been put up for sale. The café
property costs DKK 4.2 million. Interior and conversion will also amount to DKK
600,000. The total annual property costs (water, heat, electricity, etc.) amount
to DKK 235,000.
Page 4
If Bente Kahvi does not set up her own café, Bente Kahvi expects to be able to stay
in his current position indefinitely. Bente Kahvi currently has an annual salary
of DKK 348,000. To help him in the café, Bente Kahvi will hire 3 café assistants for
an annual salary of DKK 252,000 per person, as well as two kitchen assistants for an
annual salary of DKK 240,000 per person. person. A chef must also be hired for an
annual salary of DKK 336,000. The annual temp costs are expected to be DKK
75,000.
Inflation is expected to remain constant at 1.75% per an a year
between 2017 and 2026. In the café there will be two turnover
groups: Café and Restaurant.
Bente Kahvi has established the following revenue budget for these two turnover
groups for the next 10 years:
Table 2.1: Revenue (DKK 1,000)

2017 2018 2019 2020 2021
Café
875 1.125 1.750 1.875 2.000
Restaurant 1.125 1.500 2.250 2.500 3.000
2022 2023 2024 2025 2026
Café
2.250 2.500 3.000 3.000 3.000
Restaurant 3.750 4.250 4.500 4.500 4.500
The gross margin within the café group is expected to be 80%. In the restaurant,
the gross margin is estimated to be 65%.
It is expected that the closing of the warehouse within the café group in each period
is equal to 15% of the consumption of goods in the next period. It is expected
thattheultimate warehouse within the restaurant group in each period will be
equal to 10% of the consumption of goods in the next period.
Primo lager 1. January 2017 regarding the café group equals 15% of the product
use in 2017. The opening of the warehouse on 1 January 2017 regarding the
restaurant group is equal to 10% of the product use in 2017. In the last period, the
inventory for both sales groups is expected to remain unchanged in relation to the
sales tax. the period before.
Stocks are expected to be realized at the end of the budget period.
Page 5
All sales and purchases are assumed to be made in cash and it can be assumed that
all payments are made at the end of the budget period (end of each year). Capital
expenditure for t=0 will be paid at the beginning of 2017.
Page 6
To co-finance theinvestment, Bente Kahvi takes out a 10-year fixed-rate series
(mortgage) with a principal of DKK 3.80 million. The coupon rate on the loan is
2.0%
p.a. and the exchange rate is DKK 96.30 per DKK 100 principal. The loan has full-
yearly postpaid terms and it is assumed that there are no fees and the like when
borrowing the loan. The remaining capital requirement finances Bente Kahvi from
its own resources, i.e. from 1992 to 1999. equity.
Bente Kahvi has assessed that the market risk of the investment is such that the
nominal discount rate should be set at 17% measured year-round.
Bente Kahvi will only complete the investment, i.e. establish and run her own café,
if it is economically advantageous over a time horizon of 10 years from
2017 - 2026.
Bente Kahvi expects the café property to have a market value of DKK 5.8 million for
2026.
Exercise 2.1
Set up the performance row3 for the described mortgage.
Exercise 2.2
Calculate the real-terms earnings contribution of the proposed investment for
each of the 10 years for the period 2017-2026 with the price level of January 1,
2017-2016. January 2017 as a basis.
Exercise 2.3
Calculate the change in working capital (NWC) in real terms for each of the 10 years
in the period 2017-2026 with the price level 1. January 2017 as a basis.
Exercise 2.4
Calculate the free cash flow (FCF) of the real investment for each of the 10
years from 2017 to2026 with the price level 1. January 2017 as a basis.
Exercise 2.5
Calculate the free cash flow (FCF) for the investment at current prices for
each of the 10 years in the period 2017-2026.
Exercise 2.6
Determine the cash flow to the debtholders at current prices for the investment
for each of the 10 years in the period 2017-2026.
Exercise 2.7
Calculate the cash flow to the owners (i.e. the cash flow to Bente Kahvi) at current
prices for the investment for each of the 10 years in the period 2017-2026.
Exercise 2.8
Calculate the proportion of investment costs financed by debt.
Page 7
3
I.e. for each term, repayments, interest payments, payments and outstanding debts must
be calculated at the beginning.
Page 8
Exercise 2.9
Calculate the value of the café4 to t=0 provided that bente kahvi is the owner and
inve-large.
Exercise 2.10
Calculate the present value of the investment (NPV), provided that Bente Kahvi
is the owner and investor.
Task 2.11
Explain whether Bente Kahvi should carry out the proposed investment. The
statement shall include relevant and key sensitivity calculations.
Exercise 2.12
Explain whether your result in tasks 2.9 and 2.10 could change if the owner and
owner were different from Bente Kahvi.
Task 2.13
Calculate the effective interest rate on the described series loan measured year-
round.
Exercise 2.14
Explain whether the number of benefits you set out in task 2.1 is calculated
in real or current prices.
Bem: No calculations are required.
Exercise 3 (25%)
Below is some data on Stock X, which is a share that does not pay out out-of-
exchange. The price today (t = 0) of the stock is S 0 = DKK 20. In parentheses, the
names of the nodes are specified.
28.8
(UU)
24
(U )
20 19.2
(OUT)
16
(D)
12.8
(DD)
t=0 t=1 t=2
Figure 3.1. Development in share price (DKK) over the next two years.
4VL,
i.e. 4 VL . the value of the leveraged business;
Page 9
The annual risk-free interest rate is 2% calculated annually.
Exercise 3.1
Determine the risk-neutral probability of t = 0 and in both nodes to t = 1.
Exercise 3.2
Determine the value in each node to t=2 of a two-year European put option
written on the stock and with an exercise price of DKK 19.
Exercise 3.3
Determine the price today of a two-year European put option written on the
stock and with a exercise price of DKK 19.
Exercise 3.4
Determine the replicating portfolio on time t = 0 for the described two-year
European
option and determine the price (t=0) of the replicating portfolio.
Exercise 3.5
Comment on your score in task 3.4 by comparing with your answer in task 3.3.
Exercise 3.6
Determine the price today of a 2-year European call option written on the stock
with a exercise price of DKK 19.
Exercise 3.7
Determine the price today of a two-year U.S. put option written on the stock
with a price of $1.99. Comment on your result.
Exercise 3.8
Determine the price today of a two-year U.S. call option written on the stock
with a price of $1.99. Comment on your result.
Exercise 3.9
Explain whether your answer in exercise 3.8 depends on whether the stock pays
dividends.
Exercise 4 (15%)
The assets of the company Sanering A/S consist solely of an old port area in a Danish
coastal town. The company is considering launching a project involving the
construction of condominiums with sea views. If the port area (site) is sold in a year
(t=1), it will certainly have a market value of DKK 22 million. The risk-free interest
rate for the next year is 1.5%.
The company is leveraged and has a debt of EUR 32 million due at t=1. Kr.
Taxes are ignored.
If Sanering A/S carries out the project and builds condominiums, it will expect the
value of the port area (land and condominiums) to t=1 be 72 million. Kr.
Though
Page 10
the investment is made, the land will still certainly be worth DKK 22 million to t=1.
That is, if the investment is made, the company will have two independent assets,
partly the land with a secure value of DKK 22 million to t=1, and partly the owner-
occupy with an expected value of DKK 50 million to t=1. The investment cost of the
project is EUR 42 million. dkk to be paid to t=0.
It is assumed that the discount rate (pretax-WACC) for the newproject (owner-
occupies) is 9% calculated year-round.
Exercise 4.1
What is the value of the assets, equity and debt today (t=0) if the company chooses
not to invest in the project?
Exercise 4.2
Determine the company's debt share today (t=0) if the company does not choose to
inject into the project.
Now suppose that the owners complete the described investment.
Exercise 4.3
Calculate the present value (NPV) of the investment.
Exercise 4.4
Calculate the value of the leveraged company on time t=0.
Hint: Remember that the company has two main types of assets.
Exercise 4.5
Determine the expected return (pretax-WACC) on the leveraged
assets. Now assume that the expected return on debt next year
is 5.26%.
Exercise 4.6
Determine the equity and debt ratio in the company on time t=0.
Hint: First determine the value of the debt to t=0.
Exercise 4.7
Determine the expected return on equity next year.
Now suppose that the owners finance the investment solely with equity.
Exercise 4.8
Explain whether the owners of Reering A/S will carry out the given investment.
Hint: Calculations also need to be made.
Page 11
Financing 10 ECTS
RE-examination
February 19, 2018
Information:
2. Dispensing: Physical in the exam room.
3. Delivery: Only digital delivery can be made. The answer is delivered through SDU
Assign- ment on Blackboard. The task must be delivered in PDF format.
4. All pages incl. the front page must be affixed to the exam number.
5. All pages of the answer session must be numbered.
6. Duration of test: 5 hours.
7. Location: SDU. The test will be conducted using its own PC, which must be able to access
the university's wireless network.
8. Internet access: Internet may only be used to access SDU Assignment when
living on Blackboard. In addition, the Internet may not be used during the test.
9. Aids: All aids are allowed. Internet use is not allowed. It's not to be communicated
with anyone else.
The exam tests the achievement of the measurements for all the points listed in the target
description at the sample control.
Page 1
Additional information and requirements for the answer:
The tasks can be solved independently. The weight indicated for each assignment is
given solely for the purpose of assisting in the availability of the student's time for
the answer. The weighting is not binding on censorship, as the grade will be
determined on the subjectby achievement of the target according to the course
description.
Note in particular the following key excerpts from the goal description of the subject
description:
The answer must contain the necessary explanatory and detailed text and,
moreover, be clear and clear. Assumptions, formulae and justifications must also be
clearly stated in the reply. This means that even if the default functions in Excel or in
other calculators are used, theoretical formula must be specified. This also means that
the student must specify in the answer the variables included and be included in the
formulae used, and that key intermediate bills must be indicated.
When entering theoretical formula, a minimum of specific formula number from

syllabus literature and formula collection shall be specified. If appropriate, the
formula itself can also be copied into the answer session. Formulas from sources
outside the syllabus mustnot be used unless the formula uses notation consistent
with formula assembly, syllabus literature, and task response. Also pay attention to
correct indication of sources, according to clarification on Blackboard.
The note used in the reply shall also be indicated in accordance with the note
on the two main types of notation. The selected notation must be consistent
throughout the task. In addition, the answer must clearly distinguish between
inputs (e.g. information from task text), intercompany bills and façade.
All closing façades that are numerically greater than 1 must be given with a minimum
of 4 decimal places, unless they are dollars and pennies, where the façade must be
indicated to two decimal places. All endfacite numerically less than 1 must be
indicated by a minimum of 4 significant digits. Facit expressed as a percentage must
be indicated by a minimum of 2 decimal places. Remember that interim bills must not
be rounded, as this will make the final façade inaccurate.
If you believe during your answer that there is a lack of information in the task text
orconsider that there is an error in the text ofthe task, it is allowed to choose a
prerequisite that makes it possible and meaningful to solve the task. If you believe
that the lack of information or error is of major importance, you should and
should contact the exam officer.
Page 2
Exercise 1 (30%)
Suppose you are in a given capital market by time t=0. In the given capital market,
there are only 3 risky assets, which are shares X, Y and Z. In addition, a
risk-free asset with a 1% interest rate is available. In the capital market, short-selling
is possible.
The expected return on the three shares in the next period (from t = 0 to t
=1) is as indicated in table 1.1 below:
Table 1.1: Expected Returns

X 0,15
Y 0,12
Z 0,19
It can also be stated that the correlation between the returns on the three shares in
the next period is as shown in table 1.2 below:
Table 1.2: Correlation between return on shares

X Y Z
X 1,0000 0,1200 0,5700
Y 0,1200 1,0000 0,0750
Z 0,5700 0,0750 1,0000
Furthermore, it is stated that the standard deviation of the return on the shares in
the next period is as shown in Table 1.3:
Table 1.3: Standard deviation of returns

X 0,1050
Y 0,2900
Z 0,1600
Exercise 1.1
Determine the tangent portfolio1 of the three shares and the expected return on
the tangentporte foal in the next period. Also determine the standard deviation of
this return.
If you are using the problem solver and cannot make it work properly, in
this exercise 1.1 and further in the task, you should start from the following
facit2:
Weight X (xT): 0,69802370

Weight Y (yT): 0,05531887
Weight Z (zT): 0,24665743
1
I.e. the weight of each of the three shares in the tangent portfolio.
2
As required by the target description, method description and calculations, regardless of the façade,
Page 3
must be very clear.
Page 4
Exercise 1.2
Determine the minimum variance portfolio3 of the three shares and the expected
return on this portfolio in the next period. Also determine the standard deviation of
the return on the minimum variance portfolio.
If you are using the problem solver and cannot make it work properly, use this
task in this task and further, based on the following façade 4:
Weight X (xMVP): 0,84030664

Weight Y (yMVP): 0,08280789
Weight Z (zmvp): 0,07688547
Exercise 1.3
In a chart, draw a graph showing the rand portfolios and briefly explain how to
identify the potential range of risky assets, i.e. the amount of all portfolios that
can be formed from stocks X, Y and Z. Then briefly explain the concept of
efficient portfolios and mark the efficient rand on the graph.
Exercise 1.4
Draw in the same chart as the graph under exercise 1.3, the efficient rand of the
three shares and the risk-free asset.
Exercise 1.5
Determine the equation (operating expression) for the efficient rand of the three
shares and the risk-free asset. according to task 1.4.
Exercise 1.6
Assuming that CAPM is met on the given capital market, please determine the
equation (function expression) of SML in the current capital market
Exercise 1.7
Calculate the beta value of stock Z and explain briefly and accurately what the
beta value may be.
3
I.e. the weight of each of the three shares in the minimum variance portfolio.
4
As required by the target description, method description and calculations, regardless of the façade,
must be very clear.
Page 5
Exercise 2 (20%)
Below are some data about a stock that does not pay dividends. The price today (t=0)
of the stock (S 0)is DKK 120. In parentheses, the names of the nodes are
specified.
158.7
(UU)
138
(U)
120 117.3
(OUT)
102
(D)
86.7
(DD)
t=0 t=1 t=2
Figure 2.1: Development in share price (DKK) over
the next two years. The risk-free interest rate is
1.35% calculated year-round.
Exercise 2.1
Determine the risk-neutral probability in the node to t=0 and in both nodes to
t=1.
Exercise 2.2
Determine the value in each node to t=2 of a two-year European put option
written on the stock and with an exercise price of DKK 122.
Exercise 2.3
Determine the price today (t=0) of a two-year European put option written on
the stock and with an exercise price of DKK 122.
Exercise 2.4
Determine the replicating portfolio in the node to t=0 regarding the european put
option described and determine the price today of the replicating portfolio. Comment
on your result.
Exercise 2.5
Determine the price today of a 2-year European call option written on the stock
with an exer-cise price of DKK 122.
Exercise 2.6
Determine the price today of a two-year U.S. put option written on the stock
with a price of $12.
Page 6
Exercise 2.7
Determine the price today of a two-year U.S. call option written on the stock with a
price of $12. Comment on your result.
Exercise 3 (30%)
Table 3.1 below provides information on four bonds traded on a given financial
market. For all four bonds, they have exactly one year to the next term.
Table 3.1: Information on bonds

Bond Amortization Runni Nominal Number Price ($)
princip ng annual of mines (per $100
time interest per nominal)
rate year
St. Standing 3 years 2% 1 101,125800
S Series 3 years 1,5% 1 100,190507
A Annuity 3 years 1% 1 99,208600
N Zero coupon 3 years 95,290000
Exercise 3.1
Set up the performance row5 per month 100 kr. each of the four bonds. The
performance of the service rounded to two decimal places must be used further
in the task.
Hint: Facit rounded to two decimal places must be entered manually because Excel,
even if only two decimal places are displayed, calculates all decimal places.
Exercise 3.2
Determine the discount factor d(3) and the corresponding zero coupons y1(3) on
the financial market in question.
Exercise 3.3
Determine the discount factors d(t) for t = 1.2 years and determine the corresponding
zero coupon interest rates as a percentage of y 1(t) for t = 1.2 years on the financial
market concerned. The facit rounded to 4 decimal places must be used further in
the task.
It is further stated that the discount factors d(t), t = 4, 5, 6, ..., 8 years are
as shown in table 3.2 below:
Table 3.2: Discount factors

t (year) 4 5 6 7 8
d(t) 0,9300 0,9035 0,8776 0,8511 0,8272
Exercise 3.4
In a chart, illustrate the eight-year yield structure of the financial market in
question, with the zero coupon rate y1(t) as the dependent variable.
A person on the financial market in question has decided to take out a fixed-
rate mortgage (bond loan) with a principal of EUR 3,5 million. Kr. The term of
the loan is 8 years
Page 7
5
I.e. for each term, repayments, interest payments, payments and outstanding debts must
be calculated at the beginning.
Page 8
with annual terms. The nominal interest rate of the loan is 0.5% per an-year. The loan
is amortised according to the principle of annuity.
Exercise 3.5
Calculate and set up the6 benefit row for the described annuity loan.
Exercise 3.6
Calculate the net proceeds of the loan in question, assuming that there are no
borrowing and formation costs associated with the loan. Also determine the price of
the loan per DKK 100. principal.
Exercise 3.7
Calculate the effective interest rate on the loan in question, measured
in full. Now suppose that the loan in question is taken out as a cash
loan.
Exercise 3.8
Briefly explain the relationship between a cash loan and the underlying
compulsory loan and then determine and set up the 7 benefit series for the cash
loan granted.
Exercise 4 (20%)
In the task, tax must be disregarded.
Farmer Olaf Farm is the sole owner of The Company Herregård A/S, which runs a
large manor house at Ribe.
The assets of the company Herregård A/S today consist (t = 0) of the following
two independent main assets:
1. Commercial assets consisting of buildings, production facilities and fields where

cereals and other crops are grown.
2. A large wild coniferous forest, sabout pt. not used commercially.
The value of the assets under point 1 is independent of whether or not the coniferous
forest is operated commercially.
Olaf Farm is now considering (t =0) an investment which consists of felling the
coniferous forest and starting a commercial production of Christmas trees in the
current area of the coniferous forest.
The expected return on current commercial assets is 11% calculated full-

yearly. The value of the current commercial assets is now (t=0) EUR 52
million. Kr.
The expected return on the coniferous forest is 0% calculated year-round if the forest
is not used commercially. If the investment is made to t=0, the expected return on
christmas tree production will be 7.5%. The value of the coniferous forest is now
(t=0) 7 million tonnes. Kr.
Page 9
6
I.e. for each term, repayments, interest payments, payments and outstanding debts
must be calculated at the beginning.
7
I.e. for each term, repayments, interest payments, payments and outstanding debts
must be calculated at the beginning.
Page 10
If the investment is made, the expected value of the coniferous forest (commercial
production of Christmas trees) to t=1 will be ECU 18 million. Kr.
Manor House A/S is leveraged and has a overdue debt of DKK 69 million. dkk to be
paid to t=0.
Exercise 4.1
What is the expected value of the debt to t = 1 if the company does not choose to
make the investment?
Now suppose that the company completes the described investment.
Exercise 4.2
Calculate the present value (NPV) of the investment.
Exercise 4.3
Calculate the expected value of the leveraged company on time t=1.
Exercise 4.4
Explain whether Olaf Farm, as owner, will carry out the given investment.
Bem: Calculations must also be made.
Page 11
Financing 10 ECTS
January 8, 2018
Information:
2. Dispensing: Physical in the exam room.
3. Delivery: Only digital delivery can be made. The answer is delivered through SDU
5. All pages of the answer session must be numbered.
6. Duration of examination: 5 hoursr.
7. Location: SDU. The test will be conducted using its own PC, which must be able to access
the university's wireless network.
8. Internet access: Internet may only be used to access SDU Assignment when living on
Blackboard. In addition, the Internet may not be used during the test.
9. Aids: All aids are allowed. Internet use is not allowed. It's not to be communicated
with anyone else.
The exam tests the achievement of the measurements for all the points listed in the target
description at the sample control.
Page 1
Additional information and requirements for the answer:
The tasks can be solved independently. The weight indicated for each assignment is
given solely for the purpose of assisting in the availability of the student's time for
the answer. The weighting is not binding on censorship, as the grade will be
determined on the subjectby achievement of the target according to the course
description.
Note in particular the following key excerpts from the goal description of the subject
description:
The answer must contain the necessary explanatory and detailed text and, moreover,
be clear and clear. Assumptions, formulae and justifications must also be clearly
stated in the reply. This means that even if the default functions in Excel or in other
calculators are used, theoretical formula must be specified. This also means that the
student must specify in the answer the variables included and be included in the
formulae used, and that key intermediate bills must be indicated.
When entering theoretical formula, at least specific formula number from

pen'sumlitteratur and formula collection shall begiven. If appropriate, the formula
itself can also be copied into the answer session. Formulas from sources outside the
syllabus rotation may not be used unless the formula uses notation consistent with
formula assembly,syllabus literature, and task response. Also pay attention to
correct indication of sources, according to clarification on Blackboard.
The notation used in the reply shall also be indicated, as well as a note on the two
main types of notation. The selected notation must be consistent throughout the
task. In addition, the answer must clearly distinguish between inputs (e.g.
information from task text), intercompany bills and façade.
All closing façades that are numerically greater than 1 must be given with a minimum
of 4 decimal places, unless they are dollars and pennies, where the façade must be
indicated to two decimal places. All endfacite numerically less than 1 must be
indicated by a minimum of 4 significant digits. Facit expressed as a percentage must
be indicated by a minimum of 2 decimal places. Remember that interim bills must not
be settled, as this would make the final factor inaccurate.
If, during your answer, you reasonedly believe that there is a lack of information in
the text of the task or reasoned believe that there is an error in the text of the task,
it is allowed to choose a pre-settingthat makes it possible and meaningful to solve
the task. If you believe that the lack of information or error is of major
importance, you should and should contact the exam officer.
Page 2
Exercise 1 (20%)
Below are some data about a stock that does not pay dividends. The price today (t=0)
of the stock (S 0)is DKK 80. In parentheses, the names of the nodes are
specified.
120
(UU)
100
(U)
80 72
(OUT)
60
(D)
43.2
(DD)
t=0 t=1 t=2
Figure 1.1: Development in share price (DKK) over
the next two years. The risk-free interest rate is
0.8% calculated year-round.
Exercise 1.1
Determine the risk-neutral probability in the node to t=0 and in both nodes to
t=1.
Exercise 1.2
Determine the value in each node to t=2 of a two-year European call option written
on the stock and with an exercise price of DKK 40.75.
Exercise 1.3
Determine the price today (t=0) of a two-year European call option written on
the stock and with an exercise price of DKK 40.75.
Exercise 1.4
Determine the replicating portfolio in the node to t=0 regarding the described
European call option and determine the price today of the replicating portfolio.
Comment on your result.
Exercise 1.5
Determine the price today of a 2-year European put option written on the stock
with an exer-cise price of DKK 40.75.
Exercise 1.6
Determine the price today of a two-year U.S. call option written on the stock with a
price of $4.75. Comment on your result.
Page 3
Exercise 1.7
Determine the price today of a two-year U.S. put option written on the stock with a
price of $4.75. Comment on your result.
Exercise 1.8
Explain whether your response in tasks 1.6 and 1.7 depends on whether the
stock pays dividends.
Exercise 2 (30%)
Table 2.1 below provides information on five fixed-rate bonds traded on a
given financial market. For all five bonds, they have exactly one year to the
next term.

Obli- Amortization Runn Coupo Number Effectiv Price
ga- principle ing n of mines e (USD)
time interes per year interest per DKK
t (postpaid) rate 100
year- Nominal
round
S Series 3 years 2% 1 ? ?
St. Standing 3 years 2,5% 1 ? ?
A Annuity 3 years 1,5% 1 ? ?
N Zero coupon 3 years 1 ? ?
E Everlasting ∞ 1,5% 1 ? 92
Exercise 2.1
Set up the1 per month performance row 100 kr. each of the five bonds.
It is further stated that the zero coupon rates y 1(t), t=1, 2, 3, 4, 5 years are as shown
in table 2.2 below:
Table 2.2: Zero coupon rates

t (year) 1 2 3 4 5
y1(t) 0,00290 0,00790 0,01150 0,01380 0,01550
Exercise 2.2
In a graph, illustrate the five-year yield structure of the financial market in
question, with the zero coupon rate y1(t) as the dependent variable.
Exercise 2.3
Determine the discount factors d(t), t=1, 2, 3, 4, 5 on the financial market in
question.
Exercise 2.4
Determine the price of bonds S, St., A and N per 100 kr. Nominal.
Exercise 2.5
Determine the effective percentage rate of interest calculated year-round for each
of the five bonds.
Page 4
1
I.e. for each term, repayments, interest payments, payments and outstanding debts must be
calculated at the beginning.
Page 5
The Jensens have a nice house, but they miss an insulated garage for their
car, bicycles and garden tools. The family has therefore decided to take out an
additional loan to finance the construction of a garage. The garage will cost DKK
275,000. to perform. The family's banking council has indicated that they can take
out a fixed-rate mortgage (bond loan) to finance the garage. The term of the loan
will be 5 years with full-year postpaid terms. The nominal interest rate of the
loan is 1.5% per an a year.
Exercise 2.6
Determine the principal amount of the loan if the net proceeds are to be DKK
275,000, assuming that there are no borrowing and formation costs associated
with the loan. In addition, calculate the price of the loan per 100 kr. principal.
In another financial market, fixed-rate annuity bonds are traded at a fixed-rate

interest rate of 2.5% per anc. The bond thus has a term of end of each
quarter.
Bem. : It can be assumed as a calculational basis that the forward length is 90 days. It is assumed that
the extraction dates are 2 days before the due dates.
Suppose the bond is in the 7th. February 2018.
Exercise 2.7
Calculate the number of actual days from the previous futures to the value date,
and then calculate the attached interest on value date per day. 100 kr. principal.
Exercise 2.8
Calculate both the price and market price of the bond per 100 kr. principal on
value date if the market rate on the bond on the value date is 3.1% calculated
in full.
Exercise 3 (weight 50%)

The task must disregard tax and VAT. All budgetary information is in
constant terms in the expected price level per 100 000 units. 1 January 2018
unless otherwise stated.
Viggo Warm has for many years worked as a leading fitter in a large plumbing
company. However, he thinks that the time has come to try something different. He
has therefore decided to become self-employed and start his own plumbing
wholesaler company 1. January 2018 (t=0). In the company, he will specialize
in the sale of kitchen and handwashing luminaires.
His idea is to keep a very narrow product range in order to obtain large quantities
discounts from manufacturers and thus be able to offer customers competitive
prices. The company will primarily target its marketing to private customers and to
small- and small plumbing craft stores that cannot obtain discounts from
manufacturers themselves.
Viggo Warm has been offered to rent a suitable building at an annual rental
cost of
DKK 265,000 including electricity, water and heat. The investment cost for interior
design and conversion will amount to DKK 1.6 million.
Page 6
The annual marketing costs are estimated at DKK 150,000, and the annual di-
verse costs for telephone, office teams, representation, etc. estimated to be
$125,000
If Viggo Warm does not set up its own business, Viggo Warm expects to be able to
remain in its current position indefinitely. Viggo Warm currently has an
annual salary of
$391,000 To help him in the company, Viggo Warm must hire 3 sales assistants at a
fixed annual salary of DKK 295,000 per person. In addition, the sales aid for sharing
receives a joint sales commission of 8% of the total turnover of the enterprise.
Inflation is expected to remain constant at 1.5% per an a year
between 2018 and 2025. In the company there will be two
customer groups: Private and Craftsman.
Viggo Warm has established the following revenue budget for the two customer
Table 3.1: Revenue (DKK 1,000)

Year (period) 2018 2019 2020 2021 2022 2023 2024 2025
Private
1.000 1.500 1.800 2.000 2.100 2.200 2.300 2.400
Craftsman 1.800 2.300 2.800 3.100 3.300 3.500 3.700 3.900
Gross margin within the private group is expected to be 65%. In the artisan group,
gross margin is expected to be 50%.
It is expected that the closing of inventory within the private group in each period
is equal to 18% of item consumption in the next period. It is expected that the
closing of the inventory within the hand-hand group in each period will be equal
to 25% of the consumption of goods in the next period.
The investment in the opening warehouse on 1 January 2018 for the private group is
equal to 18% of the consumerin 2018. The investment in the beginning of the
warehouse on 1 January 2018 regarding the craftsman group is equal to 25% of the
consumption of goods in 2018. By the end of 2025, the inventory for both customer
groups is expected to be at the same level as the end of 2024.
On-hand inventory (NWC) is expected to be realized at the end of the budget period.
The credit time on all purchases of goods is 25 days net. However, the beginning of
the warehouse 2018 is paid in cash. All sales to the private group are made in cash.
All customers in the craftsman group are granted a credit period of 20 days net.
Revenue, consumption and purchases are made evenly during the periods. A
year is assumed to consist of 365 days. Capital expenditure will be paid at the
beginning of 2018 (t=0).
Page 7
To co-finance the investment, Viggo Warm will take out an 8-year fixed-term annuity
loan (mortgage) with a principal of 1.2 mio.kr. The coupon rate on the
Page 8
the loan is 1.5% per an hour and the price is DKK 98.10 per DKK 100 principal. The
loan has full-yearly post-paid terms and it is assumed that there are no fees and the
like for the inclusion of lay nets. The remaining capital requirement finances Viggo
Warm from its own resources, i.e. with equity capital.
Viggo Warm expects the acquired furniture (interior design and conversion) to have
a scrap value of DKK 125,000. end of 2025.
Exercise 3.1
Set up the 2 benefit row for the described mortgage.
Exercise 3.2
Calculate the gross margin and earnings contribution in real terms for the proposed
investment for each of the 8 years in the period 2018-2025 with the price level of 1
January 2018 as the basis.
Exercise 3.3
Calculate the purchase of goods in real terms for each of the 8 years from 2018to
2025 with the price level of 1 January 2007. January 2018 as a basis.
Hint: It is remembered that: inventory primo + item purchases – item consumption =
inventory at the end.
Exercise 3.4
Explain the concept of working capital (NWC) and then calculate the change in
working capital (change in NWC) in real terms for each of the 8 years in the period
2018-2025 with the price level 1. January 2018 as a basis.
Exercise 3.5
Calculate the total investment expense at t=0 and also calculate the free cash
flow (FCF) from the investment for each of the 8 years in the period 2018-2025 both
in real terms with the price level 1. January 2018 as a basis and at current
prices.
Exercise 3.6
Determine the cash flow to the debtholders at current prices from the investment
both to t=0 and for each of the 8 years in the period 2018-2025 and calculate the
internal interest rate on this cash flow.
Exercise 3.7
Calculate the cash flow to the owners (i.e. the cash flow to Viggo Warm) at current
prices from the investment both to t=0 and for each of the 8 years in the
period 2018-2025.
Although the prerequisites for using CAPM are not met, Viggo Warm wishes to
estimate the discount rate for the investment using CAPM. Viggo Warm has therefore
turned to cand.merc. Jens Regn to get some information he can use to estimate the
discount rate. In the plumbing wholesaler industry there are 4 major listed
companies. Information on these four companies is given in Table 3.2:
Page 9
2
I.e. for each term, repayments, interest payments, payments and outstanding debts must be
calculated at the beginning.
Page 10
Table 3.2: Data on 4 companies in the plumbing wholesale industry
D
Enterprise Beta on E Rating on debt
V
X 1,72 0,28 BB
Y 1,39 0,11 BBB
Z 1,29 0,09 A
W 1,49 0,17 B
Bem.: E, D and V indicate the market value of henv. equity, debt3 and assets4.
Furthermore, Jens Regn states that the estimate of the expected nominal return on
the market portfolio is 7% measured full-yearly and that the nominal risk-free return
is 0.75% measured full-yearly. It is assumed that Viggo Warm will maintain a
constant capital structure in its business and that excess cash in the company
will be zero.
Exercise 3.8
Explain the concept of net debt and discuss why, in the calculation of the debt ratio in
an enterprise, as set out in Table 3.2, it may make sense to determine the value of
the debt as being the value of the long-term net debt.
Exercise 3.9
Determine the weekly5 beta value of the assets of each of the 4 companies.
Hint: For debt rating according to Table 12.3 in BerkDeMarzo, 4th Global Edition.
Exercise 3.10
Determine an estimate of the weekly beta value of the assets of Wiggo Warm's
plumbing wholesale business and then determine an estimate of the nominal discount
rate for the investment.
Viggo Warm will only complete the investment if it is economicallyadvantageous over

a time horizon of 8 years from 2018 - 2025.
Regardless of your result in task 3.9, you must proceed in the task based on a
no-minel calculation rate of 8.55% calculated year-round.
Exercise 3.11
Determine the value of the company 6 to t=0.
Exercise 3.12
Determine the value of the equity in the company at t=0 immediately after the
investment has been made and determine the capital structure of the company
expressed by the capital structure weights.
Exercise 3.13
Calculate inthe present value ofthe nvestation (NPV) measured in DKK 1,000.
and briefly outlines whether Viggo Warm should carry out the proposed
investment.
3
Net long-term debt.
4
Fixed assets and NWC
5
Unlevered.
Page 11
6VL
, i.e. 6 VL. the value of the leveraged business;
Page 12
Financing 10 ECTS
Campus Odense, Slagelse, Kolding and Esbjerg
January 11, 2019

3. Delivered: Only digital delivery can be made. The answer is delivered through
SDU-Assignment on Blackboard. The task must be delivered in PDF
format.
6. Duration: 4 hours.
7. Location: SDU. The test will be carried out using its own PC, which must be able to
access the university's wireless network.
8. Internet access: Internet may only be used to access SDU Assignment when delivering.
In addition, the Internet may not be used during the test.
9. Aids: All aids are allowed except internet use. The use of the inter-network is not
tenlladt, whatever the circumstances. Communicating with others is not allowed.
10. The exam tests the achievement of the measurements for all the points listed
(according to the target description) by random checks.
Page 1
General and supplementary information:
The task set contains 4 tasks and associated subtasks. The tasks can be solved
independently. The weight given for each assignment is given solely for the purpose
of assisting in the availability of the student's time for the answer n.
Note in particular the following key text with excerpts from the subject description's
target description:
"The student must be able to explain theory and conduct analyses in the relati-on to the
content of the subject, according to the subject's goal description. In the context of
presentation and analysis, the student must be able to explain very clearly
the assumptions and individual elements of the analysis by explanatory text and by
indicating the formulae used and indicating how these have been used for: solution of
the task."
The answer must therefore contain the necessary explanatory and detailed text and,
by the way,be clear and clear. Assumptions, formulae and justifications must also be
other calculators are applied, theoretical formula must be specified. This also means
that the answer must specify the variables included and be included in the formulae
used.
When theoretical formula is entered, at least specifict formula number from syllabus
literature and formula collection must be given. If appropriate, the form itself can also
be copied into the reply. Formulas from sources outside syllabus literature may not
be used unless the formula uses notation consistent with formula collection, syllabus
literature, and tasks.
main types of notation. The chosen notation must, as far as possible, be consistent
throughout the abandonedone. In addition, the answer must make it possible to
distinguish clearly between inputs (e.g. information from the text of the task),
intermediate bills and façade.
All closing façades that are numerically greater than 1 must be given with a
minimum of 4 decimal places, unless they are dollars and pennies, where the façade
must be indicated to two decimal places. All endfacite numerically less than 1 must
be indicated by a minimum of 4 significant digits. Remember that interim bills must
not be rounded, as this will make the final façade inaccurate.
Page 2
Task 1 (20%)
The companyRecap A/S is today financed exclusively by equity (immediately before
t=0). All the company's shares are listed on the Stock Exchange. The number of
shares outstanding is DKK 17 million. per. stk.
The company is now considering publishing a recapitalisation plan for the company,
i.e. to t=0. The plan implies that the company will take out an everlasting loan at a
rate of DKK 100 per DKK 100 principal. The principal amount of the loan is DKK 28
million. There are no transaction costs associated with the debt's admission. After
that, the company will not take up any further debt for ever. The proceeds from the
debt recovery will be used by the company to repurchase its own shares
immediately after t=0.
The company's marginal tax rate is assumed to be constant 20%. It is also assumed
that acompany tax is the only imperfection on the capital market and that the
company does not have excess cash. It can also be assumed that the company's EBIT
is in all periods higher than the interest costs, which are fully deductible.
Exercise 1.1
Limitthe market value of the company's assets (firm value) immediately before the
publication of the recapitalisation plan. It also provides an overview of the company's
main groups of assets and liabilities and their assets at that time.
Exercise 1.2
Calculate the market value of the company's leveraged assets immediately after it has
been taken up, i.e., at t=0, but before the debt proceeds are used to recost own
shares. Also, provide an overview1 of the main groups of assets and liabilities of the
company and their assets at that time.
Exercise 1.3
Calculate the market price 2 of the company's shares immediately after the debt has
been taken up, i.e. 100% of the market price of the company's shares. to t=0, but
before the proceeds are used to repurchase own shares.
Exercise 1.4
Calculate the number of own shares that the company buys back.
Exercise 1.5
Calculate the market value of the company's leveraged assets immediately after the
buyback. Also, provide an overview3 of the company's main groups of assets and
liabilities and their assets at that time.
Exercise 1.6
Determine the market price of the company's shares after the buy-back.
1
Including the value (PV) of any imperfections.
2
Market price per share.
3
Including the value (PV) of any imperfections.
Page 3
Task 2 (40%)
The task must disregard tax and VAT. All budgetary information is in
constant terms in the expected price level per 100 000 units. January 1, 2019.
Niels Net currently works in a bicycle shop in Kgs. Lyngby, where his monthly
salary is
DKK 27,000 per month. Niels Net is considering starting an online store where the
product range will be electric scooters and electric skateboards. Niels Net will be the
sole owner of the store. The online store requires a relatively large storage area with
associated office facilities.
Niels Net has found suitable premises on the Copenhagen vestegn for a month-equal
rent of DKK 32,000. Excise duties (electricity, water and heat) are expected to
6.0 dkk per month. Expenditure (t=0) on the fitting-out and conversion of
premises, including the construction of a new building or conversion of premises.
InT, etc. will amount to DKK 500,000. When the lease ends, the scrap value of
the interior design and conversion is DKK 50,000. Half of the deposit is expected
to be repaid by the landlord upon possible loan. termination of the lease.
Inflation is expected to remain constant at 1.10% per an a year between 2019 and
2026.
In the online store there will be two turnover groups: Electric scooters and Electric
skateboard.
If Niels Net does not set up its own online store, Niels Net expects to be able to stay
in his current position indefinitely. To help him in the online shop, Niels Net will
employ 2 unskilled employees at an annual salary of DKK 310,000. per.
person.
Niels Net has established the following revenue budget for these two turnover groups
for the next 8 years:
Table 2.1: Expected Revenue ($1,000)

2019 2020 2021 2022 2023 2024 2025 2026
Electric
scooters 1.000 1.500 1.800 2.100 2.400 2.700 3.000 3.300
Electric 700 1.200 1.500 1.800 2.100 2.400 2.700 3.000

skateboard
The gross margin for electric scooters is expected to be 45%. For Electric
Skateboard, the gross margin is expected to be 55%.
It is expected that the end of inventory within both product groups will be
equal to 20% of item consumption each year.
The opening of inventory as of January 1, 2019 for both item groups is equal to 20%
Page 4
Task 2 (40%)
of item use in 2019. In the last year (2026), the closing of the inventory for both
turnover groups is expected to remain unchanged in relation to the end of the
previous year.
Page 5
It is expected that stocks including deposits will be realized at the end of the budget
period.
All sales and purchases are assumed to be made in cash, and it can be assumed that
all payments are made at the end of the budget period (end of each year).
Investment expenditure to t=0 will be paid at the beginning of 2019 (1 January
2019).
To co-finance the investment and start-up, Niels Net takes out an 8-year fixed-rate
annuity bond with a principal of DKK 700,000. The loan has full-year postpay terms
and it is assumed that there are no transaction costs (fees, provisions, etc.) when
the loan is taken out.
Niels Net has assessed that the market risk of the investment is such that the real
risk premium should be set at 14% calculated in full. The currentrisk-free interest
rate is 0.5% calculated on a year-round rate.
Niels Net will only complete the investment, i.e. establish and operate the online
store if it is economically advantageous over a time horizon of 8 years from
2019 - 2026.
Exercise 2.1
Set up the benefit series4 for the bank loan described and calculate the effective
interest rate of the loan in full.
Exercise 2.2
Calculate the gross margin and earnings contribution in real terms for the proposed
investment for each of the 8 years in the period 2019-2026 with the price level of 1
January 2019 as the basis.
Exercise 2.3
Calculate the change in working capital (∆NWC) in real terms for eacht of the 8
years in the period 2019-2026 with the price level 1. January 2019 as a basis.
Exercise 2.4
Calculate the total investment expense as of January 1, 2019 (t=0) and calculate
the free cash flow (FCF) of the investment in real terms for each of the 8 years in
the period 2019-2026 with the price level 1. January 2019 as a basis.
Exercise 2.5
Calculate the free cash flow (FCF) for the investment at current prices for each of
the 8 years in the period 2019-2026.
Exercise 2.6
Calculate the cash flow to the debtholders at current prices for the investment as of
January 1, 2019 (t=0) and for each of the 8 years in the period 2019-2026 and
calculate the internal rate on this cash flow.
4
I.e. for each term, residual debt must be calculated at the beginning, instalments, interest
Page 6
payments, payment and outstanding debt at the end.
Page 7
Exercise 2.7
Calculate the cash flow to the owners (i.e. the cash flow to Niels Net) at current
prices for the investment per unit of exchange. 1 January 2019 and for each of
the 8 years from 2019 to 2026.
Exercise 2.8
Calculate the value of the online store5 per month. 1 January 2019, if the
investment is made.
Exercise 2.9
Calculate the value of equity per share 1 January 2019, if the investment is made.
Exercise 2.10
Calculate the share of equity and debt in the online store as of 1 January 2019, if
the investment is made.
Task 2.11
Calculate the present value of the investment (NPV) and explain whether
NPV depends on whether NPV is calculated on the basis of FCF at current or
fixed prices.
Exercise 2.12
Explain why Niels Net should carry out the proposed investment. The statement
shall include few and key sensitivity calculations.
Task 2.13
Explains whether the discount rate for the investment depends on the amount of
loans Niels Net takes out to co-finance the investment cost.
Exercise 3 (20%)
Currently, the company WorkSmart has no debt. However, the company is
considering taking updebt and is therefore considering issuing and sellingfixed-rate
corporate bonds with a maturity of 8 years. This is a standing loan. The nominal
interest rate on the loan is 8% measured in full and the bonds are sold at a price of
DKK 96 per 100 kr. nominally. The loan has annual terms. It can be assumed that
there are no transaction costs (fees, commissions, etc.) linked to the loan. The debt
rating is BB, see Table 12.26. Bonds with similar maturity and amortisation and a
rating of AAA have an effective nominal interest rate of 0.9% calculated in full
year7.
It can be assumed that the expected loss rate on the new debt in WorkSmart is 35%
below normal (average) economic conditions and 60% below re-ions.
It can also be assumed that the nominal market risk premium is 6% measured whole-
yearly during normal economic cycles and 7.2% measured annually during
recessions.
Exercise 3.1
Set up the 8 benefit series for the outstanding loan described per 100 kr. Nominal.
5
VL (value of assets).
Page 8
6
According to BerkDeMarzoChapter 10, the following: OJ C 12, 12.5.
7
This interest rate may be used as an estimate for the annual risk-free interest rate.
8
I.e. for each term, residual debt must be calculated at the beginning, instalments, interest
payments, payment and outstanding debt at the end.
Page 9
Exercise
Calculate
3.2 the effective interest rate (promised yield) on the described standing loan
per 1000000000000000000000000000000000000 100 kr. Nominal.
Exercise 3.3
Calculate both during normal economic cycles and during recession the expected
nominal return on the debt described using formula 12.7 9.
Exercise 3.4
Calculate both during normal business cycles and during recession the expected
nominal return on the described debt using CAPM, which is estimated
against rating.
Exercise 3.5
Calculate both during normal business cycles and during recession the expected
nominal return on the described debt using CAPM, which is estimated in
relation to maturity.
Exercise 3.6
Calculate during normal business cycles the nominal spread of bb instaled debt in
WorkSmart in relation to AAA instalmented debt10 using formula 12.7.
Exercise 4 (20%)
The price today (t = 0) of one gram of gold is S0 = 250 kr. Each of the next
two years, the price of gold will surely either rise or fall by 12%.
The annual nominal risk-free rate is 0.75% calculated annually.
Exercise 4.1
Set up the binomial tree for the development of the gold price per programme for
the next two years.
Exercise 4.2
Determine the risk-neutral probability of t = 0 and in both nodes to t = 1.
Exercise 4.3
Determine the value in each knot at t=2 of a two-year European put option
written on one gram of gold and with a exercise price of DKK 260.
Exercise 4.4
Determine the price today (t=0) on a two-year European put option written on one
gram of gold and with an exercise price of DKK 260.
Exercise 4.5
Determine the replicating portfolio on time t=0 for the described two-year European
put option and determine the price (t=0) of the replicating portfolio. Comment on
your results and describe in words the found replicating portfolio.
9
Under BerkDeMarzo Chapter 10 12
10
The spread is the difference between the expected return on AAA debt and the bb
Page 10
Exercise
3.2
instalmentd debt described.
Page 11
Exercise
Determine
4.6 the price today of a 2-year-old European call option written on one
gram of gold with a exercise price of DKK 260. Comment on your result.
Exercise 4.7
Determine the price today of a two-year-old American put option written on one gram
of gold with a exercise price of 260 kr. Comment on your result.
Exercise 4.8
Determine the price today of a two-year-old American call option written on one gram
of gold with a exercise price of 260 kr. Comment on your result.
Page 12
Financing 10 ECTS
Re-examination 17. February 2020
1. Assignment maker: Malene Damsted and Kenneth Schultz

3. Delivered: Only digital delivery can be made. The answer is delivered through SDU-
delivering. In addition, the Internet may not be used during the test.
9. Aids: All aids are allowed except internet use. The use of the inter-network is not
permitted, regardless of the circumstances. Communicating with others is not
allowed.
10. The exam tests target achievement for all points in the target description by
random check.
Page 1
independently. However, it is recommended that you solve task 1 first, as this gift
tests solving simple items from the syllabus. The weight indicated for each
assignment and delopgave is given solely for the purpose of assisting inthe
availability of the student's time for the answer. The weighting is not binding on the
censorship, as the grade will be determined based on the degree of achievement of
the goal, according to the course description. Note in particular the following text,
with excerpts from the target description of the course description:
"The student must be able to explain theory and conduct analyses in relation
to the content of the subject, according to the subject's goal description. In
connection with presentation and analysis, the student must be able to explain very
clearly the assumptions and individual elements of the analysis by means of
explanatory text and by indicating the formulas used and indicating how these
have been used to solve the task."
clearly stated in the reply. This means that even if the default functions in Excel
orinother calculators are used, theoretical formula must be specified. This also
means that the answer must specify the variables included and be included in the
formulae used.
When entering theoretical formula, at least specific formula number from syllabus
literature and formula collection must be given. If appropriate, the formula itself can
also be copied into the answer session. Formulas from sources outside the syllabus
rotation cannot be used unless the formula uses notation consistent with formula
collection, syllabus literature, and tasks.
main types of notation. The selected notation must, as far as possible, be consistent
throughout the task. In addition, the answer must make it possible to distinguish
clearly between inputs (e.g. information from the text of the task), intermediate
bills and façade.
Page 2
Exercise 1 (45%)
All subtasks in this task 1 have no coherence. All the subtasks can therefore
be solved independently of each other.
Exercise 1.1 (5%)

A person expects to receive DKK 4 million in pension (lump sum) in exactly 25 years.
In the period from today to the payment of the pension in exactly 25 years'
time, inflation is expected to be 1.2% per year.
Calculate the real value (FV) of the pension in exactly 25 years' time, measured in
price levels today (t=0).
Exercise 1.2 (5%)

An amount of DKK 25,000 will be deposited on January 1, 2020 into a bank account.
After that, no amounts are deposited into the account other than accrued interest.
On 31 December 1992, the Commission Interest is charged to the account each
year. The interest rate on the account is 0.5% calculated year-round.
Calculate the balance of the bank account on January 31, 2006. They shall forth on 1
December 2030.
Exercise 1.3 (7%)

Consider a share in a given company. All market participants agree that in one period
there will be only three possible conditions for the economy and associated realized
nominal returns on the shares in the given company:
Conditio Probability Retur

n n
1 0,15 -0,14
2 0,60 0,11
3 0,25 -0,19
Calculate the expected return and standard deviation of the return in the next
period.
Exercise 1.4 (8%)

Wild's parents set up a home savings account for Wild when she was born. In the first
19 years (starting one month after Wild's birth), the parents paid 250 dkk ul-timo
each month. After 19 years, the parents stopped payments and had the balance
deducted interest for a further 4 years thereafter. The nominal interest rate on the
account is 0.9% per an an an answer throughout the period.
Calculate the balance of the account when Wild turns 23.
Exercise 1.5 (6%)

An entrepreneur is considering carrying out an investment with the following
nominal expected free cash flow (FCF):
Time t=0 t=1 t=2 t=3 t=4

FCF (mio.kr. ) -12 3 6 5 3
On the basis of an assessment of the systematic risk to the investment, the

period-calculated nominal discount rate linked to FCF is estimated to be 14%.
Page 3
Calculate the NPV of the investment.
Page 4
Exercise 1.6 (5%)
An investor is considering acquiring a stock portfolio of a total of 630 shares divided
into shares in companies A, B, C, and D. The price (DKK) of the shares in companies
A, B, C, and D is 130, 755, 335 and 1,135, respectively.
Enterprise Number of
shares
A 90
B 225
C 125
D 190
Calculate the portfolio weight for share C in the described portfolio.
Problem 1.7 (9%)

The following table provides some information on the market index, asset A and a
risk-free asset in a given normal market. The risk-free interest rate for the next year
is 0.5%. The probability of recession is 60%.
Kr. Cash flow year 1 (t=1)

Aktiv Market price Recession Boom
today
(t=0)
The market index 500 300 900
Active A ? 100 700
Risk-free asset ? 200 200
Calculate the expected risk premium of asset A next year.

Hint: First determine the price of the risk-free asset and then determine the return on
asset A during each of the two business cycles.
Exercise 2 (30%)
In the task, tax must be disregarded.
Ole Kaffeglad has been employed as a leading coffee roaster in the production in a
major Danish coffee roaster for the last 8 years.
Ole Kaffeglad is considering starting his own coffee roaster with special roasting of a
particularly strong coffee bean, as in recent years therehas been a steady increase
indemand for a more strong and aromatic coffee.
Below are some data on the evolution of the market price of a pound of coffee in a
given capital market. The price today (t = 0) of a pound of coffee is S0 =
8.40 KR. The price (DKK) will certainly evolve in the next year as stated below:
Page 5
10,50
8,40
7,14
t=0 t=1
It can be assumed that the nominal risk-free interest rate measured annually is
constant 0.9% in all future periods (years).
If Ole Kaffeglad starts his own coffee roaster, the main input in the production will of
course be coffee. To guard against large price increases for coffee, Ole Kaffeglad is
considering buying a European call option written on coffee.
Exercise 2.1 (4%)

Calculate the risk-neutral probability on the given capital market.
Exercise 2.2 (6%)

Calculate the price today of a one-year European call option written on coffee and
with an exercise price of DKK 8.75.
Ole Kaffeglad wants to calculate NPV by investing in a new coffee roaster. The main
uncertainty of the project is whether the sale of the new strong and aromatic coffee
bean will be in the consumer's taste. If coffee beans fall in consumer taste, demand
will increase for many years to come. Whether coffee beans fall into consumer taste
represents diversified risk. The realprobability that coffee beans will be in the taste of
consumers is therefore the same as the risk-neutral up probability, according to
task 2.1.
If a standard production apparatus is purchased where it is only to a lesser extent

possible to expandthe production in line with any increase in demand, the
investment cost (t=0) will amount to DKK 4 million. year 1 (t=1) to be DKK 0.9
million. After years 1 through 12, the annual nominal expected FCF is expected to
increase at a constant growth rate of 2.5%.
However, the supplier of the production equipment has offered Ole Kaffeglad that he
can supply a more expensive flexible production equipment, where it is possible to
expand production in full in line with increasing demand. If Ole Kaffeglad acquires
this flexible production equipment and the product falls into the consumer's taste,
the nominal expected FCF in year 1 is expected to be DKK 0.9 million. After years 1
through 12, the annual nominal FCF is expected to increase at a constant
rate of growth of 12%.
If the coffee beans do not fall into the consumer's taste, regardless of the type of
production apparatus, the expected nominal FCF in year 1 is 0.4 million tonnes.
Kr. After years 1 to and
Page 6
by the year 12, the annual nominal FCF is expected to increase ata constant rate
of 1.5%.
After year 12, the production apparatus, regardless of type, is worn out and
worthless.
Based on an assessment of the systematic risk on the project, the annual nominal
cost of capital, regardless of the type of production apparatus, is set at 6.9%.
Exercise 2.3 (10%)

Calculate the NPV of the investment provided that Ole Kaffegladuses a standard
production apparatus.
Exercise 2.4 (10%)

Calculate how much Ole Kaffeglad will pay extra in purchase price (t=0) for the
flexible production equipment compared to a standard production equipment.
Exercise 3 (25%)
In a given financial market, only three risky assets (A, B and C) are traded. Table 3.1
below shows expected nominal returns and volatility (standard deviation of return)
on the risky assets concerned in the next period:
Table 3.1: Information on assets.

Activ Expected return Volatility
e
A 0,1542 0,3656
B 0,1069 0,1507
C 0,0744 0,1493
Table 3.2 (correlation matrix) below shows correlations between the return of assets
in the next period.
Table 3.2: Correlation between returns.

A B C
A 1,0000 0,0376 0,1224
B 1,0000 0,6949
C 1,0000
The market also trades a risk-free asset with a nominal return of 1.8% in the next
period.
Exercise 3.1 (10%)

Suppose that an investor will invest in an efficient portfolio consisting solely of the
three ri-filled assets1. Explain which portfolio composition of the three risk-filled
assets the investor chooses and determine this portfolio. Also calculate the expected
return and volatility on this portfolio in the next period. Finally, explain whether itis
possible forCAPM to be applicable on the given capital market.
1
I.e. the portfolio weight of the risk-free asset in the portfolio is zero.
Page 7
Exercise 3.2 (4%)
Now assume that the investor wants to keep an efficient portfolio of both the risiko-
free asset and the risky assets. Inferred an expression showing the correlation
between expected returns and volatility for efficient portfolios 2 in the given
capital market.
Exercise 3.3 (3%)

Explain briefly and reasoned why the investor only wants to keep efficient
portfolios and the assumptions on which this depends.
Opgave 3.4 (8%)

Calculate the expected return and volatility on an efficient portfolio where 40% is
funded by a short position in the risk-free asset.
Hint: If 40% is financed by a short position in the risk-free asset, then the numerical value of
the short position will represent 40% of the value of the total value of the risky assets in
the portfolio. Also check out Chapter 11.5 of BerkDeMarzo, 4th Global edition.
2
The efficient rand when a risk-free asset is available on the capital market.
Page 7
by 8
Financing 10 ECTS
January 8, 2020
1. Assignment maker: Allan Damgaard and Kenneth Schultz

3. Delivered: Only digital delivery can be made. The answer is delivered through SDU-
delivering. In addition, the Internet may not be used during the test.
9. High-use devices: All aids are permitted except for the use of the Internet. The use of
the inter-network is not permitted, regardless of the circumstances.
Communicating with others is not allowed.
10. The exam tests target achievement for all points in the target description by
random check.
Page 7
by 9
assignment and delopgave is given solely for the purpose of assisting inthe
availability of the student's time for the answer. The weighting is not binding on the
censorship, as the grade will be determined based on the degree of achievement of
the goal, according to the course description. Note in particular the following text,
with excerpts from the target description of the course description:
clearly stated in the reply. This means that even if the default functions in Excel
orinother calculators are used, theoretical formula must be specified. This also
means that the answer must specify the variables included and be included in the
formulae used.
rotation cannot be used unless the formula uses notation consistent with formula
throughouttaskn. In addition, the answer must clearly distinguish between inputs
(e.g. information from task text), intercompany bills and façade.
Page 2
Exercise 1 (35%)
All subtasks in this task 1 have no coherence. All the subtasks can therefore be
solved independently of each other.
Exercise 1.1 (5%)

The shares in a given company shall contain the following information on the return
for the next period:
Business cycle Probability Retur

state n
Very bad 0,05 -0,42
Bad 0,20 -0,13
Normal 0,35 0,06
Good 0,30 0,20
Very good 0,10 0,38
Calculate the expected return in the next period on the shares in the company in
question.
Exercise 1.2 (5%)

The following table provides some information on the market index, asset A and a
risk-free asset in a given normal market. The risk-free return for the next year is
0.6%.
Kr. Cash flow year 1

Active: Market price Recession Boom
today
(t=0)
The market index 1.500 1.200 2.100
Active A ? 225 1.125
Calculate the price of asset A.

Hint: First calculate the price of the risk-free asset.
Exercise 1.3 (7%)

Ellen has just turned 27 and she just got her first job. Ellen has therefore decided to
create a retirement savings. Ellen has also decided that she will retire at the age of
62, i.e. the term of the pension scheme is exactly 35 years. Ellen expects her salary
to increase all the years leading up to retirement. Ellen will therefore increase its
monthly payments by a constant growth rate of 0.2% per month. Ellen will pay the
first run of DKK 5,100 in exactly one month. The discount rate linked to the pension
scheme is 0.08% per 100%. month.
Calculate balance (million USD) pension scheme when Ellen turns 62.
Hint: First calculate the present value (PV) of the pension scheme and then discount.
Page 3
Exercise 1.4 (5%)
An investor acquired a portfolio of shares for DKK 1.95 million for t=0. For t=1, the
in-vestor sold the portfolio for DKK 2.1 million. In the period from t=0 to t=1, the
investor received swaps of EUR 0,04 million. Kr. from the portfolio.
Calculate the investor's period return on the described portfolio.
Exercise 1.5 (7%)

there will be only three possible conditions for the economy and related realized
divestments on the shares in the profitablecompany:
Conditio Probability Retur

n n
1 0,25 -0,16
2 0,45 0,13
3 0,30 -0,21
Calculate the standard deviation of the return on the shares in the given company in
the next period.
Exercise 1.6 (6%)

Lucky Luke has won a prize equal to an extra monthly salary paid
22.0 every month for the next 9 years. The first additional monthly salary is
paid in exactly one month. The discount rate measured year-round is 1.1%.
Calculate the present value (PV) of Lucky Luke's gain in millions of dollars. Kr.
Exercise 2 (40%)
The task must disregard tax and VAT. All budgetary information is in constant terms
in the expected price level per 100 000 units. January 1, 2020. One year is
recognised by 360 days.
Karla Farma is a pharmacy assistant and today works at a Pharmacy in Odense,

where hermonthly salary is DKK 29,000 per month. Karla Farma is considering
starting her own whole-storey food store in a side street to the street in Odense,
where the product range will be organic skin care and health food. Karla Farma wants
to be the sole owner of the store. At the sametime as the sale in the physical
store, Karla Farma will also sell her products online.
Karla Farma has found some suitable storerooms for a monthly rent of DKK 16,000
including consumption taxes (electricity, water and heating). The capital expenditure
on the renovationand fitting-out of the shop room and storage rooms, including the
construction of a new storeroom, is estimated at 100%. IT, etc. will amount to DKK
350,000.
When the lease ends, the scrap value of the interior design and conversion is DKK
35,000. Renting the premises requires payment 1. January 2020 of a deposit of 6
months rent.
Half of the deposit is expected to be used by the landlord to renovate the
Page 4
propertyupon termination of the lease. The rest of the deposit is expected to be paid
to Karla Farma at the end of the rental period.
Inflation is expected to remain constant at 1.40% per an-year period by 2020-2025.
Page 5
In the store there will thus be 4 turnover groups:
1. Store sales of skin care items.

2. Shop sales of health food items.
3. Online sales of skin care products.
4. Online sales of health food items.
If Karla Farma does not set up her own shop, Karla Farma expects to be able to stay
in her current position indefinitely. To help her in the store and with the online sales,
Karla Farma must hire 2 store and parcel assistants for a monthly salary of DKK
25,000. per. person.
Karla Farma has established the following revenue budget for the four turnover
Table 2.1: Expected Revenue ($1,000)

2020 2021 2022 2023 2024 2025
Skin care - Store 400 600 800 900 1.000 1.000

Health Food - Shop 300 500 700 800 900 900
Skin care - Net sales 400 600 800 900 1.000 1.000
Health Food - Net Sales 100 300 500 600 700 700
The gross margin for skin care products is expected to be 65%. For health food
products, gross margin is expected to be 50%.
Karla Farma will establish a start-up warehouse worth DKK 200,000, payable on 1
January 2020. Inventory will be kept constant at this level, i.e. during the budget
period there will be no changes in inventory value.
All sales in both store and online will be made in cash.
Suppliers of both health food and skin care products will give Karla Farma a credit
period of 40 days net.
On-hand inventory (NWC) is expected to be realized at the end of the budget period.
It can be assumed that all payments are made at the end of each budget period.
Capital expenditure shall be paid on 1 May 2004. They shall forth be tab
To co-finance the investment and start-up, Karla Farma takes out a 6-year fixed-rate
series bond with a principal of DKK 400,000. The nominal interest rate on the loan is
1.5% per an hour and the rate is DKK 97.35 per DKK 100 principal. The loan has full-
yearly terms paid and it is assumed that there are no transaction costs (fees,
commissions, etc.) when borrowing the loan.
Page 6
The nominal risk premium for the investment is 13% calculated year-round. Nominal
risk-free interest rates are 0.7% calculated year-round.
Karla Farma will only complete the investment, i.e. establish and run her store, if it
is economically advantageous over a time horizon of 6 years from 2020
through 2025.
Exercise 2.1 (5%)

Set up the benefit series1 for the loan described and calculate the effective interest
rate of the loan in full.
Exercise 2.2 (10%)

Calculate the total investment expense as of January 1, 2020 (t=0) and calculate the
projected free cash flow (FCF) for the investment in boate fixed and current pricesfor
each of the 6 years in the period 2020-2025. Real cash flow shall be calculated at the
price level of 1. January 2020 as a basis.
Exercise 2.3 (5%)

Calculate the expected cash flow to the owners (i.e. the cash flow to Karla Farma) at
current prices for the investment as of January 1, 2020 and for each of the 6 years
in the period 2020-2025.
Exercise 2.4 (5%)

Calculate the value of the store2 per month. 1 January 2020 and calculate the
share of equity and debt for the store as of 1 January 2020. January 2020, if the
investment is made.
Exercise 2.5 (5%)

Calculate the present value of the investment (NPV) and briefly explain whether the
investment should be carried out.
Karla Farma estimates that her estimates of the turnover of skin care products in
particular are very uncertain. Furthermore, Karla's estimate of the risks of the project
is also very uncertain.
Exercise 2.6 (10%)

Perform a sensitivity analysis of the project, where you know different values of
turnover for skin care products and discount rate calculates the NPV of the
investment. Against this background, please explain (see task 2.5) whether Karla
Farma should carry out the implementation.
For example, the structure of your answer in task 2.6 could be 100%. have the
following appearance:
Page 7
1
I.e. for each term, residual debt must be calculated at the beginning, instalments,
interest payments, payment and outstanding debt at the end.
2
VL (firm value/value of assets).
Page 8
Annual change in the circulation
of skin care products:
-30% -20%
Change in +10% points
nominal
discount rate: +15% points
Thus, the table fields indicate NPV for the specified changes in turnover and
conversion rate.
Exercise 3 (25%)
In the task, tax must be disregarded. The company Global Shipping Express is
engaged in global maritime transport of goods for their customers. Their main cost is
fuel, and their earnings are therefore highly dependent on the price
development of oil.
As a result of this heavy dependence on oil price developments, the company has, for
strategic reasons, chosen to use European options to hedge against oil price
fluctuations.
Global Shipping Express has today (t=0) chosen to buy3 two European options on a
barrel of crude oil, both with expiration to time t=1. The options consist of a
European call option with a exercise price of USD 65 and a European put option with
an exer-cise price of USD 60.
Opgave 3.1 (5%)

Illustrates the options portfolio's total cash flow to t=1 as a function of the price of a
barrel of crude oil to t=1.
Exercise 3.2 (5%)

Discuss whether Global Shipping Express is using the right strategy to hedge
price fluctuations in the price of a barrel of crude oil.
Global Shipping Express is a listed company that does not pay dividends. As part of
his pay package, the company's ceo has been granted share options that give him the
opportunity to buy shares in Global Shipping Express. To ensure the value of the stock
options, the Director has asked his financial adviser about the price of a one-year
European put option with an exercise price of DKK 210.
At present, in the given financial market, Only European call options are traded at a
cost of DKK 210 per share in the company. The market thus offers no European put
options. The price (t=0) of the call option is DKK 21, and the price of the stock (t=0)
is DKK 224. The nominal risk-free interest rate is 1.75% calculated in full.
Exercise 3.3 (5%)

Calculate the price of a one-year European put option written on the company's
shares with a price of DKK 210 per share. share.
3
Remember that when buying, and thus owning an asset, you are long in the asset.
Page 9
Global Shipping Express owns a subdivision called Transport Express, which seals
logistics solutions with transport from the freight port to the final customer on the
American-Cane fieldd. This division currently has (t=0) an annual income of DKK 50
million.
Due to uncertainty about the outcome of potential new legislation on fuel tax in the
transport sector, Transport Express's revenues will either fall by 20% orincrease by
10% in oneyear' s time, with an equal probability of both outcomes. After that, annual
income will remain at this level for so long that the subdivision is run on, i.e. forever.
The annual operating costs are DKK 38 million and they will remain on this
levelforever regardless of the legislation that will apply in the future.
There will be no costs associated with closing Transport Express. Transport Express
can wait one year to decide whether to continue its operations if the falling revenue
scenario occurs. If Transport Express ceases operations in one year, it is expected
that Transport Express will be able to sell its assets for DKK 30 million at this time. In
the task, the expected nominal free cash flow (FCF) can be simplified as the revenue
less the drift costs.
Exercise 3.4 (10%)

Calculate the value4 of Transport Express at time t=0 and calculate how much of that
value comes from having an option to wait one year to decide whether to close the
business. Comment on your results.
Hint: For inspiration, see, among other things, Chapter 10. 22.4 in BerkDeMarzo 4th
Global Edition.
4
Firm value (VL)
Page 8
by 8
HA-Financing (10 ECTS)

Odense, Slagelse, Kolding and Esbjerg
January 25, 2021

2. Available: Via Digital Exam.
3. Delivered: Only digital delivery can be made. The answer is
submitted by upload to Digital Exam. The assignment must be
delivered in PDF-for-matte.
7. Place: Home. The test is carried out using your own PC.
8. Internet access: Internet may only be used to access digital
exams at drop-off. In addition, the Internet may not be used
during the test.
9. Aids: All aids are permitted except for the use of the internet.
Internet use is not permitted regardless of the circumstances.
Communication with others is not allowed.
10.Exam Monitor must be connected and active throughout the
exam. 11.The exam tests the achievement of the objectives for
all the points listed (
before the target description) by random checks.
Page 1
assignment and sub-task is given solely for the purpose of assisting in the availability
of the student's time forthe answer. The weighting is not binding on the censorship,
as the grade will be determined based on the degree of achievement of the goal,
according to the course description. Note in particular the following central text
with excerpts from the subject description's target description:
Theanswer must therefore contain the necessary explanatory and detailed text and,
other calculators areused, theoretical formula must be specified. This also means that
the answer must specify the variables included and be inserted into the formulae
used.
rotation may not be used unless the formula uses notation consistent with formula
throughout the task. In addition, the answer must make it possible to distinguish
clearly between inputs (e.g. information from the text of the task), intermediate
bills and façade.
All closing façades numerically greater than 1 must be givena minimum of 4 decimal
places, except in the case of dollars and pennies, where the façade must be given to
two decimal places. All endfacite numerically less than 1 must be indicated by a
minimum of 4 significant digits. Remember that interim bills must not be rounded,
asthis will make it inaccurate.
Page 2
Exercise 1 (40%)
All subtasks in this task 1 have no coherence. All the subtasks can therefore be
solved independently of each other.
Exercise 1.1 (7%)

there will be only three possible conditions for the economy and related realized
divests on the shares of the given company, as set out in Table 1.1 below:
Table 1.1: Probabilitydistribution of returns

Condition Probability Retur
n
Recession 0,25 -21 %
Normal business 0,70 11%
cycle
Boom 0,05 19%
Calculate the expected return and standard deviation of the return in the next
period.
Exercise 1.2 (6%)

A company is considering carrying out an investment with a short economic life of
only 3 years and with a nominally expected free cash flow (FCF), as indicated
in Table 1.2:
Table 1.2: Nominal FCF for investment

Time: t=0 t=1 t=2 t=3
FCF* -9 3 5 3
(DKK million)
*) Excluding any scrap value for t=3.
Nominal risk-free interest rates are expected to be 0.3% over the whole period,
measured full-yearly. On the basis of an assessment of the systematic risk to the
investment, the nominal risk premium linked to the investment is estimated to be 11
% calculated in full. The investment has a scrap value of DKK 0.5 million.
Calculate the NPV of the investment.
Exercise 1.3 (6%)

You have just (t=0) won a prize equal to an additional SU paid out of DKK
6,000 in real terms each month for the next 4 years with the price level to t=0 as the
basis. The first additional SU is paid out in exactly one month. Each month, when the
additional SU is paid out, the winnings are of course paid converted at current prices 1.
The nominal discount rate is 1.9% measured year-round. Annual inflation is expected
to be consistently 1.2% over the next four years.
Calculate the present value (PV) of your winnings.
Page 3
1
I.e. price level at the time of payment.
Page 4
Problem 1.4 (10%)
Table 1.4 below provides some information on the market index, asset Z and a risk-
free asset in a given normal market. Nominal risk-free interest rates for the next
year are 0.2%. The probability of boom is 55%.
Table 1.4: Information on prices and cash flows

DKK Nominal cash flow year 1
(t=1)
Active Market price Recession Boom
today
(t=0)
The market index 250 50 475
Active Z ? 100 525
Calculate the expected nominal risk premium of asset Z in the coming year.
Exercise 1.5 (6%)

Sofie has just turned 36 and she has been in the labour market for 10 years. Sofie
has decided to set up a pension savings with constant nominal monthly payments.
Sofie wants the balance of her retirement savings to be DKK 5 million by the time she
turns 65. The nominal discount rate linked to the pension scheme is 1.1% annual.
What constant monthly amount should Sofie deposit on her retirement savings if the
first deposit occurs in exactly one month and the last deposit happens when she turns
65?
Problem 1.6 (5%)

Lucky Luke has just inherited DKK 2 million from arich uncle in America, and has
decided to use the inheritance to acquire one of the following 3 portfolios:
Table 1.6: Information on returns and volatility in the next period

Nominally expected Volatility
return
Portfolio A 0,11 0,07
Portfolio B 0,19 0,14
Portfolio C 0,06 0,05
In the given capital market there is also a risk-free asset with a nominal launch of
0,9 % in the next period.
Explain exactly and reasoned which of the above 3 portfolios Lucky Luke should
choose.
Page 5
Exercise 2 (35%)
Table 2.1 below provides information on five fixed-rate bonds traded on a given
financial market. For all five bonds, they have exactly one year to the next
term. All the bonds are characterised by a deterministic payment flow 2and the bonds
have postpaid terms3.

Compu Amortisat Maturit Coupo Number Effective Price
lsory ion y n of mines interest ($10)
principle (year) intere per year rate
st year-
round
A Annuity 4 0,5 % 1 ? ?
See Series 4 1,0 % 1 ? ?
St Standing 4 1,5 % 1 ? ?
N-3 Zero coupon 3 0% 1 ? ?
N-4 Zero coupon 4 0% 1 ? ?
Exercise 2.1 (6%)

Set up the4 per month performance row DKK 100 principal for each of the five
bonds.
It is now stated that the discount factors d(t), t (year) = 1, 2, 3, 4, 5, 6 on the given
financial market are as shown in table 2.2 below:
Table 2.2: Discount factors

t (year) 1 2 3 4 5 6
d(t) 0,9971 0,9750 0,9510 0,9295 0,9090 0,8900
Exercise 2.2 (3%)

In a chart, illustrate the 6-year yield structure of the financial market in
question, with the discount factor d(t) as the dependent variable.
Exercise 2.3 (3%)

Determine zero coupon rates y 1(t), t (year) = 1, 2, 3, 4, 5, 6 on the financial
market concerned.
Exercise 2.4 (3%)

In a graph, illustrate the six-year yield structure of the financial market in
question with the zero coupon rate y 1(t) as the dependent variable.
Exercise 2.5 (2%)

Comment briefly on your graphs under tasks 2.2 and 2.4.
Exercise 2.6 (5%)

Determine the market price of each of the five bonds per
10000000000000000000000000 DKK 100 in nominal value.
2
The bonds are default-free.
3
Forward payments are made at the end of the term (last day of the term).
Page 6
4
That is, for each term, residual debt must be calculated at the beginning, installment payment, interest
payment, payment of benefits and outstanding debt at the beginning.
Page 7
Exercise 2.7 (5%)
Determine the effective interest rate measured year-round for each of the five
bonds.
The Hansen family has a house in Kerteminde that is in a nice location, but the
house has a lot of maintenance. The family has therefore decided to take out
an additional loan to finance a thorough renovation of the house, which will
cost DKK 850,000. The family's banking adviser has argued that they can take out a
fixed-rate default-free mortgage to finance the renovation project. The term of
the loan will be 6 years with full-year postpaid terms. The nominal interest rate
of the loan is 0,5 % per an-year. The loan is amortised according to the principle of
annuity.
Exercise 2.8 (8%)

Determine the principal amount of the loan if the net proceeds are to be DKK
850,000, assuming that there are no borrowing and formation costs associated with
the loan. Also determine the price of the loan per DKK DKK 100. in principal.
Exercise 3 (25%)
A company is considering taking out a two-year convertible zero coupon on time
with a principal of DKK 10 million.
When the loan expires (t=2), the debt holders have a right, but not an obligation,
to exchange the debt for 3 shares per DKK 100 nominal debt. If the debt holders
exchange the debt for shares, the debtis cancelled on 5.
The company is a public limited company and the companyhas 500,000 outstanding
shares.
The market price of the company's shares today (t=0) dkk 32. Over the next two
years, the share price (DKK) develops as shown in the binomial tree below:
46.08
(UU)
38.4
(U)
32 30.72
(OUT)
25.6
(D)
20.48
(DD)
t=0 t=1 t=2
Price of share next two
years.
Page 8
5 Thus,
in this situation, the debt holders do not receive the debt servicing to t = 2.
Page 9
The risk-free interest rate is 1.2% calculated on a year-round rate.
Exercise 3.1 (4%)

Explain whether there is a credit risk attached to the zero coupon loanin question
6
.
Exercise 3.2 (2%)

Determine the risk neutral up probability in all the relevant nodes.
Exercise 3.3 (2%)

Determine which payments in each node on time t=2 are linked to the convertible
loan per month. DKK 100 in nominal value.
Exercise 3.4 (4%)

Determine the value of the convertible loan per DKK 100 in nominal value in each
of the two nodes on time t=1.
Exercise 3.5 (5%)

Determine the value of the convertible loan per DKK 100 in nominal value at time
t=0. Then determine the market value at t = 0 of the total nominal debt of
DKK 10 million.
Exercise 3.6 (6%)

Determine the replicating portfolio and its value for the convertible loan per DKK
100 in nominal value in the node at time t=0.
Exercise 3.7 (2%)

Compare your score in task 3.6 with your result in task 3.5.
Page 10
6
It is necessary to explain whether the loan is default-free.
Page 11

5 Past Exams

Uploaded by

Copyright:

Available Formats

5 Past Exams

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

5 Past Exams

Uploaded by

Copyright:

Available Formats

UNIVERSITY OF SOUTHERN DENMARK

FACULTY OF SOCIAL SCIENCES

1. Task maker: Kenneth Schultz

The task set contains 4 tasks and associated subtasks.

Table 1.1: Expected Next Period Return

Table 1.2: Correlation between return on shares

Table 1.3: Standard deviation of returns

Table 1.4: Total Market Value of Shares

Inflation is expected to remain constant at 1.75% per an a year

groups: Café and Restaurant.

Table 2.1: Revenue (DKK 1,000)

Restaurant 1.125 1.500 2.250 2.500 3.000

2022 2023 2024 2025 2026

Restaurant 3.750 4.250 4.500 4.500 4.500

Stocks are expected to be realized at the end of the budget period.

t=0 t=1 t=2

Now suppose that the owners complete the described investment.

When entering theoretical formula, a minimum of specific formula number from

Table 1.1: Expected Returns

Table 1.2: Correlation between return on shares

Table 1.3: Standard deviation of returns

Weight X (xT): 0,69802370

Weight X (xMVP): 0,84030664

t=0 t=1 t=2

Figure 2.1: Development in share price (DKK) over

the next two years. The risk-free interest rate is

1.35% calculated year-round.

Table 3.1: Information on bonds

Table 3.2: Discount factors

1. Commercial assets consisting of buildings, production facilities and fields where

The expected return on current commercial assets is 11% calculated full-

Now suppose that the company completes the described investment.

When entering theoretical formula, at least specific formula number from

t=0 t=1 t=2

Figure 1.1: Development in share price (DKK) over

the next two years. The risk-free interest rate is

0.8% calculated year-round.

Table 2.1: Information on bonds

Table 2.2: Zero coupon rates

In another financial market, fixed-rate annuity bonds are traded at a fixed-rate

Suppose the bond is in the 7th. February 2018.

Exercise 3 (weight 50%)

Inflation is expected to remain constant at 1.5% per an a year

between 2018 and 2025. In the company there will be two

customer groups: Private and Craftsman.

Table 3.1: Revenue (DKK 1,000)

Craftsman 1.800 2.300 2.800 3.100 3.300 3.500 3.700 3.900

Viggo Warm will only complete the investment if it is economicallyadvantageous over

January 11, 2019

1. Task maker: Kenneth Schultz

Table 2.1: Expected Revenue ($1,000)

Electric 700 1.200 1.500 1.800 2.100 2.400 2.700 3.000

The annual nominal risk-free rate is 0.75% calculated annually.

1. Assignment maker: Malene Damsted and Kenneth Schultz

Exercise 1.1 (5%)

Exercise 1.2 (5%)

Exercise 1.3 (7%)

Conditio Probability Retur

Exercise 1.4 (8%)