Mathematical finance

Arundel Partners: The Sequel Project The maximum per-film price for the sequel rights that Arundel Partners should pay is $5.12M. If Arundel Partners were to use the traditional DCF methods to find the value of the sequel rights, the NPV would be -$8.42M loss per-film (see Appendix 1). Calculation Details We assume that Arundel Partners will purchase a portfolio of films similar to one used in the analysis. The average hypothetical net inflow of the sequel ($21.57M) is used to figure out the value

easily. Therefore, this give a benefit to market participants since they can compare market prices with different values based on different inputs. Although the model might seem as a complicated model for human calculation, the formula is simple in mathematical terms. Therefore, high-tech computer programs are not need to compute and it can also save time. One of advantages of the model is that investors can use the model to analyze market volatility of underlying assets. Results from the model are often

The density forecast of a random variable is an estimation based on the past observed data. This is a symmetric interval prediction which means that the outcomes will fall into an interval that is a band of plus/minus a fixed times of standard errors. The estimation provides a probability distribution of all possible future values of that variable. Over the past decades, the price density forecast has been widely used to study microeconomic and financial issues. Forecasting the future development

Usage of normal distribution in AFL The Australian Football League (AFL) is a multi-million dollar sports industry consisting of 18 teams that are spread over five states of Australia. In this section, two data sets containing the weight and height of all the players in the 18 AFL teams was analysed to determine whether using normal distribution to describe them is suitable. As discussed in the previous section, a normal distribution has particular characteristics it conforms to. i.e. It has most

FIN 370 Lab Study Guide - All Weeks - Additional Formula (Compound interest) to what amount will the following investments accumulate? a. $5,000 invested for 10 years at 10 percent compounded annually 5000 x (1.10)^10 = 5000 x2.5937 =12968.5 b. $8,000 invested for 7 years at 8 percent compounded annually 8000 x (1.08)^7 = 8000 x 1.7138 = 13710.59 c. $775 invested for 12 years at 12 percent compounded annually 775 x (1.12)^12 = 775 x3.8959 =3019.38 d. $21,000 invested for 5 years at 5 percent

Valuation Questions Question 1: A strategic option is a valuation approach applied by firms when making strategic investment decisions involving valuable business opportunities. The approach is premised on the idea of remedying the shortcomings of DCF analysis model. This approach allows firms to value investment opportunities by ascertaining on future value benefits that a specific project would bring to firm, rather than looking at cash flow. Strategic options enable the management to formulate

Case Study –Nike, Inc.: Cost of Capital FIN202a-Spring 2011 1. Please define Weighted Average Cost of Capital (WACC). Write down the WACC formula, and discuss its components. WACC (Weighted Average Cost of Capital) is a market weighted average, at target leverage, of the cost of after tax debt and equity. It is a critical input for evaluating investment decision, and typically the discount rate for NPV calculation. And it serves as the benchmark for operating performance, relative to

To: MoGen, Inc. Senior Management From: Mr. Dar Maanavi, Managing Director, Equity-Linked Capital Markets Group of Merrill Lynch Re: $5 Billon Convertible Debt Offering Proposal Dear Gentlemen: We are pleased to present to you the salient features of our proposed $5B convertible debt offering for your careful review and approval. We deemed it appropriate to walk you through the analytical process in coming up with the right mix of conversion premium and coupon rate. We initially consider

3. Variable measurement, sample selection, and empirical design 3.1. Variable measurement and sample selection Before the Securities and Exchange Commission (SEC) reformed the executive compensation disclosure requirements regarding inside debt in 2006, it is very difficult to find out information related to the deferred compensation. Therefore, following Sundaram and Yermack (2007), the data set used in this paper for the period before 2006 consists of the pension data only, and ignores the minority

Part I A. Present Value with Discount rate of 7% = 15000/(1+7%) = 15000/1.07 = $14,018.69 Present Value with Discount rate of 4% = 15000/(1+4%) = 15000/1.04 = $14,423.08 B. Account A - Present Value with Discount rate of 6% = 6500/(1+6%) = 6500/1.06 = $6,132.08 Account B - Present Value with Discount rate of 6% = 12600/(1+6%)^2 = 12600/1.1236 = $11,213.96 C. Present Value of Gold Mine 7% = 4900000/1.07 + 61,000,000/(1.07)^2 + 85,000,000/(1.07)^3 = 45,794,392.52 + 61,000,000/1.1449 + 85