anyone remember what was the deal 58.2 current price, 52 intrinsic value and 9.6% required return, in 8 months price to converge??? find hpr??

I believe you were meant to probably take the current intrinsic value maybe and then multiply that by the risk free rate for 8 months. i think. but Im sure even if you did that it would still be a negative HPR and they didnt have that as an option. AT the time i couldnt work it out, so i just did something like 8/12 times the 9.6 and it got one of the answers there so iw ent with that cos it was the best i had

it was: 1 + required rate x (x/360) + intrinsic value

I took the 9.16 * (8/12) and multiplied used that to produce an expected intrisic price of like $59. Since intrinsic and market were assumed to converge, a holder of the stock would earn the difference between $58.20 and $59. It said they were selling the stock or something in the case, but I dont think that was related to the actual question being asked.

Whats the big deal about this question? The HPR is just your return. The required return is a distractor. All you need to do is take your return (58.2-52 [because it was a short]) and divide it by the price paid (58.2). Then you annualize it and if i remember correctly it was somewhere around 2.5%.

Man, I didn’t see it was a short, thought my head go nuts, but anyway, I just did the most of guys said here, take the difference and multiple by 2/3.

even if it was a short I dont think any of the figures matched up did they.

king_kong Wrote: ------------------------------------------------------- > Whats the big deal about this question? The HPR is > just your return. The required return is a > distractor. All you need to do is take your return > (58.2-52 ) and divide it by the price paid (58.2). > Then you annualize it and if i remember correctly > it was somewhere around 2.5%. you don’t annualize hpr. “holding period” return

Thats right. HPR is HPR. But annualized HPR is annualized HPR.

king_kong Wrote: ------------------------------------------------------- > Whats the big deal about this question? The HPR is > just your return. The required return is a > distractor. All you need to do is take your return > (58.2-52 ) and divide it by the price paid (58.2). > Then you annualize it and if i remember correctly > it was somewhere around 2.5%. Required return was not a distractor. To calculate HPR for a stock based on intrinsic value at some time in the future: (current intrinsic value x (1+required return)^t)/current share price - 1 = HPR

MarshallB Wrote: ------------------------------------------------------- > king_kong Wrote: > -------------------------------------------------- > ----- > > Whats the big deal about this question? The HPR > is > > just your return. The required return is a > > distractor. All you need to do is take your > return > > (58.2-52 ) and divide it by the price paid > (58.2). > > Then you annualize it and if i remember > correctly > > it was somewhere around 2.5%. > > Required return was not a distractor. > > To calculate HPR for a stock based on intrinsic > value at some time in the future: > > (current intrinsic value x (1+required > return)^t)/current share price - 1 = HPR i really hope this is right.

Where do you see this in the books, MarshallB?

It was 56 not 52, so the gain is 2.2 which didn’t get me to any right answer. Oh well.

56 intrinsic value

Yeah I think we had to use the required return but I could be wrong.

Ans 2.5?

Jesus where was this formula at?

page 97 in the equity book with example on page 98: E® = required return + appreciation/depreciation from intrinsic value.

((1.096^(8/12)-1)*100)-(2.2/58.2)*100 = 2.52

Ah touche. I stand corrected. So I guess you would have had to discount that required return they gave us to 8 months and then added it to the HPR to get the answer they were looking for. I suppose it would have helped to actually read the books before taking the exam…