. . . I see one-third of a nation ill-housed, ill-clad, ill-nourished. It is not in despair that I paint you that picture. I paint it for you in hope—because the Nation, seeing and understanding the injustice in it, proposes to paint it out. We are determined to make every American citizen the subject of his country’s interest and concern; and we will never regard any faithful, law-abiding group within our borders as superfluous. The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little. . . . —President Franklin D. Roosevelt, Second Inaugural Address, January 20, 1937 President Franklin D. Roosevelt addressed the situation described in this speech by

For the region in between the two curves

In 1936, the Supreme Court of the United States declared the Agriculture Adjustment Act of 1933 unconstitutional. Justice Owen Roberts provided the following explanation for the Court’s decision. We are not now required to ascertain the scope of the phrase “general welfare of the United States” or to determine whether an appropriation in aid of agriculture falls within it. Wholly apart from that question, another principle embedded in our Constitution prohibits the enforcement of the Agricultural Adjustment Act. . . . It is a statutory plan to regulate and control agricultural production, a matter beyond the powers delegated to the federal government. —United States v. Butler, 1936 Which constitutional amendment did the Supreme Court use as a basis of this ruling?

You have $10,000,000 in a portfolio consisting of 4 stocks with $2,500,000 invested in each.  The portfolio’s beta is 1.50.  You plan to sell Stock A in your portfolio and use the proceeds to buy Stock B.  Stock A has a beta of 1.25, while Stock B’s beta is 0.75.  After this transaction, what will the portfolio’s new beta be? (Hint:  Make sure to carry out your calculation to 4 decimal places.)  

You have been assigned the task of using the corporate, or free cash flow, model to estimate Matthias Corporation’s intrinsic value.  The firm’s WACC is 12%, its end-of-year free cash flow (FCF1) is expected to be $525 million, and the FCFs are expected to grow at an 18% rate for each of the next two years (t = 2 and 3).  After t = 3, the free cash flows are expected to grow forever at a constant rate of 5% per year.  The firm has $330 million of nonoperating assets.  The company has $317.71 million in long-term debt, no preferred stock, and it has 150 million shares of common stock outstanding.  What is the firm’s estimated intrinsic value per share of common stock?

In today’s market, you observe the following yield curve for government securities: Assume that the pure expectations hypothesis holds (i.e., the maturity risk premium = 0).  What does the market expect will be the interest rate on 2-year securities three years from now?  You may solve this problem using either the algebraic or geometric approach.

Reinhardt Industries is a mature company experiencing a constant growth rate of 4.5%.  The firm has just paid a dividend of $3.60 (that is, D0 = $3.60).  Investors require an 11% rate of return on the stock.  What is the firm’s stock price today?  NOTE: Since the $3.60 dividend has already been paid, its value should not be reflected in the firm’s stock price.  

yesterday

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