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Compounding frequency and time value: You plan to invest $2,000 in an individual retirement arrangement (IRA) today at a nominal annual rate of 8%, which is expected to apply to all future years.
a. How much will you have in the account at the end of 10 years if interest is compounded (1) annually, (2) semi annually, (3) daily (assume 365-day year), and (4) continuously?
b. What is the effective annual rate (EAR) for each compounding period in part a?
c. How much greater will your IRA balance be at the end of 10 years if interest is compounded continuously rather than annually?
d. How does the compounding frequency affect the future value and effective annual rate for a given deposit? Explain in terms of your findings in part a through c.
Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 40% debt and 60% equity; however, the CEO believes the firm should use more debt. The risk-free rate, rRF, is 6%; the market risk pre..
Nancy Marchand purchased a put option on British pounds for $.04 per unit. The strike price was $1.80 and the spot rate at the time the pound option was exercised was $1.59. Assume there are 31,250 units in a British pound option. What was Nancy’s ne..
A firm that follows a residual dividend policy will probably have:
At the end of each three months Laura puts $200 into an account that pays 4% interest compounded quarterly. After 10 years she discontinues the payments but leaves the total amount in the account to collect interest for 10 more years. Determine the b..
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Foley Systems is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require additional net operating working ..
An investor wants to form a two asset portfolio consisting of Treasury bills with a return of 1.5% and a risky portfolio with a risk premium of 12.7% and a standard deviation of 22%. The investor wants the standard deviation of the two asset portfoli..
Finance Corp has fixed costs of $7 million and profits of $4 million. What is its degree of operating leverage (DOL)?
During the year, the firm sold assets with a total book value of $13,600 and also recorded $14,800 in depreciation expense. How much did the company spend to buy new fixed assets?
Conduct Dupont Analysis to find ROE on Tesla Motors for the past three years (2012, 2013, 2014), showing calculations, then explain this data in comparison to General Motors. What improvements can TSLA make?
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 1.6% + 0.70RM + eA RB = –1.8% + 0.9RM + eB σM = 22%; R-squareA = 0.20; R-square B = 0.15
Section 1: Financial Analysis Review the Financial Statements: Analyse the current financial state of Anthony's Orchard and evaluate the impact of a major customer cancelling their expected order. This analysis should include the following: Your v..
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