Reference no: EM13903780
Question 1: Perpetuity problem
What is the value of a perpetuity with an annual payment of $50 and a discount rate of 4%?
Question 2: Present value of annuity problem
You will receive $1,000 at the end of the next 10 years, assuming a 7% discount rate, what is the present value of the cash flows?
Question 3: Future value of annuity problem
You deposit $5,000 into a retirement account at the end of the next 15 years earning 8% interest, what is the future value of your retirement after 15 years?
Question 4: Future value of annuity problem
You deposit $10,000 into a retirement account at the end of the next 10 years earning 9% interest, what is the future value of your retirement after 10 years?
Question 5: Perpetuity problem
What is the value of a perpetuity with an annual payment of $100 and a discount rate of 6%?
Q6: Valuation - corporate bon
A $1,000 corporate bond with 10 years to maturity pays a coupon of 8% (semi-annual) and the market required rate of return is a) 7.2% and b) 10%. What is the current selling price for a) and b)?
Q7: Valuation - zero-coupon bond
A U.S. Government bond with a face amount of $10,000 with 8 years to maturity is yielding 3.5%. What is the current selling price?
Q8: Charlie Company is expected to grow at an annual rate of 6% indefinitely. The return on similar stocks is currently 11%. Charlie's board of directors declared a dividend of $1.85 yesterday. What should a share of Charlie Company sell for?
Q9: Valuation - preferred stock
What is the value of a share of preferred stock that pays a $9.50 dividend, assume k is 12%.
Q10: Valuation - corporate bond
A $1,000 corporate bond with 20 years to maturity pays a coupon of 7% (semi-annual) and the market required rate of return is a) 6.6% b) 13%. What is the current selling price for a) and b)?
Q11: Risk and Return, Coefficient of Variation
Based on the following information, calculate the coefficient of variation and select the best investment based on the risk/reward relationship.
Std Dev. Exp. Return
Company A 10.4 15.2
Company B 14.6 22.9
Q12: Risk & Return and the CAPM.
Based on the following information, calculate the required return based on the CAPM:
Risk Free Rate = 3%
Market Return =10.5%
Beta = 1.2
Q13: Holding Period Return
Based on the following information calculate the holding period return:
P0 = $11.00
P1 = $11.40
D1 = $1.02
Q14: (Part 1)
Using a 3.8% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer.
Project 1: Initial Invest= $520,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.
Project 2: Initial Invest= $1,050,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10.
Project 3: Initial Invest= $820,000, Cash inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year 10.
(Part 2)
Assuming a budget of $1,300,000 what are your recommendations for the three projects in the above problem. Explain.
Assuming a budget of $2,100,000 what are your recommendations for the above problem? Explain.
Q15: Based on the information below, calculate the weighted average cost of capital.
Great Corporation has the following capital situation.
Debt: One thousand bonds were issued five years ago at a coupon rate of 10%. They had 25-year terms and $1,000 face values. They are now selling to yield 9%. The tax rate is 40%
Preferred stock: Two thousand shares of preferred are outstanding, each of which pays an annual dividend of $7.50. They originally sold to yield 15% of their $50 face value. They're now selling to yield 10%.
Equity: Great Corp has 120,000 shares of common stock outstanding, currently selling at $14.48 per share. The risk free rate is 3%, market rate of return is 10% and the Beta is 1.2.