Questions and Answers of Foundations of Finance

Pelwatte Sugar Industries has bonds that are selling for $1,432. The coupon interest rate on the bonds is 9.75 percent, and they mature in 23 years. What is the yield to maturity on the bonds? What
Uzbekistan Airways issued bonds that pay 6.5 percent coupon interest rate. The bonds mature in 14 years. They are selling for $1,230. What would be your expected rate of return (yield to maturity) be
Assume the market price of a 7-year bond for Alma Telecom Services is $$985,$ and it has a par value of $$1,000$. The bond has an annual interest rate of 7 percent that is paid semiannually. What
Assume that Estefan Cosmetics issued a bond with a semiannual interest payment of $$35,$ a par value of $$1,000,$ and a current market price of $$795.$ What is the current yield of the bond?
A 10-year bond issued by Zamyad Company has a market price of $$725$ and a par value of $$1,000.$ If the bond has an annual interest rate of 7.5 percent but pays interest semiannually, what is
You own a 12-year bond that pays 8.5 percent interest annually. The par value of the bond is $$1,000,$ and the market price of the bond is $$915.$ What is the yield to maturity of the bond?
You purchased a bond issued by Motor Oil Hellas for $$1,334.$ The bond has a coupon rate of 8.3 percent, which is paid semiannually. It matures in 16 years and has a par value of $$1,000.$ What
What is meant by investor’s required rate of return on common stock? How is it measured?
What is the difference between dividend yield and capital gains?
If you’d like to have $5,000,000 at retirement in 45 years and you expect to earn 10 percent annually, which is around the average return over the past 50 years, what lump sum would you have to
To what amount will the following investments accumulate?a. $6,000 invested for 12 years at 12 percent compounded annuallyb. $7,500 invested for 8 years at 8 percent compounded annuallyc. $6,400
How many years will the following take?a. $$550$ to grow to $$1,049.50$ if invested at 6 percent compounded annuallyb. $$37$ to grow to $$63.87$ if invested at 9 percent compounded annuallyc.
At what annual rate would the following have to be invested?a. $$820$ to grow to $$1,988.12$ in 13 yearsb. $$320$ to grow to $$423.10$ in 6 yearsc. $$57$ to grow to $$290.30$ in 18
What is the present value of the following future amounts?a. $805 to be received 10 years from now discounted back to the present at 10 percentb. $376 to be received 5 years from now discounted back
Obaidullah Hamzah, who recently sold his Ford Mustang, placed $15,000 in a savings account paying annual compound interest of 7 percent.a. Calculate the amount of money that will be accrued if he
Chen Hsi-Lee hit 40 home runs in the 2019 Taiwanese baseball league. If his home-run output grew at a rate of 9 percent per year, what would it be over the following 5 years?
If Dewi Sukarno were offered $$1,082.70$ ten years from now in return for an investment of $$450$ currently, what annual rate of interest would she earn if she took the offer?
Kylian Batochelli has loaned $$11,000$ to a friend, for which he will be repayed $$28,904$ at the end of 5 years. What interest rate do you think Kylian has charged his friend?
Alex Kiriakos has been offered $1,200 today, $11,000 in 12 years, or $26,650 in 25 years. If he can earn 12 percent on his money, which offer should he choose?
In September 1964, the first Ming dynasty vase was found after an excavation in Xian Province, China. The original price for the vase at that time was $$5,000.$ By September 2019, 55 years later,
Akechi Matsumoto, age 12, wants to be able to buy a really cool new car when he turns 18.His really cool car costs $18,000 today, and its cost is expected to increase 4 percent annually. Akechi wants
Anurag wants to earn $500,000 in 15 years by making equal semi-annual end-of-the-year deposits into a tax-deferred account paying 10 percent interest annually. What must Anurag’s semi-annual
Arjen Benzema, who has been married for 25 years, would like to buy his wife an expensive platinum ring with a diamond setting on their 35-year wedding anniversary. Assume that the cost of the ring
Fandy Tjipto has asked Nadia Hadiyanti to marry him, and she has accepted under one condition: Fandy must buy her a new $370,000 Aston Martin DBI. Fandy currently has $55,710 that he may invest. He
Golden Phoenix Consulting has just detected an accounting error that has resulted in an unfunded liability of$657,322 due in 25 years. Dane Somers, the company’s CEO, is scrambling to discount this
Suppose you have been offered a few investment opportunities in Estonia. What is the present value of each of the following annuities?a. $2,700 a year for 12 years discounted back to the present at 6
Angus McDonald, a third-year accounting student studying in Scotland, receives a call from an insurance agent, who believes Angus is an older man ready to retire from teaching. He talks to him about
Mr. Dayvos Bay has just purchased a new house for $$300,000.$ He paid $$30,000$ down payment and agreed to pay the rest over the next 25 years in 25 equal end-of-year payments plus 10 percent
To pay for your child’s education, you wish to have accumulated $15,000 at the end of 15 years. To do this, you plan on depositing an equal amount into the bank at the end of each year. If the bank
In 20 years you are planning to retire and buy a house in Nevada City, California. The house you are looking at currently costs $150,000 and is expected to increase in value at a rate of 5 percent
The Dutta Corporation needs to save $$15$ million to retire a $$15$ million mortgage that matures in 15 years.To retire this mortgage, the company plans to put a fixed amount into an account at
On December 31, Igor Smirnov bought a yacht for $$100,000,$ paying $$20,000$ down and agreeing to pay the balance in 10 equal end-of-year installments at 12 percent interest on the declining
Ahmad Qureshi loaned his friend $$50,000,$ which his friend promised to repay in five equal end-ofyear payments of $$7,500,$ with the first payment to be received 1 year from now. What rate of
A company manufacturing textiles borrowed $35,000 from the bank at 12 percent compounded annually to purchase some new weaving machinery. This loan is to be repaid in equal installments at the end of
Kim Taek Sung plans on buying some property in Pusan, Korea, 5 years from today. To do this, he estimates that he will need $40,000 at that time for the purchase.He would like to accumulate these
On December 31, Son-Nan Chen borrowed $100,000, agreeing to repay this sum in 20 equal end-of-year installments at 15 percent interest on the declining balance. How large must the annual payments be?
In order to buy a house in the Tuscany Hills, Giovanni Salvatore must borrow $$180,000.$ To do this, he takes out a $$180,000,$ 30-year, 12 percent mortgage. His mortgage payments, which are made
If Karen Bae invests $1,200 in a bank in which it will earn 10 percent compounded annually, how much will her investment be worth at the end of 7 years? Use a spreadsheet to do your calculations.
In 20 years Wang Yi-Han would like to have $$315,000$ to buy a vacation home, but she currently has only $$35,000.$ At what rate must her $$35,000$ be compounded annually for it to grow to
Carsten Boe, the Danisa Traditional Butter Cookies mogul, wants to retire at age 100. Mr. Boe is currently 70. Once he retires, he wants to withdraw $1.1 billion at the beginning of each year for 12
Suppose that 7 years ago Alfa Simpson invested $$1,000,000$ at a 5 percent annual interest rate. If he invests an additional $$20,000$ a year at the beginning of each year for 15 years at the
a. Calculate the future sum of $6,500, given that it will be held in a Swiss bank for 5 years at an annual interest rate of 7 percent.b. Recalculate part(a) assuming the interest rates is (1) an APR
After examining the various personal loans rates available to her, Natalia Simonova finds that she can borrow funds from a finance company at an APR of 13 percent compounded monthly or from a bank at
About how many years would it take for an investment to grow fourfold if it were invested at an APR of 14 percent compounded semiannually?
To buy a retirement house in his hometown in Northern Ireland, Stuart McDonald has taken out at 25-year mortgage for $320,000. What would his monthly payments be if the interest rate on the mortgage
Linda Gorbrovski is thinking about trading cars. She estimates she will still have to borrow $27,000 to pay for her new car. How large will Linda’s monthly car loan payment be if she can get a
Bowflex’s television ads say you can get a fitness machine that sells for $$999$ for $$33$ a month for 36 months. What APR are you paying on this Bowflex loan?
Mazda’s current incentives for customers looking to buy a Mazda 6 include either financing at an APR of 5.1 percent compounded monthly for 60 months or $$1,000$ cash back. Let’s assume Akira
Gabriela plans to invest $1,500 at the end of each quarter for 5 years into an account with an APR of 6.3 percent compounded quarterly. She will use this money as a down payment on a new home at the
Hoong Du has a $$6,400$ debt balance on his American Express card that charges an APR of 12.6 percent compounded monthly. Hoong’s current minimum monthly payment is 4 percent of his debt balance,
Ravichandran Subramaniam has just received an offer from a bank for a credit card with a quoted rate, or APR, of 16 percent compounded monthly. What’s the EAR, or effective annual rate, on the
Tariq Aziz is in need of some money desperately and, instead of seeking his relatives and friends for help, he decides to look into a payday loan. At a payday loan shop right near his school, he sees
Tracy McCulloch is given three investment alternatives to analyze. The cash flows from these three investments are as follows:Assuming an 18 percent discount rate, find the present value of each
The Barathy Company is planning on issuing bonds that pay no interest but can be converted into $1,000 at maturity, 6 years from their purchase. To price these bonds competitively with other bonds of
What is the present value of the following?a. A $350 perpetuity discounted back to the present at 7 percentb. A $1,240 perpetuity discounted back to the present at 11 percentc. A $150 perpetuity
How much does Rodriguez Alvario would have to deposit today so that beginning 13 years from now, he can withdraw $$12,000$ a year for the next 6 years (periods 13 through plus an additional amount
In 2019, Gordon Brown was worth about $$85$ billion. Let’s see what Gordon Brown can do with his money in the following problems.a. I’ll take Hong Kong? China sold Hong Kong to the British for
Nelson Abuldisi would like to own $$60,000$ in 16 years. To accumulate this amount, he plans to deposit each year an equal sum in the bank, which will earn 8 percent interest compounded annually.
Fabrizio Campesi is trying to save for retirement, which will begin in 10 years, and currently has $$130,000$ in a savings account and $$340,000$ in stocks. In addition, he plans on adding to his
Assume the New Zealand Powerball’s milliondollar payout provides for NZ$$2$ million to be paid over 19 years in 20 payments of NZ$$100,000$ each. The first NZ$$100,000$ payment is made
Dr. Memon was already thinking of retirement when he graduated university 35 years ago. Since then, he has made deposits into his retirement fund on a quarterly basis in the amount of $600. Memon has
Charles Juniper, 24, is about to begin his career as a rocket scientist for the European Space Agency. Being a rocket scientist, Charles knows that he should begin saving for retirement immediately.
Wilson Phung has signed a contract that will pay him $$89,000$ at the end of each year for the next 8 years, plus an additional $$124,000$ at the end of year 8. If 7 percent is the appropriate
Wilson Phung has signed a contract that will pay him $$89,000$ at the beginning of each year for the next 8 years, plus an additional $$124,000$ at the end of year 8. If 7 percent is the
James Parkinnen has decided to buy an ad agency in Finland and is going to finance the purchase with seller financing—that is, a loan from the current owners of the agency. The loan will be for
The fundamental goal of a business is to create value for the company’s owners (i.e., its shareholders). This goal is frequently stated as “maximization of shareholder wealth.” Thus, the goal
Though not one of the five principles of finance, ethics and trust are essential elements of the business world. In fact, without ethics and trust, nothing works. This statement could be applied to
A firm can assume many different organizational structures. Figure 1-2 shows a typical presentation of how the finance area fits into a firm. The vice president for finance, also called the chief
Owners of new businesses have some important decisions to make in choosing an organizational form. Whereas each business form seems to have some advantages over the others, the advantages of the
In the search for profits, U.S. corporations have been forced to look beyond our country’s borders. This movement was spurred on by the collapse of communism and the acceptance of the free market
Regardless of your major, you’ll be spending the rest of your life in the“world of finance.” In the business world, deciding to develop a new product line, build a new plant, open a new store,
Because of growing concerns about both agency and ethical issues, in 2002 Congress passed the Sarbanes-Oxley Act, or SOX as it is commonly called. One of the primary inspirations for this new law was
In 2015, Noble Corporation earned an operating profit margin of 15 percent and realized a total asset turnover ratio of 2.a. What was Noble’s operating return on assets in 2015?b. In 2015, if the
The processes of discounting and compounding are related.Explain this relationship.
How can we effectively analyze a firm's financial ratios?
What is the difference between a firm's gross profit margin, operating profit margin, and net profit margin?
Cheung Keong Ltd. currently has $$2,150,000$ in current assets and $$860,000$ in current liabilities. The company’s managers want to increase the firm’s inventory, which will be financed by a
In 2019, Italia Mining Corporation had sales of $$69$ million, total assets of $$45$ million, and total liabilities of $$23$ million. The interest rate on the debt is 6.5 percent, and its tax
Last year, Token Corporation reported $$1,230,000$ in sales with a cost of goods sold of $$520,000,$ and operating expenses of $$440,000.$ The increase in the firm’s retained earnings was
Tsingtao Company’s balance sheet shows a stockholders’ equity book value (total common equity) of $$800,500.$ The firm’s earnings per share were $$3.50,$ resulting in a price/earnings ratio
BlackBerry Ltd. has a target current ratio of 2.0 but has experienced some difficulties financing its expanding sales in the past few months. At present, the firm has current assets of $750,000 and a
The balance sheet and income statement for the Papua New Guinea Coconut Company are as follows:Income Statement ($000) Balance Sheet (5000) Cash Accounts receivable Inventories $ 550 2,500 1.100
The South African Diamond Corporation had a gross profit margin (gross profits ÷ sales) of 30 percent and sales of $$10$ million last year. Seventy-eight percent of the firm’s sales are on
The financial statements and industry norms are shown below for the Congo Mining Company:a. Compute the financial ratios for Congo to compare both for 2017 and 2018 against the industry norms.b. How
The annual sales for Saudi Aramco Corporation were $4.7 million last year. All sales are on credit.The firm’s end-of-year balance sheet was as follows:The firm’s income statement for the year was
The Marvis Company manufactures and sells a line of exclusive sportwear. The firm’s sales were $$650,000$ for the year just ended, and its total assets exceeded $$420,000.$ The company was
In order to be able to use industry benchmarks to evaluate a firm’s performance, it is necessary to determine the industry to which the firm belongs. Eurostat (European Statistical Office) is a
Brussels Electronics, Inc. has total assets of $$64$ million and total debt of $$45$ million. The company also has operating profits of $$23$ million with interest expenses of $$7$ million.a.
Alcatel Company’s financial statements for 2018 are shown below:a. Compute the ratios listed above for Alcatel.b. Compared to the industry:1. How liquid is the firm?2. Are its managers generating
Use the information from the balance sheet and income statement below to calculate the following ratios: Current ratio Acid-test ratio Times interest earned Inventory turnover Total asset turnover
Describe key components of the U.S. financial market system?
Why are start-ups and early-stage companies appealing to venture capital firms? Why are they not appealing to the broader public markets?
Explain the term private placement. What are its advantages and disadvantages within the financial markets?
Explain the liquidity preference theory.
At present, 10-year Treasury bonds are yielding 5 percent, while a 10-year corporate bond is yielding 7 percent. If the liquidity-risk premium on the corporate bond is 0.5 percent, what is the
You’re considering an investment in Croatia that you expect will produce a 9 percent return next year, and you expect that your real rate of return on this investment will be 7 percent. What do you
What would you expect the nominal rate of interest of German government bonds to be if the real rate is 6 percent and the expected inflation rate is 9 percent?
Assume the expected inflation rate in China to be 4.5 percent. If the current real rate of interest is 6.5 percent, what is the nominal rate of interest?
The CFO of your firm has asked you for an approximate answer to this question: What was the increase in real purchasing power associated with both 3-month Treasury bills and 30-year Treasury bonds?
You are considering investing money in Treasury bills and wondering what the real risk-free rate of interest is. Currently, Treasury bills are yielding 4 percent and the future inflation rate is

Showing 200 - 300 of 844