An investment will pay 24k in 6 years. If the interest rate is 10% with daily compounding what is the value of this contract today.

 

If the quoted rate is 9.75% per year what is the present value of the following cash flow stream:

 

Year	Cash Flow in $
1	2,800
2	0
3	8,100
4	1,940

 

If the interest rate is 13% with quarterly compounding what is what is the present value of the following cash flow stream:

 

Year	Cash Flow in $
1	900
2	750
3	0
4	1,140

 

 

You want to buy a new sports car for $156,000.The contract is in the form of a 48 month annuity due at an 8.15% Annual percentage rate (APR) .what will your monthly payment be?

 

You have just taken a 30-year mortgage loan for $200,000. The annual percentage rate on the loan is 8%, and payments will be made monthly. Estimate your monthly payments. 

 

 

A car dealer quotes a 10% interest on a 1 year loan. If you borrow 20k your interest is 20kx10%=2000 dollars, which means that after 1 year you need to repay $22,000. However, the car dealer in order to help you avoid paying a big lump sum amount after 1 year suggests that you pay 22000/12=1,833.33 dollars every month for the next 12 month. Is this a 10% loan? What rate legally have to be quoted? How much interest you are paying effectively per year?

 

You are 35 years old today and are considering your retirement needs. You expect to retire at age 65 and your actuarial tables suggest that you will live to be 100. You want to move to the Bahamas when you retire. You estimate that it will cost you $ 300,000 to make the move (on your 65th birthday) and that your living expenses will be $30,000 a year (starting at the end of year 66 and continuing through the end of year 100) after that. 

a. How much will you need to have saved by your retirement date to be able to afford this course of action? 

b. You already have $50,000 in savings. If you can invest money, tax-free, at 8% a year, how much would you need to save each year for the next 30 years to be able to afford this retirement plan? 

c. If you did not have any current savings and do not expect to be able to start saving money for the next 5 years, how much would you have to set aside each year after that to be able to afford this retirement plan? 

 

Part II: Cost of Capital

 

1. Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 23 years to maturity that is quoted at 103 percent of face value (Face value =$100). The issue makes semiannual payments and has an embedded cost of 6 percent annually. What is the company's pretax cost of debt? If the tax rate is 21 percent, what is the after tax cost of debt?

 

 

2. The Langley Company has 6% annual coupon bonds that are currently selling for $989.53 and have eleven years left to maturity. What is the yield-to-maturity?

 

3. MDK, Inc. is a high growth firm that has never paid a dividend. The company just issued a press release stating that next year they plan on paying an annual dividend of $0.34. They also stated that dividends are expected to increase by 40% a year for each of the following four years and then increase by 4% annually thereafter. The required rate of return on this stock is 15%. What is the expected price per share of MDK stock six years from now?

 

4. Suppose stock in Watta Corporation has a beta of .80. The market risk premium is 6 percent, and the risk-free rate is 6 percent. Watta's last dividend was $1.20 per share, and the dividend is expected to grow at 8 percent indefinitely. The stock currently sells for $45 per share. suppose Watta has a target debt−equity ratio of 50 percent. Its cost of debt is 9 percent before taxes. If the tax rate is 35 percent, what is the WACC? (use the average cost of equity based on CAPM and the dividend discount model)

 

 

 

Part III: Portfolio Management

 

1. Differentiate between Systematic and Unsystematic risk.

 

2. How diversification can reduce Unsystematic Risk of a given portfolio? 

 

3. What is the meaning of Capital Asset Pricing Model?

 

4. A stock has a beta of .8 and an expected return of 6%. The risk-free rate is 3%. What is the expected return on the market?