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##### Suppose a bank offers to lend you $10,000 for 1 year on a loan contract that calls for you

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**Question**

1. Suppose a bank offers to lend you $10,000 for 1 year on a loan contract that calls for you;to make interest payments of $250.00 at the end of each quarter and then pay off the;principal amount at the end of the year. What is the effective annual rate on the loan?;2. Your sister turned 35 today, and she is planning to save $7,000 per year for retirement;with the first deposit to be made one year from today. She will invest in a mutual fund;that's expected to provide a return of 7.5% per year. She plans to retire 30 years from;today, when she turns 65, and she expects to live for 25 years after retirement, to age 90.;Her first withdrawal will be made at the end of her first retirement year. Under these;assumptions, how much can she spend each year after she retires?;3. Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments;at the end of each of the next 5 years. How much would you still owe at the end of the;first year, that is, after you have made the first payment?;4. You want to go to Europe 5 years from now, and you can save $3,100 per year, beginning;one year from today. You plan to deposit the funds in a mutual fund that you think will;return 8.5% per year. Under these conditions, how much would you have 5 years from;now?;5. Bank A pays 4% interest compounded annually while bank B pays 3.5% compounded;daily. Which bank would you choose to deposit your money and why?;View Full Attachment;PS2.docx;Problem Set-2;1. O'Brien Ltd.'s outstanding bonds have a $1,000 par value, and they mature in 25 years.;Their nominal yield to maturity is 9.25%, they pay interest semiannually, and they sell at;a price of $975. What is the bond's nominal coupon interest rate?;2. The Pennington Corporation issued bonds on January 1, 1987. The bonds were sold at;par, had 12% annual coupon, paid semi-annually, and mature on December 31, 2016.;a) What was the Yield-to-Maturity (YTM) on the date the bonds were issued?;b) What was the price on January 1, 1992, assuming interest rates have fallen to 10%?;c) Find the current yield, capital gains/losses yield and total yield on January 1, 1992?;3. McCue Inc.'s bonds currently sell for $1,250. They pay a $120 annual coupon, have a 15-year;maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. What is the bond's;Yield to Maturity and its Yield to Call?;4. Cosmic Communications Inc. is planning two new issues of 25-year bonds. Bond Par will be;sold at its $1,000 par value, and it will have a 10% semiannual coupon. Bond OID will be an;Original Issue Discount bond, and it will also have a 25-year maturity and a $1,000 par value, but;its semiannual coupon will be only 6.25%. If both bonds are to provide investors with the same;effective yield, how many of the OID bonds must Cosmic issue to raise $3,000,000?;5. A 25-year, $1,000 par value bond has an 8.5% annual coupon. The bond currently sells for $875.;If the yield to maturity remains at its current rate, what will the price be 5 years from now?;View Full Attachment;PS3.docx;Problem Set-3;1. A mutual fund manager has a $40 million portfolio with a beta of 1.00. The risk-free rate;is 4.25%, and the market risk premium is 6.00%. The manager expects to receive an;additional $60 million which she plans to invest in additional stocks. After investing the;additional funds, she wants the combined funds required return to be 13.00%. What;must the average beta of the new stocks be to achieve the required rate of return of 13%?;2. Stock A has a beta of 1.30, and its required return is 12.00%. Stock B's beta is 0.80. If;the risk-free rate is 4.75%, what is the required rate of return on stock B?;3. Suppose you have a diversified portfolio consisting of $10,000 investment in each of 10;different stocks. The portfolios beta is 1.12. You are considering selling $10,000 worth;of one stock with a beta of 1.0 and using the proceeds to buy another stock with a beta of;1.14. What is the new beta of portfolio after these transactions?;4. Assume that you manage a $10 million mutual fund that has a beta of 1.05 and a 9.50%;required return. The risk-free rate is 4.20%. You now receive another $5 million, which;you invest in stocks with an average beta of 0.65. What is the required rate of return on;the combined $15million portfolio?;5. Stock A, an average stock, has an expected return of 10 percent. Stock B has a beta of;2.0. Portfolio P is a two-stock portfolio, where part of the portfolio is invested in Stock A;and the other part is invested in Stock B. Assume that the risk-free rate is 5%. Portfolio;P has an expected return of 12 percent. What proportion of Portfolio P consists of Stock;B?;View Full Attachment;PS4.docx;Problem Set-4;1. Ewald Companys current stock price is $36 and its last dividend was $2.40. The required;rate of return is 12%. If dividends are expected to grow at a constant rate g in the future;what is Ewalds stock price 5 years from now?;2. Martell mining companys ore reserves are being depleted, so its sales are falling. Also;because its pit is getting deeper each year, its costs are rising. As a result, the companys;earnings and dividends are declining at the constant rate of 5% year. If D 0=$5 and K i.e.;Rs = 15%, what is the value of Martell minings stock?;3. The Price of Consolidated inc. is now 75. The company pays no dividends. Ms. B expects;the price three years from now to be $100 per share. Should Ms. B buy Consolidated;stock if she requires a 10% rate of return?;View Full Attachment;Additional Requirements;Level of Detail: Show all work;Other Requirements: I need all work shown like before. Thanks again

Paper#22392 | Written in 18-Jul-2015

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