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##### The nominal interest is 12% with interest paid monthly. What will be the effective annual rate?

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The nominal interest is 12% with interest paid monthly. What will be the effective annual rate?;b) 8 marks;Minnie has taken a 30-year mortgage for \$500,000. The mortgage requires monthly payment with;an interest rate of 12% per annum.;i. What is the dollar amount of each monthly payment?;ii. How much interest is in the first payment?;iii. How much repayment of principle is in the first payment?;c) 8 marks;Mickey is planning to save \$50,000 per quarter for 10 years. Savings will earn interest at an;(nominal) interest rate of 12% per annum. Calculate the present value for this annuity if interest is;compounded semi-annually.;Question2: Bond and stock valuation;a) 7 marks;An investor has a bond in her portfolio, Bond Z. This bond matures in 5 years, has a face value of;\$1,000, and has a yield to maturity of 10%. Assuming the yield to maturity of the bond remains at;10% over the next 5 years, calculate the price of the bonds at each of the following years to;maturity.;Years to maturity;5;3;1;0;Price of Bond Z;b) 3 marks;A stock is expected to pay a dividend of \$0.50 at the end of each year (that is, 1 = \$0.50), and it;should continue to grow at a constant rate of 7% a year. If its required return is 12%, what is the;stocks expected price 4 years from today?;c) 10 marks;A major pension fund is interested in purchasing Teds stock. The pension fund manager has;estimated Teds free cash flows for the next 4 years as follows: \$3 million, \$6 million, \$10 million;and \$15 million. After the 4th year, free cash flow is projected to grow at a constant 7%.;Teds WACC is 12%, the market value of its debt and preferred stock totals \$60 million, and it has 10;million shares of common stock outstanding.;i. What is the present value of the free cash flows projected during the next 4 years?;ii. What is Teds total value today?;iii. What is an estimate of Teds price per share?;Question 4: Capital budgeting and Investment Decision Rules;You are evaluating a proposal to buy a new machine. The base price is \$108,000, and shipping and;installation costs would add another \$12,500. The machine is depreciated using straight line;method, and it would be sold after 3 years for \$60,000. The machine would require a \$5,500;increase in net operating working capital. There would be no effect on revenues, but pre-tax labour;costs would decline by \$44,000 per year. The marginal tax rate is 35%, and the WACC is 12%.;i. What are the projects annual cash flows during years 0, 1, 2 and 3?;ii. Calculate NPV.;iii. Calculate IRR.;iv. Calculate MIRR.;v. Calculate payback.;vi. Calculate discounted payback.;Question 5: Risk and Return;Stock Ys return;Stocks Y and Z have the following returns between 2009 and 2013;Year;2009;2010;2011;2012;2013;-18%;33%;15%;-1%;25%;Stock Zs return;-15%;22%;30.5%;-8%;27%;i.;Calculate the average return for each stock.;ii.;Calculate the standard deviation of returns for each stock.;iii.;Calculate the coefficient of variation for each stock.;iv.;Assume you held a portfolio consisting of 60% of Stock Y and 40% of Stock Z. Calculate;the average return of the portfolio during this period.;v.;Calculate the standard deviation of the portfolio if the correlation between Stock Y and;Stock Z is 10%.

Paper#30718 | Written in 18-Jul-2015

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