Description of this paper

strayer FIN 534 ? Homework Set #2

Description

solution


Question

Question;Use the following information for Questions 1 through 5;Assume that you are nearing graduation and have applied for;a job with a local bank. The bank?s;evaluation process requires you to take an examination that;covers several financial analysis techniques.;The first section of the test asks you to address these;discounted cash flow analysis problems;1. What is the present value of the following uneven cash;flow stream?$50, $100, $75, and $50 at the;end of Years 0 through 3? The appropriate interest rate is;10%, compounded annually.;2. We sometimes need to find out how long it will take a sum;of money (or something else, such as;earnings, population, or prices) to grow to some specified;amount. For example, if a company?s sales;are growing at a rate of 20% per year, how long will it take;sales to double?;3. Will the future value be larger or smaller if we compound;an initial amount more often than annually?;for example, every 6 months, or semiannually?holding the;stated interest rate constant? Why?;4. What is the effective annual rate (EAR or EFF%) for a;nominal rate of 12%, compounded;semiannually? Compounded quarterly? Compounded monthly?;Compounded daily?;5. Suppose that on January 1 you deposit $100 in an account;that pays a nominal (or quoted) interest;rate of 11.33463%, with interest added (compounded) daily.;How much will you have in your account;on October 1, or 9 months later?;Use the following information for Questions 6 and 7;A firm issues a 10-year, $1,000 par value bond with a 10%;annual coupon and a required rate of return is;10%.;6. What would be the value of the bond described above if;just after it had been issued, the expected;inflation rate rose by 3 percentage points, causing;investors to require a 13% return? Would we now;have a discount or a premium bond?;7. What would happen to the bond?s value if inflation fell;and rd declined to 7%? Would we now have a;premium or a discount bond?;8. What is the yield to maturity on a 10-year, 9% annual;coupon, $1,000 par value bond that sells for;$887.00? That sells for $1,134.20? What does a bond selling;at a discount or at a premium tell you;about the relationship between rd and the bond?s coupon;rate?;9. What are the total return, the current yield, and the;capital gains yield for the discount bond in;Question #8 at $887.00? At $1,134.20? (Assume the bond is;held to maturity and the company does;not default on the bond.)

 

Paper#48057 | Written in 18-Jul-2015

Price : $42
SiteLock