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Strayer FIn534 week 4 homework set 2




Question;Directions;Answer the following questions on a separate document. Explain how you reached;the answer or show your work if a mathematical calculation is needed, or both.;Submit your assignment using the assignment link in the course shell. This;homework assignment is worth 100 points.;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#48979 | Written in 18-Jul-2015

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