1. Present value of single sum problem You are going to be given $100,000 in 12 years. Assuming an interest rate of 3.5%, what is the present value of this amount?
2. Present value of annuity problem You will receive $1,000 at the end of the next 10 years, assuming a 7% discount rate, what is the present value of the cash flows?
3. Perpetuity problem What is the value of a perpetuity with an annual payment of $50 and a discount rate of 4%?
4. Future value of annuity problem You deposit $5,000 into a retirement account at the end of the next 15 years earning 8% interest, what is the future value of your retirement after 15 years?
5. Future value of annuity problem You deposit $10,000 into a retirement account at the end of the next 10 years earning 9% interest, what is the future value of your retirement after 10 years?
6. Valuation – convertible bond You purchased one of AAA Corp.’s 9%, 15-year convertible bonds at its $1,000 par value a year ago when the company’s common stock was selling for $25. Similar bonds without a conversion feature returned 10% at the time. The bond is convertible into stock at a price of $35. The stock is now selling for $40. Assume no dividends.
a) You exercise the conversion feature today and immediately sold the stock you received. Calculate the total return on your investment.
b) What would your return have been if you had invested $1,000 in AAA’s stock instead of the bond?
7. Valuation - preferred stock What is the value of a share of preferred stock that pays a $4.50 dividend, assume k is 10%.
8. Valuation - preferred stock What is the value of a share of preferred stock that pays a $9.50 dividend, assume k is 12%.
9. Valuation – zero-coupon bond A U.S. Government bond with a face amount of $10,000 with 13 years to maturity is yielding 5.5%. What is the current selling price?
10. Valuation – zero-coupon bond A U.S. Government bond with a face amount of $10,000 with 8 years to maturity is yielding 3.5%. What is the current selling price?
11. Holding Period Return Based on the following information calculate the holding period return: P0 = $11.00 P1 = $11.40 D1 = $1.02
12. Risk & Return and the CAPM. Based on the following information, calculate the required return based on the CAPM: Risk Free Rate = 3% Market Return =10.5% Beta = 1.2
13. Risk and Return, Coefficient of Variation Based on the following information, calculate the coefficient of variation and select the best investment based on the risk/reward relationship. Std Dev. Exp. Return Company A 10.4 15.2 Company B 14.6 22.9
14. Measures of Risk. Address each source of risk that is measured and relate it to two models addressed in this unit. Your response should be at least 250 words in length.
15. (Part 1) Using a 3.8% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support your answer.
(Part 2) Assuming a budget of $1,300,000 what are your recommendations for the three projects in the above problem. Explain. Assuming a budget of $2,100,000 what are your recommendations for the above problem? Explain.
16. Based on the information below, calculate the weighted average cost of capital. Great Corporation has the following capital situation. Debt: One thousand bonds were issued five years ago at a coupon rate of 10%. They had 25-year terms and $1,000 face values. They are now selling to yield 9%. The tax rate is 40% Preferred stock: Two thousand shares of preferred are outstanding, each of which pays an annual dividend of $7.50. They originally sold to yield 15% of their $50 face value. They're now selling to yield 10%. Equity: Great Corp has 120,000 shares of common stock outstanding, currently selling at $14.48 per share. The risk free rate is 3%, market rate of return is 10% and the Beta is 1.2.
