Finance assignment ...
Feb. 1st, 2004 11:14 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
sinjunSo, to give me incentive - no rp until this thing is done... and no Solara posts either.
There are 8 questions. I'll keep you all posted on how I'm doing.
Editted.
Question 1
You just purchased a new house for $120,000. You were able to make a down payment equal to 25% of the value of the house, and the balance was mortgaged. The rate quoted by the bank was 10% compounded semi-annually. The mortgage has a 20-year amortization period and a five-year term.
a) What will be your monthly payments?
b) What will be the balance remaining at the end of the term?
c) Assume that 5 years have passed, and the term of the mortgage is up. You must now negotiate a new mortgage for the remaining balance. Interest rates have increased to 12%. You want the new mortgage to have weekly payments and a 15-year amortization period. What will be your new payments?
Question 2
You are an investment advisor who has been approached by a client for help on his financial strategy. He has $250,000 in savings in the bank. He is 55 years old and expects to work for 10 more years, making $100,000 a year. He expects to make a return of 5% on his investments for the foreseeable future. You can ignore taxes.
a) Once he retires 10 years from now, he would like to be able to withdraw $80,000 a year for the following 25 years. His actuary tells him he will live to be 90 years old. How much would he need in the bank 10 years from now to be able to do this?
b) How much of his income would he need to save each year for the next 10 years to be able to afford these planned withdrawals after the 10th year?
c) Assume that interest rates decline to 4% 10 years from now. How much, if any, would your client have to lower his annual withdrawal, assuming that he still plans to withdraw cash each year for the next 25 years?
Question 3
Find the value of a 40-year bond with the following features. The coupon rate for the first 20 years will be 6% of the face value of $1000. After 20 years, the coupon rate will be 7% for the remaining 20 years. The company is rated AA (AA rated bonds are trading at 0.50% premium over the treasury bond rate of 6.50%). Coupon payments are semi-annual.
Question 4
XYZ Company issued a bond on January 1, 1995. It has a 12% coupon rate and matures in 30 years. Coupon payments are made semi-annually.
a) What was the YTM on January 1, 1995?
b) What was the price on January 1, 2000 if interest rates had fallen by 2% since the bond was issued?
c) You expect that on July 1, 2015 bonds with 9 to 10 years to maturity will have YTM’s of 6%. What will be the price of the bond then?
Question 5
The company currently pays out $1.00 per share in dividends and expects these dividends to grow 15% a year for the next 5 years and 6% a year forever after that. The dividend payout ratio is expected to double after the fifth year. If investors require a 12.5% return on stocks of equivalent risk, what is the value of the stock?
Question 6
Investors demand a 15% return on ABC Corp. common shares that currently trade at $30 per share. Dividend payments for the current year are expected to be $1.50 per share.
a) What is the implied long term average growth rate in dividends that shareholders expect?
b) If, because of changed business conditions, investors adjust their expectations down to a zero growth rate, but still demand a 15% market return on the shares, what will happen to the market price of the shares?
c) Conversely, if because of buoyant economy, investors reassess their growth expectations to 15% per year but still demand a 15% rate of return, at what price should the common shares trade?
d) What are the economic implications of the mathematical derivation in part c)?
Question 7
UVW Inc. expects to earn $1.00 per share for each of the future operating periods if the firm makes no new investments and returns the earnings as dividends to the shareholders. There is, however, an opportunity to retain and invest 50% of the earnings beginning three years from today and this opportunity will continue indefinitely. It is expected that the return will be 20% on this new investment, the return beginning one year after each investment is made. The firm’s equity discount rate is 10% throughout.
a) What is the price per share of UVW Inc. stock now, without making the new investment?
b) If the new investment were to be made, what would the value of the stock be now?
c) What is the expected capital gain yield for the second period, assuming the proposed investment is made? What is the expected capital gain yield for the second period, assuming the proposed investment is not made?
d) What is the expected dividend yield for the second period, assuming the proposed investment is made? What is the expected dividend yield for the second period, assuming the proposed investment is not made?
Question 8
Use the following information for RST Corp. for the following questions (assume the tax rate is 34%):
2000 2001
Sales $ 6150 $6600
Depreciation 885 885
COGS 2115 2403
Other Expenses 510 420
Interest 411 474
Cash 3225 3297
Accounts Receivable 4269 4809
Short-Term Notes Payable 624 585
Long-term Debt 10800 12600
Net Fixed Assets 27045 27690
Accounts Payable 3387 3285
Inventory 7590 7800
Dividends 750 825
a) Draw up an income statement and balance sheet for this company for 2000 and 2001.
b) For 2001, calculate the cash flow from assets, cash flow to creditors and cash flow to shareholders.
There are 8 questions. I'll keep you all posted on how I'm doing.
Editted.
Question 1
You just purchased a new house for $120,000. You were able to make a down payment equal to 25% of the value of the house, and the balance was mortgaged. The rate quoted by the bank was 10% compounded semi-annually. The mortgage has a 20-year amortization period and a five-year term.
a) What will be your monthly payments?
b) What will be the balance remaining at the end of the term?
c) Assume that 5 years have passed, and the term of the mortgage is up. You must now negotiate a new mortgage for the remaining balance. Interest rates have increased to 12%. You want the new mortgage to have weekly payments and a 15-year amortization period. What will be your new payments?
Question 2
You are an investment advisor who has been approached by a client for help on his financial strategy. He has $250,000 in savings in the bank. He is 55 years old and expects to work for 10 more years, making $100,000 a year. He expects to make a return of 5% on his investments for the foreseeable future. You can ignore taxes.
a) Once he retires 10 years from now, he would like to be able to withdraw $80,000 a year for the following 25 years. His actuary tells him he will live to be 90 years old. How much would he need in the bank 10 years from now to be able to do this?
b) How much of his income would he need to save each year for the next 10 years to be able to afford these planned withdrawals after the 10th year?
c) Assume that interest rates decline to 4% 10 years from now. How much, if any, would your client have to lower his annual withdrawal, assuming that he still plans to withdraw cash each year for the next 25 years?
Question 3
Find the value of a 40-year bond with the following features. The coupon rate for the first 20 years will be 6% of the face value of $1000. After 20 years, the coupon rate will be 7% for the remaining 20 years. The company is rated AA (AA rated bonds are trading at 0.50% premium over the treasury bond rate of 6.50%). Coupon payments are semi-annual.
Question 4
XYZ Company issued a bond on January 1, 1995. It has a 12% coupon rate and matures in 30 years. Coupon payments are made semi-annually.
a) What was the YTM on January 1, 1995?
b) What was the price on January 1, 2000 if interest rates had fallen by 2% since the bond was issued?
c) You expect that on July 1, 2015 bonds with 9 to 10 years to maturity will have YTM’s of 6%. What will be the price of the bond then?
Question 5
The company currently pays out $1.00 per share in dividends and expects these dividends to grow 15% a year for the next 5 years and 6% a year forever after that. The dividend payout ratio is expected to double after the fifth year. If investors require a 12.5% return on stocks of equivalent risk, what is the value of the stock?
Question 6
Investors demand a 15% return on ABC Corp. common shares that currently trade at $30 per share. Dividend payments for the current year are expected to be $1.50 per share.
a) What is the implied long term average growth rate in dividends that shareholders expect?
b) If, because of changed business conditions, investors adjust their expectations down to a zero growth rate, but still demand a 15% market return on the shares, what will happen to the market price of the shares?
c) Conversely, if because of buoyant economy, investors reassess their growth expectations to 15% per year but still demand a 15% rate of return, at what price should the common shares trade?
d) What are the economic implications of the mathematical derivation in part c)?
Question 7
UVW Inc. expects to earn $1.00 per share for each of the future operating periods if the firm makes no new investments and returns the earnings as dividends to the shareholders. There is, however, an opportunity to retain and invest 50% of the earnings beginning three years from today and this opportunity will continue indefinitely. It is expected that the return will be 20% on this new investment, the return beginning one year after each investment is made. The firm’s equity discount rate is 10% throughout.
a) What is the price per share of UVW Inc. stock now, without making the new investment?
b) If the new investment were to be made, what would the value of the stock be now?
c) What is the expected capital gain yield for the second period, assuming the proposed investment is made? What is the expected capital gain yield for the second period, assuming the proposed investment is not made?
d) What is the expected dividend yield for the second period, assuming the proposed investment is made? What is the expected dividend yield for the second period, assuming the proposed investment is not made?
Question 8
Use the following information for RST Corp. for the following questions (assume the tax rate is 34%):
2000 2001
Sales $ 6150 $6600
Depreciation 885 885
COGS 2115 2403
Other Expenses 510 420
Interest 411 474
Cash 3225 3297
Accounts Receivable 4269 4809
Short-Term Notes Payable 624 585
Long-term Debt 10800 12600
Net Fixed Assets 27045 27690
Accounts Payable 3387 3285
Inventory 7590 7800
Dividends 750 825
a) Draw up an income statement and balance sheet for this company for 2000 and 2001.
b) For 2001, calculate the cash flow from assets, cash flow to creditors and cash flow to shareholders.
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Re:
Date: 2004-02-01 09:37 am (UTC)Re:
Date: 2004-02-01 09:52 am (UTC)Re:
Date: 2004-02-01 09:53 am (UTC)Math is fun. This... this is just brutal. :P
Re:
Date: 2004-02-01 09:59 am (UTC)