Fin 301 Exam 2

What is the interest portion of the Year 2 (Y2) payment? Round your answer to zero decimal places. Write your answer as a positive number.

3,489

First City Bank pays 9 percent simple interest on its savings account balances, whereas Second City Bank pays 9 percent interest compounded annually.If you made a deposit of $7,500 in each bank, how much more money would you earn from your Second City Bank account at the end of eight years?

$7,500 × .09 = $675So after 8 years you will have:$675 × 8 = $5,400 in interest The total balance will be $7,500 + 5,400 = $12,900 With compound interest we use the future value formula:FV = PV(1 + r)tFV = $7,500(1.09)8 = $14,944.22 The difference is:$14,944.22 - 12,900 = $2,044.22

What is the EOP Balance for Year 3? Round your answer to zero decimal places.

0

What is the EOP balance in year 5?

0

Given the CPI data shown (measured at the end of each year), what was the inflation rate in 2014? Do not round intermediate calculations. Round your answer to 4 decimal places and do not represent your answer as a percent. IE: write 0.2672 not 26.72%.

0.0159

Investors receive a 8% annual interest rate on their bank deposits. (These are essentially as risk-free as Treasuries, because the Federal Government guarantees banks deposits against defaults {within certain limits}). If the annual inflation rate is zero, what is the real interest rate will the investors will earn on their deposits?

0.08

A project has these cash flows PVtot 1,000 CF1 500 at T = 1 year CF2 600 at T = 3 years Write an algebraic equation to use as a start-point for finding the r of this project. 0 = 1,000 + (500 + 600) / (1+r)^3 1,000 = (500 + 600) / (1+r)^3 1,000 = 500/(1+r) + 600/(1+r)^3 1,000 = (500 + 600) / (1+r)^2 1,000 = 500/(1+r) + 600/(1+r)^2

1,000 = 500/(1+r) + 600/(1+r)^3

Assume you have 10 to invest in a project now, and you are considering just the two below projects. Which one would you pursue and why? Both projects have rocc = 8%. Choose one option (1, 2, 3 or 4) and one reason.

1. Project A. Because it has the highest NPV.

What is the amortization amount (amount of principal repayment) in year 2?

13,303.5

What is the amount amortized in year 1 (in the EOY 1 payment)? Round your answer to zero decimal places. Write your answer as a positive number.

15,106

What is the EOP Balance for Year 2? Round your answer to zero decimal places. Write your answer as a positive number.

18,278

If the cash flows at T=0 and T=2, respectively, are $10 and $20, what is the annual compound interest rate for this project?

20 = 10(1+r)^2 r = 2^(1/2) - 1 r = 0.414

What is the interest portion of the loan payment in year 2?

4,134.68

What is the EOP balance in year 2?

45,763.32

What is the BOP balance in year 2?

59,066.82

This cash flow diagram is definitely for: A high-net-worth individual An IPO A lender A borrower A company in bankruptcy None of the listed answers

A borrower - Recognize what the first up arrow means. Think of examples of where you get the money first and then pay off the amount at a later time.

An investment offers $4,350 per year for forever, with the first payment occurring one year from now. What is the best way to describe this investment?

A perpetuity

An investment offers $4,350 per year for forever, with the first payment occurring one year from now. What is the best way to describe this investment? A growing perpetuity A perpetual sovereign bond A growing annuity due An annuity due A perpetual annuity due A growing annuity A perpetuity An annuity

A perpetuity

You are planning to make monthly deposits of $475 into a retirement account with an APR of 10 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be just after two months (just after your second deposit)?

APR 10.000%Compounded Monthly r = APR / (no. of periods per year) = 0.833% CF = $475 Fvtot = 475 * ((1.00833)^1 + (1.00833)^0) Fvtot = 954

Which of the following would not be considered a Financial Project? Making a loan, buying a bond Buying a company, or part of a company A product launch or expansion All of the possibilities listed are Financial Projects

All of the possibilities listed are Financial Projects

Opportunity Cost of Capital Consider a portfolio manager whose mission is "to maximize annual returns through equity investments in the single-family homebuilding industry." Which is the best opportunity cost investment for this manager? Note: As in the real world, its probable that none of the options are perfect. Choose the best available option.

An exchange-traded fund that owns stock in companies such as DR Horton, Lennar, and NVR, Inc. (Hint: look up these companies on the Internet).

Investor

Any person, group or entity evaluating a project from their perspective, or participating in a project

Definition of Project

Any venture by one person, group or entity, requiring one or more cash outflows, and resulting in one or more cash inflows

Which of the below choices are risks of Treasury Securities? i. Inflation riskii. Gamma riskiii Default riskiv. Interest rate riskv. Seasonal risk

B) i, iii, and iv

Opportunity Cost of Capital Consider a portfolio manager whose mission is "to maximize annual returns through investments in the bonds of Industrial-Property REITs." Which is the best opportunity cost investment for this manager?

Blackstone's "Low-Volatility, Industrial REIT" Mutual Fund, which purchases the bonds of REITs that manage industrial properties.

Investment X offers to pay you $X per year for eight years, starting one year from now, in return for your investment today of $27,145.49. What is X if the interest rate for this project (r) is 5 percent?

C = 27145.49 / ((1-(1+5%)^(-8))/5%) C = 4200.00

First National Bank (bank a) charges an APR of 13.1 percent compounded monthly on its business loans. First United Bank (bank b) charges an APR of 13.3 percent compounded semiannually. As a potential borrower, which bank would you go to for a new loan? First National Bank (a) First United Bank (b)

Choose the loan with the lowest EAIREAIRa = (1+.131/12)^12 - 1 = 0.139EAIRb = (1+.133/2)^2 - 1 = 0.137

If the real return of a CD is positive, this means that: B) An investor in this CD will be able to buy more stuff when the contract matures than when it originated. C) The CD is outpacing inflation. A) The inflation rate is low. D) B and C E) None of the listed answers

D) B and C

Facebook issued its first bond on 1/1/20X1. The bond has $1,000 face value, a 4% coupon rate, and it matures on 1/1/20X9. Today, 1/2/20X7, the bond is trading at $1,050 per bond. Which table best represents the remaining contractual Cash Flows for this bond?

DateCash Flow7/1/20X7$201/1/20X8$207/1/20X8$201/1/20X9$201/1/20X9$1,000

Complete the sentence below, and provide a reason for your choice. IE: choose one answer starting without "because" and one answer starting with "because." Holders of long-term Treasury Bonds generally... Demand a higher interest rate than holders of short-term Treasuries. Because the risk of Treasury Bonds increases with duration. Because long-term Treasuries provide the safety of a stream of cash flows for a lifetime. Because they are conservative investors. Get a lower interest rate than holders of short-term Treasuries Like to balance these investments with short-term Treasury holdings

Demand a higher interest rate than holders of short-term Treasuries. Because the risk of Treasury Bonds increases with duration.

Elliott Credit Corp. wants to earn an effective annual return (EAR or EAIR) on its consumer loans of 17.1 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers? Hint: The bank is required to report the APR for these loans.

EAIR = (1+r)^nper - 11+EAIR = (1+r)^nper (1+EAIR)^(1/nper) = 1 + r r = (1+EAIR)^(1/nper) - 1r = (1+.17.1%)^(1/365) -1 0.000432581APR = r*nper = above *365 0.157892225

Find X for "The APR of this investment is X compounded semi-annually," if the associated EAIR (EAR) is 11.1 percent. Hint: Note that r in this case = APR/2. Plug APR/2 into the EAIR equation. Solve for APR, then X = APR.

EAR = .1110 = [1 + (APR/2)]2 − 1APR = 2[(1.1110)1/2 − 1] = .108

Calculate the effective rate(EAR) assuming an APR of 9 percent compounded quarterly.

EAR = [1 + (.09/4)]4 − 1 = .093

The appropriate APR for the following cash flows is 9 percent compounded quarterly. Year - Cash Flow 1 - $815 2 - 990 3 - 0 4 - 1,520

EAR = [1 + (APR/m)]m - 1 EAR = [1 + (.09/4)]4 - 1 EAR = .0931, or 9.31% And now we use the EAR to find the PV of each cash flow as a lump sum and add them together: PV = $815/1.0931 + $990/1.09312 + $1,520/1.09314 PV = $2,638.87

In the field of Finance, which groups are definitely investors in a company with two owners and three outstanding loans? Choose all the correct groups. Employees Local Communities Equity Holders Debt Holders None of the listed possibilities

Equity Holders Debt Holders

Suppose you deposit $560 today in an account paying 7% annual compound interest. After how many years can you get $1389?

FV = $1,389 = $560(1.07)t t = ln($1,389/$560)/ln(1.07) t = 13.43 years

Suppose you deposit $810 today in an account paying 8% annual compound interest. After how many years can you get $1821?

FV = $1,821 = $810(1.08)t t = ln($1,821/$810)/ln(1.08) t = 10.53 years

Suppose you deposit $48000 today in an account, and you will get $185382 after 13 years. What is the annual compound interest?

FV = $185,382 = $48,000(1 + r)13 r = ($185,382/$48,000)1/13 - 1 r = .110

What is the future value after 11 years of $2,328 that you deposit today in an account paying 13% annual compound interest?

FV = $2,328(1.13)11 = $8,929.88

Suppose you deposit $181 today in an account, and you will get $317 after 5 years. What is the annual compound interest?

FV = $317 = $181(1 + r)5 r = ($317/$181)1/5 - 1 r = .119

Suppose you deposit $40353 today in an account, and you will get $531618 after 30 years. What is the annual compound interest?

FV = $531,618 = $40,353(1 + r)30 r = ($531,618/$40,353)1/30 - 1 r = .090

You plan to make the following deposits into your 4% interest savings account (IE: r = 4%, compounded annually). If you have nothing in your account now and you never make a withdrawal, how much will be in your account when T = 4.5 years? T (years)Deposit 1.5 200 2 80 3.5 40 5.5 10

FV = 200*(1+4%)^3 + 80*(1+4%)^2.5 + 40*(1+4%)^1 = 354.81

You put $100 into a savings account that pays annual compound interest, r, of 8%. What is the balance of your account after 2.5 years? Round to two decimal places.

FV = PV * (1+r)^T FV = 100*(1+0.08)^2.5 = 121.22

Assume the total cost of a college education will be $345,000 when your child enters college in 18 years. You presently have $73,000 to invest.What annual rate of interest must you earn on your investment to cover the cost of your child's college education?

FV = PV(1 + r)t r = (FV/PV)1/t - 1 r = ($345,000/$73,000)1/18 - 1 r = .090

At 6.1 percent compound interest, how long does it take to quadruple an investment?

FV = PV(1 + r)t t = ln(FV/PV)/ln(1 + r) The length of time to quadruple your money is FV = $4 = $1(1.061)t t = ln4/ln1.061 = 23.41 years

An investment will pay you $80,000 in 10 years. If the APR is 9 percent compounded daily, what is the present value?

For this problem, we need to find the PV of a lump sum using the equation: PV = FV/(1 + r)^T It is important to note that r = APR / (No. of periods per year), where r is the compound interest (discount) rate in native units (days). In native r units of days, T = 10 years * 365 days/year. PV = $80,000/[(1 + .09/365)^(10*365)] PV = $32,529.18

If you put up $41,000 today in exchange for a 5.1 percent, 15-year annuity, what will your annual annuity payments be?

Here we have the PVtot, length of the annuity, and the interest rate. We want to calculate the annuity payment. Using the PV Annuity equation:PVtot = C({1 − [(1 + r)^-t]}/r)PVtot = $41,000 = $C{[1 − (1.051^-15)]/.051} We can now solve this equation for the annuity payment. Doing so, we get: C = $41,000/10.30985 C = $3,976.78

What are four risks of Treasury Securities outlined in CH09? Price shock Recession Liquidity Default Stock Market False Value Investing Inflation Duration Interest Rate

Inflation Duration Interest Rate Default

Risks of virtually any individual financial project include: J) E and G I) A, D and G A) Exponential Decay Risk E) Climate-Change Risk K) B, D, and H G) Known-unknown Risk H) Risk-free Risk B) Duration Risk C) Value at Risk D) Project-Specific Risk

K) B, D, and H

The average price of a 3-bedroom, 2 bath, single family home in Oxford OH rose from $100K in 2017 to $110K in 2018. Did the average price of this home type increase more or less than overall inflation during this period?

More Inflation rose by (250.5-245.1)/245.1 = 2.2%

uperInvestor requires all her investments to grow at an r of at least 7.17 percent per year. She is offered a contract that will produce the cash flows shown below, in return for her payment of $8,000 today (at T=0). Assuming there is no possibility of bankruptcy or etc, should she make this investment? EOY Cash Flow 1 - $2,480 2 - 0 3 - 3,920 4 - 2,170 Yes No

No PV = $2,480/1.0717 + $3,920/1.07173 + $2,170/1.07174 = $7,143.77 For her $ to grow at an r of 7.17%, she cannot invest more than $7,143.77 in this deal. If she invested $8,000, this would still get the same future cash flows, but her cash would be growing at a lower r.

Facebook has just issued its first bond. It's a 10 year issue with $1,000 face value and a 4% coupon rate. What is the r for this bond? Hint, r is in time units of 6 months (semi annual), with semi-annual compounding.

Note that 4% coupon rate = 4% APR with semi-annual compounding.r = APR/2 = 2% interest, compounded semi-annually = 0.020

How much should you deposit today in an account paying 9% annual compound interest in order to get $16832 after 13 years?

PV = $16,832/(1.09)13 = $5,490.24

An investment offers $4,350 per year forever, with the first payment occurring one year from now. If you like this investment contract but need to earn at least r of 6% on it, what is the most that you would pay for it?

PV = $4,350/.06 = $72,500.00 If you paid more, you would be earning less than 6%.

How much should you deposit today in an account paying 13% annual compound interest in order to get $886073 after 29 years?

PV = $886,073/(1.13)29 = $25,597.33

The bonds used to compute this curve are all zero-coupon bonds, with a face value of $1,000. About how much would you expect to pay today for a five-year, zero coupon Treasury Bond? (Hint: each zero coupon bond will pay its owner $1,000 at the end of the bond contract, and nothing before then).

PV = 1000/1.055^5 = 765.13

Google issued a bond on 1/1/20X1. The bond has $1,000 face value, a 8% coupon rate, and it matures on 1/1/20X9. Today, 1/2/20X7, the bond is trading at $990 per bond. The remaining contractual cash flows for this bond are as listed below. DateCash Flow7/1/20X7$401/1/20X8$407/1/20X8$401/1/20X9$401/1/20X9$1,000 Which is closest to the r for this bond today?Hints: r is in time units of 6 months (semi-annual), with semi-annual compounding. Use trial and error. Plug in the suggested r's until you find the one that works best.

PV = 990 = 40*(1/(1+rr)^1 + 1/(1+rr)^2 + 1/(1+rr)^3 + 1/(1+rr)^4) + 1000/(1+rr)^4 --> r = 0.043

You believe that Walmart will pay a dividend of $200/share in a year, and you think that the firm will increase its annual dividend payment by 1% forever. What is the PV of all the dividends/share that the firm will distribute if r = 6%? Hint: This is a growing perpetuity problem.

PV = C1 / (r - g) = 200/(6% - 1%) = 4000

McCann Co. has identified an investment project with the following cash flows. Year- $Cash Flow 1 - $530 2 - $690 3 - $875 4 - $1,090 If the discount rate (r) is 10 percent, what is the present value of these cash flows?

PV@10% = $530/1.10 + $690/1.102 + $875/1.103 + $1,090/1.104 = $2,453.95

McCann Co. has identified an investment project with the following cash flows. Year- $Cash Flow 1 - $530 2 - $690 3- $875 4- $1,090 What is the total present value of these cash flows at 18 percent? (IE: r = 18%).

PV@18% = $530/1.18 + $690/1.182 + $875/1.183 + $1,090/1.184 = $2,039.46

What is the uniform annual loan payment?

PVtot = $71,500 = C{[1 - (1 + .07)-5]/.07} C = $17,438.18

Prescott Bank offers you a five-year loan for $75,000 at an annual interest rate of 6.8 percent. What will your annual loan payment be?

PVtot = C({1 - [1/(1 + r)^t]}/r)$75,000 = C{[1 - (1/1.068)^5)]/.068}We can now solve this equation for the annuity payment. Doing so, we get: C = $75,000/4.1222 C = $18,193.96

Suppose you purchase a 5-year, 6.8% annuity with annual payouts of $13,500. How much do you pay for this contract?

PVtot = C({1 - [1/(1 + r)t]}/r) = $13,500[{1 - [1/(1 + .068)5]}/.068] = $55,650.35

You want to buy a new sports coupe for $84,500, and the finance office at the dealership has quoted you an APR of 5.2 percent compounded monthly for a 60-month loan to buy the car. What will your monthly payments be?

PVtot = C({1 − (1 + r)-t}/r) $84,500 = $C[1 − [1 + (.052/12)]-60/(.052/12)] Solving for the payment, we get: C = $84,500/52.7343 C = $1,602.37

Beginning three months from now (one Q from now), you want to withdraw $2,500 each quarter from your bank account to cover college expenses over the next four years. If the account pays r of 0.57% interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next four years?

PVtot = C({1 − (1 + r)-t}/r) PVtot = $2,500{[1 − (1.0057-16)]/.0057} PVtot = $38,126.53

Your company will generate $47,000 in annual revenue each year for the next seven years from a new information database. Each blob of $47,000 arrives at EOY. If the appropriate interest rate is 7.1 percent, what is the present value of the revenue?

PVtot = C({1 − [1/(1 + r)^t]}/r)PVtot = $47,000{[1 − (1/1.071)^-7)]/.071}PVtot = $252,415.91

Velocity Investors offers a 6% annuity (r = 6%) paying $4,350 per year for 15 years, starting one year from now. If you have just $43,000 available today to purchase this annuity contract, can you afford it? Choose yes or no and provide one reason for your choice. Because the interest rate is not consistent with the asking price. Because the uniform annuity payments are too small. Because the asking price of the annuity is less than the amount you have available. Because the uniform annuity payments are too large. Because the asking price of the annuity is more than the amount you have available. No Yes Because the interest rate is not consistent with the uniform payments.

PVtot =4350*(1-(1+6%)^(-15))/6% = 42248.2831 This is the asking price of the annuity. Since you have more than this available to buy the contract, you can go for it (Yes, Because the asking price of the annuity is less than the amount you have available.)

Your investment mission is "invest in debt securities of the major U.S. airlines." Which is the best Opportunity Investment for you? Pimco's Conservative Airline ETF, which invests in the bonds and bank loans of many U.S. airlines. Blackrock's Low Volatility Airline ETF, which invests in the equity of America's largest, most stable airlines. Fidelity's Targeted Airline Opportunities ETF, which invests in the stocks, bonds and equity of several boutique U.S. airlines. A bond of Delta airlines. Vanguard's Domestic Airline ETF, which purchases and holds the stock and bonds of many U.S. airlines.

Pimco's Conservative Airline ETF, which invests in the bonds and bank loans of many U.S. airlines.

Some of the inputs to this problem will change with each submission, so you will need to recompute your answer each time you resubmit. An investor is considering the purchase of Company X's two-year, zero coupon bond. She uses time value equations and the Opportunity Investment Method to analyze potential purchases. Assuming no market or macro-economic disruptions, she expects a 90% probability that the the issuing company will provide its promised CF2 (of 104). She thinks there is a 10% probability that the company will screw up and pay a CF2 of only 68.

Possibility Cash Flow 90% promised = $100 10% default = $60 When, for example, the promised Cash Flow is $100 and default Cash Flow is $60, expected Value of CF2 = 96.0 = 90%*100 + 10%*60 100.4

Synonym for Investment

Project

Suppose you are going to receive five annual payments of $13,500. The appropriate interest rate is 6.8 percent. What is the present value if the payments are an annuity due?

Pvtot = 13500*(1 + ((1-(1+6.8%)^(-4))/ 6.8%))59434.57

Assuming the issuer does not default, which is closest to the native compound interest rate (r) of this bond for someone who purchases the bond today, in semi-annual time periods? 1.0076% 0.8072% 2.0079%

Pvtot = 990 = 5/(1+r)^1 + 1005/(1+r)^2r = 1.0076% compounded semi-annually.

Most real-world mortgages feature uniform payments (CFs) and terms from 15 to 30 years. Solve this real-world mortgage problem: Wells Fargo offers you a 6%, 30 year mortgage. The firm will give you $100K today to help you buy a house that costs $150K. (IE: you will buy the house with $50K of your own funds and $100K of mortgage-loan funds). What is your annual mortgage payment (CF or C)? Hint: use formula 74e):

Pvtot = C * ((1-(1+6%)^(-30))/6%)C = 100 / ((1-(1+6%)^(-30))/6%) C = 7.265

Medical Lessors, Inc (MLI) buys an x-ray machine for $200K. On the same day (EOY 0), the firm leases the machine to Radiology, Inc. (RI) for six years, via a six-year, uniform-payment, annuity-due contract with 10% interest. Payments are made annually. What is the amount of the uniform payment?

Pvtot = C*(1 + ((1-(1+10%)^(-5))/ 10%))--> C = 41.75

The present value of the following cash flow stream is $7,500 when discounted at 9 percent annually. What is the value of the missing cash flow? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Time (years) Cash Flow 1 - 1,929 2 - _______ 3.2 - 2,450 4 - 2,980

Pvtot = C*(1 + ((1-(1+10%)^(-5))/ 10%))--> C = 41.75

Note: The given information for this problem changes with each attempt. Please be sure to re-compute your work each time you submit an answer. A Treasury auction is held for $100MM Face-Value of 7-year, zero coupon bonds.If auction-investors pay $61MM for the bonds, what is rrf? Do not round intermediate calculations. Round your answer to 4 decimal places and do not represent your answer as a percent. IE: write 0.2672 not 26.72%.

Solution where T is 6 years and PV is $70MM:FV = PV*(1+r)^Tr = (FV/PV)^(1/T) - 1= (100/70)^(1/6) - 10.0612 0.0732

Yesterday, you bought a 5-year, zero coupon, $100 face-value Treasury bond with an interest rate (rrf) of 6.0% and a price of $74.73 per bond. rinf was 2.0% at the time, but jumped to 5.0% overnight. Nothing changed overnight except for the jump in the inflation rate. How much can you sell your bond for today? Hint: Assume rrf = rinf + all other treasury bond interest rate risks.

Solution, where new inflation is 4% New rrf = 6% - 2% + 4% = 8%PV = FV/(1+r)^T= 100/(1+8%)^568.06 (64.99)

Who is least likely to be an investor in the project "Develop and sell a new residential tower in Dayton OH."? The Internal Revenue Service A hedge fund All listed possibilities could reasonably be investors in this project A private equity fund An individual

The Internal Revenue Service

When using time-value equations to analyze financial projects, analysts commonly model market risks (or industry risks) in which of the following? The logs of both sides of the time-value equations. Contractually-specified cash flows. An additional investment of Treasury securities. An error term. The discount rate. The project's future cash flows.

The discount rate.

The Treasury issues a two-year bond today and a ten-year bond today. For which one will it pay a higher interest rate? The interest rate is equal because both bonds are issued on the same day. The ten-year bond This question cannot be answered without the relevant auction data The two-year bond

The ten-year bond

Discounted Cash Flow project-evaluation methods have which two characteristics? They do not require a Balance Sheet They work best for equity holders They are favored by about 70% of institutional investors They are primarily used by analysts who are unfamiliar with the Dividend Discount analysis method They can be applied to any financial project

They can be applied to any financial project They do not require a Balance Sheet

What is the future value after 16 years of $192050 that you deposit today in an account paying 5% annual compound interest?

This answer is for the example case where compound interest is 6%. Your specific value of compound interest may be different.FV = $192,050(1.06)16 = $487,874.54 (Answer to this specific question is 419,221)

How much should you deposit today in an account paying 21% annual compound interest in order to get $550164 after 40 years?

This answer is for the example case where the year is 40. Your specific value of year may be different.PV = $550,164/(1.21)40 = $268.58 (Answer to this specific question is 268.58)

The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $35,000 per year forever. If you require a return on this investment of 4.7 percent, how much will you pay for the policy?

This cash flow is a perpetuity. To find the PV of a perpetuity, we use the equation:PV = C/rPV = $35,000/.047PV = $744,680.85

What is the future value after 13.6 years of $74,381 that you deposit today in an account paying 12% annual compound interest?

This solution is for T = 14.5 years. Your numbers may vary. FV = 74,381*(1+12%)^14.5 = 384,701.02 (Answer to this specific question is 347,398)

Using your answer for r above, what is the Yield To Maturity (YTM) of this bond for someone who purchased the bond at today's asking price? Hint: YTM = EAIR.

YTM = EAIR = (1+1.0076%)^2 - 1YTM = 0.020

Google issued a bond on 1/1/20X1. The bond has $1,000 face value, a 8% coupon rate, and it matures on 1/1/20X9. Today, 1/2/20X7, the bond is trading at $990 per bond. The remaining contractual cash flows for this bond are as listed below. DateCash Flow7/1/20X7$401/1/20X8$407/1/20X8$401/1/20X9$401/1/20X9$1,000 What is the Yield to Maturity (YTM) of this bond today?Hints: Start with your answer from the previous Google bond question. Remember YTM = EAIR.

YTM = EAIR = (1+r)^2 - 1YTM = 0.088

Is this curve inverted? Hint: Recall that a yield curve graphs the yield relationship among Treasury bonds of varying maturities. In normal circumstances, the yields increase with the bond durations. Yield curves are inverted when yields decrease with duration. This rare circumstance often presages a recession. In fact, an inverted yield curve has signaled every U.S. recession since 1970.

Yes

You are planning to make Quarterly deposits of $1,000 into a savings account with an APR of 5% interest compounded monthly. Your first deposit will be made one quarter from now, and you want to know what the value of the account will be just after 3 quarters from now. Is the below Cash Flow Diagram appropriate to represent this problem from your perspective?

Yes

Medical Lessors, Inc (MLI) buys an x-ray machine for $200K. On the same day (EOY 0), the firm leases the machine to Radiology, Inc. (RI) for six years, via a six-year, uniform-payment, annuity-due contract with 10% interest. Payments are made annually. Is this a correct Cash Flow Diagram for MLI? ("Correct" does not require the numerical value of cash flows shown as "CF").

Yes (arrows pointing up)

Is this diagram for a borrower or a lender? a. Borrower b. Lender c. Not enough information is provided to answer this question.

a: Borrower (The first up arrow refers to a person receiving an inflow of money.)

Financial projects are best evaluated from the perspective of: the IRS one participant or class of participant None of the listed answers are correct the parent company two classes of participants

one participant or class of participant

Facebook has just issued its first bond. It's a 10 year issue with $1,000 face value and a 4% coupon rate. What is the yield to maturity?

r = APR/2 = 2% interest, compounded semi-annuallyYTM = EAIR = (1+r)^nper - 1YTM = 0.040

What is the future value of $3,100 in 17 years assuming an APR of 8.4% compounded semi-annually?

r = APR/Nper r = 8.4/2 = 4.20 percentFV = 3100*(1+4.2%)^(17*2) = 12556.37

You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements. You can have a) $85,000 per year for the next two years, or you can have b) $74,000 per year for the next two years, along with a $20,000 signing bonus today. The bonus is paid immediately, and the salary is paid in equal amounts at the end of each month. If the appropriate APR is 7 percent compounded monthly, what is the PV for option b)?

r in monthly units = 0.005833 Monthly CF = 6166.6667 nMonths = T 24.0000PV = 157,733.11

Note: The given information for this problem changes with each attempt. Please be sure to re-compute your work each time you submit an answer. At EOY 20X1, BetaBank offers a one year CD with an APR of 3%, compounded quarterly. Inflation (rinf) is running at 4% annually at this time. What is the real rate of return on this CD? Do not round intermediate calculations. Round your answer to four decimal places and do not represent your answer as a percent. IE: write 0.2672 not 26.72%.

rannual = EAR (1 + 5%/4)^4 - 1 = 5.09%rr = r - rinf = 5.09% - 4.0% =1.09% -0.0097

An investor measures project-specific risk in future cash flows and uses time value equations with the Opportunity Investment Method to analyze potential purchases. Which discount rate should she use in her computations? Choose two correct answers for full credit. rm The EAIR for equivalent muni-bonds rocc The historical weighted-average, corporate bond discount rate. None of the listed answers.

rm rocc

Investors receive a 6% annual interest rate on their bank deposits. If the annual inflation rate is 4%, what is the real interest rate on these deposits?

rr = (r - rinf) when all time units are years and rinf < about 6% rr = 6% - 4% = 2%

The Treasury just sold a bunch of 5-year, zero coupon $100 face-value bonds for an interest rate (rrf) of 6.0%. If rinf is 2.0% at the time of the sale, then jumps to 3.0% the next day, what is (approximately) rrf of the bonds on the next day? Assume nothing changes overnight except for the jump in the inflation rate. Hint: Assume rrf = rinf + all other treasury bond interest rate risks.

rrf = rinf + all other treasury bond risks. At sale of bonds: rrf = 6% = 2% + 4% Next day: rrf = 3% + 4% = 7% (.07)

Some of the inputs to this problem will change with each submission, so you will need to recompute your answer each time you resubmit. An investor is considering the purchase of a medium-quality, two-year, zero coupon corporate bond. She uses time value equations Opportunity Investment Model to analyze potential purchases. She measures project-specific-risk in future cash flows, and she believes that the project-risk-adjusted CF2 for a prospective bond is 96. The promised CF2 for this bond is $100. The annualized risk-free rate (rrf) for two-year bonds is 2%. If she thinks she should pay just 76 for the bond today, what annual discount rate (r) did she use to get this value? Round your answer to three decimal places and do not represent your answer as a percent. IE: write 0.067 not 6.7%.

when today's price = $80, r = (96/80)^(1/2) - 1 0.124