A bond that pays annual coupons has a par value of $1,000, an 8% coupon rate, 3 years left to maturity, and is currently priced at a YTM of 6.0%.

(a) Calculate duration and modified duration for the bond.

(b) If the YTM on the bond changes from its current 6.0% up to 8.0%, what price change (% and $) and new price ($) is predicted by the modified duration calculated in part a.?

(c) What is the size and direction of the pricing error in the duration-predicted price you calculated in part (b)?

Show all work and show the formulas used for the calculations.

Given the information below:

*Assume a tax rate of 24% round to the nearest dollar

Calculate the following for 2018. Show all work or formulas used.

Free Cash Flow (Cash Flow from Assets):

Cash Flow to Owners:

Cash Flow to Creditors:

From California to New York, legislative bodies across the United States are considering eliminating or reducing the surcharges that banks impose on noncustomers, who make $12 million in withdrawals from other banks’ ATM machines. On average, noncustomers earn a wage of $26 per hour and pay ATM fees of $3.50 per transaction. It is estimated that banks would be willing to maintain services for 4 million transactions at $1.50 per transaction, while noncustomers would attempt to conduct 19 million transactions at that price. Estimates suggest that, for every 1 million gap between the desired and available transactions, a typical consumer will have to spend an extra minute traveling to another machine to withdraw cash.

Based on this information, what would be the nonpecuniary cost of legislation that would place a $1.50 cap on the fees banks can charge for noncustomer transactions?

Instructions: Enter your responses rounded to the nearest penny (two decimal places).

$ 0

What would be the full economic price of this legislation?

$ 0

Both John and Mary are aged 20 now. John plans to contribute $168 per month

in advance into his superannuation fund for 20 years and stop contributing thereafter.

Mary plans to start contributing $336 per month in advance into her superannuation fund

at her 40th birthday until she retires.

They both plan to retire at age 60.

If the annual rate of return is 12.80%, what are the accumulated values of their

superannuation accounts at retirement?

Assume: NO fees, NO tax.

One bond has a coupon rate of 6.0%, another a coupon rate of 8.0%. Both bonds pay interest annually, have 6-year maturities, and sell at a yield to maturity of 7.0%. a. If their yields to maturity next year are still 7.0%, what is the rate of return on each bond? (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

Rate of return Bond 1 _______ Bond 2___________

b. Does the higher-coupon bond give a higher rate of return over this period?

Yes/No

If a savings account pays 6% p.a. interest rate, how much money do you need to deposit to accumulate $72,566 in 9 years? Note that the bank will compound interest monthly.

Question 2

Pat and Sam are a couple with two young children, Cassandra, aged 3, and Clairvoyance, aged 1. They live in Liverpool. Until now, both have been able to continue with their full-time jobs, because Sam’s mother, Emily, could look after both children during the day. (Because both Pat and Sam are in paid employment, Cassandra is entitled to 30 hours of free childcare during term time which she was using).

However, Emily’s health has rapidly but temporarily deteriorated and she needs care herself for the time being so she’s no longer able to provide it for her grandchildren when needed. Pat and Sam are weighing up options as they have secured a nursery place for Clairvoyance either part-time or full-time should they choose to use it.

2.1  Briefly explain two factors that could disproportionately affect Sam’s lifetime financial well-being if she were to give up her full-time job to look after the children until they are in school.

1. Mercy Medical Mega Center , a taxpaying entity, has made the decision to purchase a new laser surgical device. The device costs $400,000 and will be depreciated on straight-line basis over five years to a zero salvage value. Mercy Medical could borrow the full amount at a 15 percent rate for five years. The after-tax cost of debt equals 9 percent. Alternatively, it could lease the device for five years. The before-tax lease payments per year would be $80,000. The tax rate for this MegaCenter is 40 percent. From a financial perspective, should Mercy lease the surgical device or borrow the money to purchase it and why?

Consider a two-state call option valuation problem given the current stock price $240 and the two possibilities for the change in the price are $270 and $170. Also, the strike price is $250 and the risk-free rate is 10%. What is the hedge ratio of the call? b) Calculate the value of a 1-year call option using discrete compounding.

Decision #1:   Which set of Cash Flows is worth more now?

Assume that your grandmother wants to give you generous gift. She wants you to choose which one of the following sets of cash flows you would like to receive:

Option A: Receive a one-time gift of $ 10,000 today.   

Option B: Receive a $1500 gift each year for the next 10 years. The first $1500 would be

     received 1 year from today.                 

Option C: Receive a one-time gift of $18,000 10 years from today.

Compute the Present Value of each of these options if you expect the interest rate to be 3% annually for the next 10 years.    Which of these options does financial theory suggest you should choose?

       Option A would be worth $__________ today.

      Option B would be worth $__________ today.

       Option C would be worth $__________ today.

       Financial theory supports choosing Option _______

Compute the Present Value of each of these options if you expect the interest rate to be 6% annually for the next 10 years. Which of these options does financial theory suggest you should choose?

       Option A would be worth $__________ today.

       Option B would be worth $__________ today.

       Option C would be worth $__________ today.

      Financial theory supports choosing Option _______

Compute the Present Value of each of these options if you expect to be able to earn 9% annually for the next 10 years. Which of these options does financial theory suggest you should choose?

       Option A would be worth $__________ today.

       Option B would be worth $__________ today.

       Option C would be worth $__________ today.

       Financial theory supports choosing Option _______

Decision #2 begins at the top of page 2!

Decision #2: Planning for Retirement

Erich and Mallory are 22, newly married, and ready to embark on the journey of life.   They both plan to retire 45 years from today. Because their budget seems tight right now, they had been thinking that they would wait at least 10 years and then start investing $3000 per year to prepare for retirement. Mallory just told Erich, though, that she had heard that they would actually have more money the day they retire if they put $3000 per year away for the next 10 years - and then simply let that money sit for the next 35 years without any additional payments – then they would have MORE when they retired than if they waited 10 years to start investing for retirement and then made yearly payments for 35 years (as they originally planned to do).   Please help Erich and Mallory make an informed decision:   

Assume that all payments are made at the END a year (or month), and that the rate of return on all yearly investments will be 7.2% annually.  

(Please do NOT ROUND when entering “Rates” for any of the questions below)

1. How much money will Erich and Mallory have in 45 years if they do nothing for the next 10 years, then put $3000 per year away for the remaining 35 years?

2. How much money will Erich and Mallory have in 10 years if they put $3000 per year away for the next 10 years?

26. How much will the amount you just computed grow to if it remains invested for the remaining

35 years, but without any additional yearly deposits being made?

3. How much money will Erich and Mallory have in 45 years if they put $3000 per year away for each of the next 45 years?

How much money will Erich and Mallory have in 45 years if they put away $250

4. per MONTH at the end of each month for the next 45 years? (Remember to adjust 7.2% annual rate to a Rate per month!)

5. If Erich and Mallory wait 25 years (after the kids are raised!) before they put anything away for retirement, how much will they have to put away at the end of each year for 20 years in order to have $1,000,000 saved up on the first day of their retirement 45 years from today?

Requirement 1:

Requirement 2:

Requirement 3:

By April 2009, Henri Termeer had been the Chairman and CEO of Genzyme for more than 20 years. Under his watch, Genzyme had grown to be one of the top-five U.S biotechnology firms. It first established its footprint in the treatment of rare genetic disorders, but its subsequent growth was the result of acquiring nascent biotechnology companies. Genzyme reached record revenues of $4.6 billion in 2008 and was expected to generate an increasing level of free cash flow in coming years. However operational problems in one manufacturing plant had led to a warning letter in late February 2009 from the U.S. Food and Drug Administration (FDA), which, combined with news on impending health care reform, had pushed Genzyme’s stock price from a high of $70.42 down to a low of $56.38.

Genzyme was being targeted by Relational Investors (RI), an “activist” investment fund that had a 2.6% stake in the company at the end of March 2009. RI had a history of engagements with the boards of numerous companies that, in several instances, resulted in the CEO’s forced resignation. Ralph Whitworth, RI cofounder and principal, met with Termeer and delivered a presentation, arguing that Genzyme was trading at a discount. He offered recommendations on how Genzyme could address this: (1) improve capital allocation decisions; (2) implement a share-buyback or dividend program; (3) improve board composition by adding more members with financial expertise; and (4) focus executive compensation on performance metrics.

(i) Why is Mr. Whitworth arguing that Genzyme needs to implement a share repurchase program?

(ii) What problem would a share repurchase solve?

(iii) Wouldn’t it be easier for Genzyme to simply announce a dividend to achieve the same objective of returning cash flow to the shareholders?

Bob has completed another year here at XYZ as a plant distribution employee. Bob's primary responsibilities include, ensuring that each outgoing shipment is complete, all items are free of defects, and there are no discrepancies in inventory. Within the past few months, there have been multiple customer complains about their shipments. In two cases, nearly every item in a shipment contained a defect. Upon further investigation, we discovered that all of the orders in question fall under Bob's responsibility.

   Having defects in our shipments are not only going to hurt our sales, but also our reputation here at XYZ. It is of the utmost importance that Bob is able acknowledge these mistakes and implement a change to avoid defective shipments in the future. I believe that Bob should follow along with a shipment checklist that has detailed explanations, as well as visuals, of the proper methods we have established. I will use the verbal delivery method to get my points across to Bob effectively.

   Prior to my sit-down review with Bob, I am going to write up a step by step process, with visuals, to present to Bob and request that he start using this method. I will discuss with Bob the issues that have been arising and make sure he is aware of the changes that need to be made. Within each shipment, the items need to be checked and the exact status of each item will need to be written down prior to leaving the warehouse. This is going to be a first step, and Bob and I will have a follow up, non-professional, review in a month to check up on the status of his shipments and make sure that changes are actually being made.

   It is important to address Bob verbally and not with a written delivery for multiple reasons. First, Bob can observe nonverbal cues that I am giving him with my presentation of the checklist. I can also easily demonstrate my intentions right away. Clarification and explanation can help Bob to remit his old habits. Lastly, Bob can have a chance to respond to the concerns immediately and have an open discussion about his job. Although people do not like to get bad news, they expect the truth" (Cardon 2016) I backup this statement because if we are not honest with Bob he will never truly learn and therefore he won't be able to change his actions.

Required

Describe how the changes proposed in the above post could be implemented on a larger, department-wide scale to ensure all employees are informed and the issues can be avoided. Would the same change management principles work when applied to the organization, or would changes have to be made?

Consider the following financial data for J. White Industries:

Total assets turnover: 1.8
Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 29%
Total liabilities-to-assets ratio: 45%
Quick ratio: 1.05
Days sales outstanding (based on 365-day year): 33 days
Inventory turnover ratio: 5.0

The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

Complete the balance sheet and sales information in the table that follows for J. White Industries. Do not round intermediate calculations. Round your answers to the nearest whole dollar.

Balance Sheet

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