A vehicle costs $10,000 when new and has a trade-in value of $7,200 at the end of four years. Its operating expense is $4,000 per year with an additional $2,000 for tires, tune up and battery at the end of the second year. All values are given in today's dollars. What is the equivalent annual cost of owning this vehicle for four years assuming a 10% market interest rate and expected inflation of 2%?

A) A worker named Hastings lives for two periods (year 0 and year 1) and has to choose his optimal level of education. He has two choices. He can choose to go to school during year 0, in which case he has no earnings during that period; however, in year 1 he earns $220. Alternatively, he can choose not to go to school, in which case he earns $110 in both periods.

Part1. What is Hastings’ present discounted value (PDV) of lifetime earnings if he chooses not to go to school? Assume a discount rate of 10%.

Part2. What is Hastings’ present discounted value of lifetime earnings if he chooses to go to school in year 0? Assume a discount rate of 10%.

Part3. Given your answers to (1) and (2), should Hastings choose to go to school or not? Why?

Part4. Hastings’ sister Patience also lives 2 periods and if she decides not to go to school she also makes $110 in each period. However, if she decides to go to school, she can work part time and earn $50 in year 0 and then earn $220 in year 1. Patience has a discount rate of 0%. Should Patience attend school or not? Show your work

Mark wants to save money to achieve three main objectives.

1º, he would like to be able to retire within 30 years with a retirement income of $23,000 per month for 20 years, with the first payment received 30 years and 1 month from now.

2º, he would like to buy a cabin in 10 years at an estimated cost of $320,000.

3º, after he dies at the end of the 20 year retirement period, he would like to leave a $1,000,000 inheritance to his nephew. Mark can save $2,100 per month (ordinary annuity) for the next 10 years.

In addition, Mark can obtain an effective annual return of 11 percent before retirement and an effective annual return of 8 percent after retirement.

(a) What is the amount of savings that Mark needs to have at the time of retirement?

(b) How much are Mark's savings immediately after buying the cabin?

(c) How much Mark will have to save each month (ordinary annuity contributions) after the purchase of the cabin (i.e. after the year 10 and until the year 30)?

[Please show all work - thanks]

Suppose an agent has $100,000 today that he wants to save for 10 years. Compare the following two savings plans.

Bank A offers the following alternative:

For the first $50,000 the agent obtains 8% p.a. (per annum) for 10 years. For the other amount he obtains 4% p.a. for the first four years. Then he obtains 1% p.a.

Bank B offers the following alternative:

The interest in year 1 is 2%, in year 2 is 4%, in year 3 is 8%, in year 4 is 20%, then for years 5 to 10 the agent obtains 3% p.a.

For both plans, interest payments are reinvested.

(a) The agent maximizes the amount at t=10. Which plan is better? How much more can he spend at t=10, if he chooses the better one?

(b) Suppose bank B wants to match the offer of bank A. Interest rates for years 2 to 10 are as above. What interest rate for the first year must bank B offer the agent so that he gets the same amount as from bank A? [4p]

Suppose your employer offers you a choice between a $4,800 bonus and 100 shares of the​ company's stock. Whichever one you choose will be awarded today. The stock is currently trading at $62.26 per share. A. If you receive the stock bonus and you are free to trade​ it, which form of the bonus should you​ choose? What is its​ value?B. If you receive the stock bonus and you are required to hold it for at least one​ year, what can you say about the value of the stock bonus​ now? What will your decision depend​ on?

1A. If you receive the stock bonus and you are free to trade​ it, which form of the bonus should you​ choose? What is its​ value?If you are free to trade the​ stock, the value of the stock bonus today is? (Round to the nearest​ dollar.)

2B. The value of the cash bonus is ?Round to the nearest​ dollar.)

3C Which bonus should you​ choose? Stock or Cash?

2 . If you receive the stock bonus and you are required to hold it for at least one​ year, what can you say about the value of the stock bonus​ now? What will your decision depend​ on?  ​(Choose all the answers that​ apply)

A.You might decide that it is better to take the $ 4, 800 in cash than to wait for the uncertain value of the stock in one year. This would be especially true if you believed you could invest the $4,800 today in another equally risky asset that would be worth more than the stock one year from now.

B.Since you work for this company you are considered to be a stakeholder. This implies​ that, for​ you, the​ company's shares are worth more than $6,226 today.​ Therefore, you should take the stock bonus.

C.Because you could buy the stock today for $6,226 if you wanted​ to, the value of the stock bonus cannot be more than $6,226. But if you are not allowed to sell the​ company's stock for the next​ year, its value to you could be less than $6,226.

D.The​ stock's value will depend on what you expect it to be worth in one​ year, as well as how you feel about the risk involved. There is no​ clear-cut answer to which alternative is​ best, because taking the stock today and having to hold it for a year involves risk.

Compute the value of a share of common stock of Lexus Hotel Berhad whose most recent dividend was RM2.50 and is expected to grow at 3.50 percent per year for the next 5 years, 5 percent per year for the next 3 years, after which the dividend growth rate will increase to 6 percent per year indefinitely. Assume 10.00 percent required rate of return.

A local finance company quotes an interest rate of 18 percent on one-year loans. So, if you borrow $35,000, the interest for the year will be $6,300. Because you must repay a total of $41,300 in one year, the finance company requires you to pay $41,300/12, or $3,441.67, per month over the next 12 months.

a. what rate would legally have to be quoted?

b. what is the effective annual rate?

1.       What additional factors are encountered in international as compared with domestic financial management? Discuss each briefly.

2.       hat risks are associated with direct foreign investment? How do these risks differ from those encountered in domestic

2. A What is the monthly payment amount on a $100,000 home loan if the rate is 8.0% APR, and the loan is made for a 15-year period?

B A four-year investment requires annual deposits of $300 at the beginning of each year. The deposits earn 6% per year. What is the investment’s future value? Remember, the deposits are made at the beginning of each year (annuity due).

Assume that the 1-year zero-coupon bond is sold at $89.78 and the yields to maturity for the coupon bonds selling at market prices equal to their face values are 11% and 13% for 1-year and 1.5-year issues respectively. Coupons are paid every 6 months and face values are $100 for all the bonds.

(a) Calculate the spot rate curve (s_0.5, s₁, s_1.5).

(Keep your answer in decimal format 4 decimal places, e.g. 0.1234. Do not give in percent format e.g. 12.34%.)

     s_0.5: _______________ s₁: ____________________ s_1.5 :__________________

(b) Compute the quasi-modified duration for each of these bonds. (Keep 2 decimal places, e.g. xx.12.)

     Zero-coupon bond: ______________

11% coupon bond: ______________

    13% coupon bond: ______________

(c)  Determine the current price of an 14% coupon bond with face value $100 and 18 months to maturity. (Keep 2 decimal places, e.g. xx.12.)

________________

You are analyzing a project with 5-year life. The project requires a capital investment of $10000 now, and it will generate uniform annual revenue of $6000 at the end of each year. Further, the project will have a salvage value of $2500 at the end of the fifth year and it will require $3000 each year for the operation. What is the net value of the project using year 1 as the basis, considering a 10% annual interest rate._________(round your answer to the nearest integer, e.g. enter 12345 if your answer is 12,345.2; enter 12346 if your answer is 12,345.7)

Last​ year, InDebt Company paid ​$67 million of interest​ expense, and its average rate of interest for the year was 10.0​%. The​ company's ROE is 15.8​%, and it pays no dividends. Estimate next​ year's interest expense assuming that interest rates will fall by 19​% and the company keeps a constant equity multiplier of​ 20%.

Next​ year's estimated interest expense is

Sun Brite has a new pair of sunglasses it is evaluating. The company expects to sell 5,900 pairs of sunglasses at a price of $154 each and a variable cost of $106 each. The equipment necessary for the project will cost $310,000 and will be depreciated on a straight-line basis over the 6-year life of the project. Fixed costs are $200,000 per year and the tax rate is 34 percent. How sensitive is the operating cash flow to a $1 increase in variable costs per pairs of sunglasses?