1. Assume that par value of the bond is $1,000. What were the last prices of the bonds in $$$ (listed in the Price column)? Show your work.
2. Assume that par value of the bond is $1,000. Calculate the annual coupon interest payments. Show your work.
3. Assume that par value of the bond is $1,000. Calculate the current yield of the bonds. Show your work.
4. Write an analysis of the bonds. In your analysis you should answer the following questions. Please explain your answer to each question.
   1. How much is the YTM listed in quotations is for the bonds? Explain the meaning of YTM?
   2. If you are going to buy a bond issued by V, which bond would you choose? Why?
   3. Are these bonds callable? If the bonds that you chose are callable (non-callable), will it change your decision to buy them?

The following spot and forward rates for the euro ($/euro) were reported:

a-1. Was the euro selling at a discount or premium in the forward market at 30 days.

• Premium

• Discount

a-2. Was the euro selling at a discount or premium in the forward market at 90 days.

• Discount

• Premium

a-3. Was the euro selling at a discount or premium in the forward market at 180 days.

• Discount

• Premium

b. What was the 30-day forward premium (or discount)? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

30-day forward premium/discount            %

c. What was the 180-day forward premium (or discount)? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Negative answer should be indicated by a minus sign.)

180-day forward premium/discount            %

d. Suppose you executed a 90-day forward contract to exchange 210,000 euros into Canadian dollars. How many dollars would you get 90 days hence?

Dollars for euros francs            $

e. Assume a French bank entered into a 180-day forward contract with TD Bank to buy $210,000. How many euros will the French bank deliver in six months to get the Canadian dollars? (Do not round intermediate calculations. Round the final answer to the nearest whole dollar.)

Euros francs for dollars          €

Even if project X has a higher IRR than project Y, project Y may have a higher net present value than project X. True or False?

Parramore Corp has $19 million of sales, $2 million of inventories, $4 million of receivables, and $3 million of payables. Its cost of goods sold is 70% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.

1. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.
     days
2. 
   
3. If Parramore could lower its inventories and receivables by 11% each and increase its payables by 11%, all without affecting sales or cost of goods sold, what would be the new CCC? Do not round intermediate calculations. Round your answer to two decimal places.
     days
4. 
   
5. How much cash would be freed up, if Parramore could lower its inventories and receivables by 11% each and increase its payables by 11%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $
6. 
   
7. By how much would pretax profits change, if Parramore could lower its inventories and receivables by 11% each and increase its payables by 11%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $

CURRENT ASSETS INVESTMENT POLICY

Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $3 million as a result of an asset expansion presently being undertaken. Fixed assets total $2 million, and the firm plans to maintain a 55% debt-to-assets ratio. Rentz's interest rate is currently 10% on both short-term and long-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current assets level are under consideration: (1) a restricted policy where current assets would be only 45% of projected sales, (2) a moderate policy where current assets would be 50% of sales, and (3) a relaxed policy where current assets would be 60% of sales. Earnings before interest and taxes should be 12% of total sales, and the federal-plus-state tax rate is 40%.

1. What is the expected return on equity under each current assets level? Round your answers to two decimal places.
   

   Restricted policy		%
   Moderate policy		%
   Relaxed policy		%

2. 
   
3. In this problem, we assume that expected sales are independent of the current assets investment policy. Is this a valid assumption?
   1. Yes, sales are controlled only by the degree of marketing effort the firm uses, irrespective of the current asset policies it employs.
   2. Yes, the current asset policies followed by the firm mainly influence the level of long-term debt used by the firm.
   3. Yes, the current asset policies followed by the firm mainly influence the level of fixed assets.
   4. No, this assumption would probably not be valid in a real world situation. A firm's current asset policies may have a significant effect on sales.
   5. Yes, this assumption would probably be valid in a real world situation. A firm's current asset policies have no significant effect on sales.
   
   -Select-IIIIIIIVVItem 4
4. 
   
5. How would the firm's risk be affected by the different policies?
   
   The input in the box below will not be graded, but may be reviewed and considered by your instructor.
   

AFN EQUATION

Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $3 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 7%.

1. Assume that the company pays no dividends.
   Under these assumptions, what would be the additional funds needed for the coming year? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent.
   $
2. 
   
3. Why is this AFN different from the one when the company pays dividends?
   
   1. Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of additional funds needed.
   2. Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of assets needed.
   3. Under this scenario the company would have a higher level of spontaneous liabilities, which would reduce the amount of additional funds needed.
   4. Under this scenario the company would have a lower level of retained earnings, which would increase the amount of additional funds needed.
   5. Under this scenario the company would have a lower level of retained earnings, which would decrease the amount of additional funds needed.

1.Duration and Convexity

Your research department reports continuously compounded interest rates as

Maturity (Years) 0.5, 1.0, 1.5, 2.0

Interest Rate (%) 1.00, 1.50, 2.00, 2.00

(a) Use these rates to compute the prices P_z(0,1) and P_z(0,2) of one- and two-year zero coupon bonds, and the price P_c(0,2) of a two-year, 3% coupon bond. Coupons are paid semi-annually, and the face value of all bonds is 100.

(b) Obtain the coupon bond's duration and convexity.

(c) Suppose that the monthly changes in the interest rates have a mean of zero and a standard deviation of 0.5%. Obtain the monthly 95% Value at Risk and Expected Shortfall on the coupon bond.

(d) Construct a hedge portfolio of 1 coupon bond and k one-year zero coupon bonds that has zero duration. What is the value of k? What is the convexity of the hedge portfolio?

(e) Construct a hedge portfolio of 1 coupon bond, and k₁ one-year zero coupon bonds and k2 two-year zero coupon bonds, that has zero duration and convexity. What are the values of k₁ and k₂?

(f) Suppose that the yield curve shifts upward with dr = 1%. Recalculate P_c(0,2), P_z(0,1) and P_z(0,2) and use this to calculate the change in the values of the hedge portfolios constructed in (d) and (e). Comment on the result.

GM is considering two mutually exclusive projects, A and B. Project A costs $150,000 and is expected to generate $50,000 in year one, $85,000 in year two, and $35,000 per year in years 3 and 4. Project B costs $120,000 and is expected to generate $64,000 in year one, $45,000 in year two, $25,000 in year three, and $55,000 in year four. GM's required rate of return for these projects is 10%. GM decides to use NPV to evaluate these projects. Which project or projects will they choose?

Project A

Project B

Projects A&B

GM would reject both projects

You would like to have $650,000 when you retire in 40 years. How much should you invest each quarter if you can earn a rate of 2.7% compounded quarterly?

a) How much should you deposit each quarter?

b) How much total money will you put into the account?

c) How much total interest will you earn?

1). Suppose everything else equal; a) the Central Bank raises the reserve requirement to 20 percent, b) the currency deposit ratio rises to 60 percent. Which development, a) or b) will affect the money multiplier more? Why?

2). Suppose the Central Bank of Turkey starts to pay interest on reserves. Under what circumstances this would affect the short term policy interest rate?

If it were unlevered, the overall firm beta for Wild Widgets Inc. (WWI) would be 0.7. WWI has a target debt/equity ratio of 1. The expected return on the market is 0.1, and Treasury bills are currently selling to yield 0.04. WWI one-year bonds (with a face value of $1,000) carry an annual coupon of 3% and are selling for $983.52. The corporate tax rate is 37%.(Round your answers to 2 decimal places before the percentage sign. (e.g., 10.23%)) a. WWI’s before-tax cost of debt is 4.73 4.73 Correct %. b. WWI’s cost of equity is 10.84 10.84 Incorrect %. c. WWI’s weighted average cost of capital is 6.91 6.91 Incorrect %

DEF Inc. is considering a project that will require an initial outlay of $750,000. DEF executives believe the project will provide an annual net cash flow of $150,000 per year for six years. What is the net present value of the project if the required rate of return is 10%?

A)18,536.78

B)-40,263.50

C)-96,710.90

D)110,623.82