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Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $27,000 per month for 15 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 15 years at an estimated cost of $728,000. Third, after he passes on at the end of the 15 years of withdrawals, he would like to leave an inheritance of $650,000 to his nephew Frodo. He can afford to save $2,100 per month for the next 15 years. |
| Required: |
| If he can earn a 11 percent EAR before he retires and a 8 percent EAR after he retires, how much will he have to save each month in years 16 through 30? |
$5,198.12
$6,685.05
$4,994.27
$5,096.20
$6,092.78
In: Finance
A stock price is currently $60. Over each of the next two three-month periods it is expected to go up by 6% or down by 5%. The risk-free interest rate is 8% per annum with continuous compounding. What is the value of a six-month European call option with a strike price of $61
In: Finance
In: Finance
A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $81,000 or sold to a smaller company internationally for $41,000. The upgraded machine will have an annual operating cost of $82,000 per year and a $33,000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the manufacture of several other product lines. The replacement machine, which will serve the company now and for a maximum of 8 years, costs $224,000. Its salvage value will be $49,000 for years 1 through 5; $20,000 after 6 years; and $10,000 thereafter. It will have an estimated operating cost of $45,000 per year. Perform an economic analysis at 8% per year using a specified 3-year planning horizon.
a) Determine if the current machine should be replaced now or 3 years from now
b) Once decided, determine the equivalent AW for the next three years.
a) The current machine should be replaced ___.
b) The equivalent AW for the next three years is $ ___ .
In: Finance
How the concept of moral hazard can be applied to the 2008 financial crisis?
In: Finance
Joni is a financial planner for ABC firm. She provided all of her clients with the same products.
She felt this was OK since she had thoroughly researched them years ago and found them to be
excellent. By concentrating her recommendations with a few firms, she was able to receive
commission bonuses. She never discussed their goals and characteristics with her clients unless
they brought them up. Explain her violations of SEC and CFP regulations. Indicate what should
be done.
Case Analysis
Problems
Solutions
Recommendations
Conclusion
In: Finance
Suppose you plan to retire in 40 years. If you make 10 annual investments of $ 5,000 into your retirement account for the first 10 years, and no more contributions to the account for the remaining 30 years. If the retirement account earns a fixed 11% annual interest, how much will you have at your retirement? Round it to two decimal places without the $ sign, e.g., 1234567.89.
In: Finance
In: Finance
Use the bond term's below to answer the question
Maturity 7 years
Coupon Rate 4%
Face value $1,000
Annual Coupons
YTM 4%
Assuming the YTM remains constant throughout the bond's life, what
is the bond's current yield between periods 2 and 3 ?
A. 4.12%
B. 3.81%
C. 4.00%
D. 3.92%
In: Finance
In: Finance
A pension fund manager is considering three mutual funds. The
first is a stock fund, the second is a long-term government and
corporate bond fund, and the third is a T-bill money market fund
that yields a sure rate of 4.3%. The probability distributions of
the risky funds are:
| Expected Return | Standard Deviation | |||
| Stock fund (S) | 13 | % | 34 | % |
| Bond fund (B) | 6 | % | 27 | % |
The correlation between the fund returns is .0630.
Suppose now that your portfolio must yield an expected return of
11% and be efficient, that is, on the best feasible CAL.
a. What is the standard deviation of your
portfolio? (Do not round intermediate calculations. Round
your answer to 2 decimal places
b. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b.1 What is the proportion invested in each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
In: Finance
Compute the cost of not taking the following cash discounts.
(Use a 360-day year. Do not round intermediate
calculations. Input your final answers as a percent rounded to 2
decimal places.)
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In: Finance
Consider a newlywed who is planning a wedding anniversary gift of a trip to Canada for her husband at the end of 10 years. She will have enough to pay for the trip if she invests $4,000 per year until that anniversary and plans to make her first $4,000 investment on their first anniversary. Assume her investment earns a 7 percent interest rate, how much will she have saved for their trip if the interest is compounded in each of the following ways?
a. Annually
b. Quarterly
c. Monthly
In: Finance
|
We are evaluating a project that costs $868,000, has a life of eight years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 84,000 units per year. Price per unit is $40, variable cost per unit is $20, and fixed costs are $879,284 per year. The tax rate is 23 percent, and we require a return of 18 percent on this project. The projections given for price, quantity, variable costs, and fixed costs are all accurate to within +/- 14 percent. |
| a. Calculate the best-case NPV. |
| b. Calculate the worst-case NPV. |
In: Finance
Assume sales for Peach Street Industries are expected to increase by 8.00% from 2015 to 2016. Peach Street is operating at full capacity currently and expected assets-to-sales and spontaneous liabilities-to-sales to remain the same. Additionally, the firm is looking to maintain their 2015 net profit margin and dividend payout ratios for 2016. The firm’s tax rate is 35.00% and selected income statement and balance sheet information for 2015 is provided below:
| Entry | Value | Entry | Value |
|---|---|---|---|
| Current Assets | $800.00 | Sales | $2,500.00 |
| Net Fixed Assets (NFA) | $700.00 | Operating Costs | $2,030.00 |
| Total Assets | $1,500.00 | Depreciation | $90.00 |
| Accounts Payable and Accruals | $30.00 | Interest Expense | $69.00 |
| Notes Payable | $180.00 | Dividends Paid | $93.30 |
| Long term debt | $510.00 | ||
| Total Equity | $780.00 |
How much in additional funds (external capital) will Peach Street Industries need in 2016 to support their projected growth in sales? (i.e., calculate the firm’s additional funds needed --AFN) ?
In: Finance