Bond #1: US Treasury note with a 2% coupon due in 5 years issued at a price of par ($100).
Bond #2: ABC Corp note with a 4% coupon issued at a yield to maturity of 4.2%. ABC’s credit is rated BBB.

 Both bonds were issued and will mature on the same date.
 Coupons on both bonds are stated in annual terms above, but paid semi-annually.
 The Fed Funds rate is 0.75%.
 Below is the “benchmark” US Treasury “on-the-run” Yield Curve on date of issuance:

1y 1.00% 2y 1.25% 3y 1.50% 5y 2.00% 7y 2.50% 10y 3.00%

1. What is the Yield to Maturity of Bond #1?

2. Was Bond #2 issued (sold) at a par, premium or discount price? (You can answer this without knowing

   the specific price.)

3. What do bond market participants call the “difference” between the yields to maturity of Bond #2 and

   Bond #1?

4. What type of risk is most likely the largest component of this “yield difference?”

1. 2%
2. Discount price
3. Spread
4. Default Risk

Assume you purchased Bond #1 and held it for 3 years and the treasury yield curve is unchanged (rates are exactly the same as those listed above), and answer the following questions (36 points): a. What is the new number of years to maturity for bond #1? b. How many cash flow payment dates are left? c. What is the discount rate we should use to value Bond #1 in this new environment? d. Using the same Present Value of Future Cash Flows Model shown above to compute the new price of Bond #1 (show your work).

Financing Deficit Garlington Technologies Inc.'s 2016 financial statements are shown below: Balance Sheet as of December 31, 2016 Cash $ 180,000 Accounts payable $ 360,000 Receivables 360,000 Notes payable 156,000 Inventories 720,000 Line of credit 0 Total current assets $1,260,000 Accruals 180,000 Fixed assets 1,440,000 Total current liabilities $ 696,000 Common stock 1,800,000 Retained earnings 204,000 Total assets $2,700,000 Total liabilities and equity $2,700,000 Income Statement for December 31, 2016 Sales $3,600,000 Operating costs 3,279,720 EBIT $ 320,280 Interest 18,280 Pre-tax earnings $ 302,000 Taxes (40%) 120,800 Net income 181,200 Dividends $ 108,000 Suppose that in 2017 sales increase by 5% over 2016 sales and that 2017 dividends will increase to $148,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 13%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations. Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 Sales $ Operating costs $ EBIT $ Interest $ Pre-tax earnings $ Taxes (40%) $ Net income $ Dividends: $ Addition to RE: $ Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017 Cash $ Receivables $ Inventories $ Total current assets $ Fixed assets $ Total assets $ Accounts payable $ Notes payable $ Accruals $ Total current liabilities $ Common stock $ Retained earnings $ Total liabilities and equity $

A Foreign currency trader at the bank’s FX desk calls to inform you that Bank of America is quoting $1.12/€1, and Citibank is offering $1.28/£1. The trader also noticed that Credit Agricole is making market in pound sterling and Euro at €1.18/£1.

a. What is the implied €/£ cross-rate for the two European currencies? Show this trader how you would use $1 million to conduct a triangular arbitrage to profit from the deviation (if any) of the implied cross rate of the €/£, from the rate quoted by Credit Agricole.

b. Suppose you observed that the 3-month forward rate quote from Bank of America is $1.21/€1, calculate the forward premium (discount) implied by the quote.

c. What do investors expect to happen to the value dollar in the next three months?

PIB wants to offer a $40 million, 6-months Eurodollar deposit to one of its major clients at 6-months LIBOR less 2.5%. 6-month LIBOR is 5.3%. The bank intends to use the proceeds of this deposit to buy a 5.0% 3-months grade AAA commercial paper and to rollover the investment for another three months at the end of the first three months cycle. To protect itself from interest rate exposure, the bank also buys a “3 against 6” $40 million, FRA for a three month period beginning three months from the day of receipt of the deposit and ending six months from the day of receipt of the deposit. The agreement rate with the seller is 5.0%. There are 94 days in the first three months and 92 days in the remaining three months period.

a. Calculate the banks interest expense on the 6-month Eurodollar deposit.

b. Calculate the bank interest income on the first three month commercial paper loan.

c. Calculate the value of the FRA from the last three months of the investment period if 3-months LIBOR (SR) for that period is 5.3%.

Sutter Lakeside Hospital, a taxpaying entity, is considering a new ambulatory surgical center (ASC). The building and equipment for the new ASC will cost $5,500,000. The equipment and building will be depreciated on a straight-line basis over the project’s five-year life to a $2,500,000 salvage value. The new ASC’s projected net revenue and expenses are as follows. Net revenues are expected to be $5,000,000 the first year and will grow by 9 percent each year thereafter. The operating expenses, which exclude interest and depreciation expenses, will be $4,500,000 the first year and are expected to grow annually by 3 percent for every year after that. Interest expense will be $700,000 per year, and principal payments on the loan will be $1,000,000 a year. In the first year of operation, the new ASC is expected to generate additional after-tax cash flows of $600,000 from radiology and other ancillary services, which will grow at an annual rate of 5 percent per year for every year after that. Starting in year 1, net working capital will increase by $350,000 per year for the first four years, but during the last year of the project, net working capital will decrease by $250,000. The tax rate for the hospital is 40 percent, and its cost of capital is 15 percent. Use both the NPV and IRR approaches to determine if this project should be undertaken. (Hint: see Appendices C, D, and E.)

1. A rapidly growing firm is currently paying a dividend of $2.20. The dividend growth rate is expected to be 9% for the next 8 years. The dividend growth rate after the first 8 years is expected to be 4% annually. The expected return on the market is 7%, the risk free rate is 4% and the firm’s Beta is 0.84.
   1. Calculate the estimated price (intrinsic value) for a share of this firm’s stock.
   2. What does this firm’s Beta measure?
   3. Use Goal Seek to determine what the current dividend would need to be to yield an estimated price (intrinsic value) of $150.

Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $415,000 is estimated to result in $163,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $63,000. The press also requires an initial investment in spare parts inventory of $26,000, along with an additional $3,400 in inventory for each succeeding year of the project. The shop’s tax rate is 21 percent and its discount rate is 8 percent. (MACRS schedule) Calculate the NPV of this project.

Smallville Bank has the following balance sheet, rates earned on its assets, and rates paid on its liabilities.

If the bank earns $125,000 in noninterest income, incurs $85,000 in noninterest expenses, and pays $2,550,000 in taxes, what is its net income? (Enter your answer in dollars, not thousands of dollars.)

Explain clearly the negative externalities in banking using your case studies to support your answer.

Orange County Bankruptcy case 1994

How the Fed action affects the interest rate in 1994?

Describe the crisis following the Fed action

Describe the outcomes?

Q1. Cost of home today (Yr 2019) = $760,000

Down payment today (Yr 2019) = $120,000

Currently Chosen financing option: a 25-year mortgage/loan, with semi-monthly payments (at the end of each period). The interest rate on the mortgage is 3.26% APR (annual percentage rate) compounded semi-annually.

After 5 years (2024), what will the outstanding balance on the mortgage with the same financing "option" given above??

Hint: you only need to consider the PV of the remaining mortgage payments at the same mortgage rate.

Please use (display + name) the excel function/ formula used for each coloured cell.

Ques 8) In 2024 (5 yrs from now) we will receive $200,000 from ancestral property and would like to deposit one-time payment against our mortgage at that time, if we renew the mortgage in 2024 at the same interest rate and same time left to repayment, what will our new semi-monthly payment be? Please use (display + name) the excel function/ formula used for coloured cell.

Wuttke Corp. wants to raise $4.1 million via a rights offering. The company currently has 510,000 shares of common stock outstanding that sell for $40 per share. Its underwriter has set a subscription price of $30 per share and will charge the company a spread of 2 percent.

If you currently own 6,000 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights?

A storage facility can be purchased for $120,000.  The maintenance and taxes are estimated to be $8,000 per year.  Alternatively, you can rent the facility for $11,000 per year.  Assume that in ten years, the facility can be sold for $100,000.  Determine the IRR or cost of renting the facility, by interpolating the compound interest factors.

Max Wholesaler borrowed $13,500 on a 11%, 120-day note. After 45 days, Max paid $4,725 on the note. Thirty days later, Max paid an additional $4,050. Use ordinary interest.

a. Determine the total interest using the U.S. Rule. (Round your intermediate balances and interest amounts to the nearest cent. Round your final answer to the nearest cent.) Total interest amount $

b. Determine the ending balance due using the U.S. Rule. (Round your intermediate balances and interest amounts to the nearest cent. Round your final answer to the nearest cent.) Ending balance due $

​(Calculating free cash flows​) At​ present, Solartech Skateboards is considering expanding its product line to include​ gas-powered skateboards;​ however, it is questionable how well they will be received by skateboarders. Although you feel there is a 40 percent chance you will sell 10,000 of these per year for 10 years​ (after which time this project is expected to shut down because​ solar-powered skateboards will become more​ popular), you also recognize that there is a 30 percent chance that you will only sell 1,000 and also a 30 percent chance you will sell 17,000. The gas skateboards would sell for $100 each and have a variable cost of $40 each. Regardless of how many you​ sell, the annual fixed costs associated with production would be $130,000. In​ addition, there would be an initial expenditure of $1,200,000 associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the simplified​ straight-line method down to zero over 10 years. Because of the number of stores that will need​ inventory, the working capital requirements are the same regardless of the level of sales. This project will require a​ one-time initial investment of $60,000 in net working​ capital, and that​ working-capital investment will be recovered when the project is shut down.​ Finally, assume that the​ firm's marginal tax rate is 31 percent.

a. What is the initial outlay associated with the​ project?

b. What are the annual free cash flows associated with the project for years 1 through 9 under each sales​ forecast? What are the expected annual free cash flows for years 1 through​ 9?

c. What is the terminal cash flow in year 10​ (that is, what is the free cash flow in year 10 plus any additional cash flows associated with the termination of the​ project)?

d. Using the expected free cash​ flows, what is the​ project's NPV given a required rate of return of 11 ​percent? What would the​ project's NPV be if 10,000 skateboards were​ sold?

***PLEASE, be as detailed as possible, I couldn't figure this problem out so please only answer if you know how to do this!***