william brown is 30 years and wants to retire when he is 65. so far he has saved (1) $6,240 in an ira account in which his money is earning 8.3 percent annually and (2) $5,630 in a money market account in which he is earning 5.25 percent annually. william wants to have $1 million when he retires. starting next year, he plans to invest the same amount of money every year until he retires in a mutual fund in which he expects to earn 7.72 percent annually. how much will william have to invest every year to achieve his savings goal?

4. Cross City Tunnel (CCT) Ltd currently has 5 million shares on issue each with a market price of $2.50. CCT also has $7 million of debt. The Chief Financial Offer is considering changing the capital structure by repaying $3 million of debt using funds raised from an equity issue. The interest rate on debt is 10% p.a. and the company tax rate is 30%.

   Calculate EPS for both the current and the proposed capital structures at a projected EBIT level of $3.7 million. Which capital structure is preferable if this is the expected level of EBIT?

4. The DuPont System allows us to relate the return on total assets and the return on common equity to various measures of firm characteristics. Consider a firm with a ROA of 0.04.
a. If you were analyzing a firm that had sales of $12500 and total assets of $10000, how much in earnings were available for common shareholders?

b.If the firm had common stockholders' equity of $3300, what would be the firm's ROE?

c. If we compare this firm to another similar firm in the industry we find that the comparison firm has an ROA and ROE of 0.05 and 0.191663, respectively. Given this information, calculate the comparison firm's ratio of total assets to common stock equity. How does this ratio differ from our firm?

d.Interpret the performance differences between these firms.

Where does the soft drink, Fanta, fit on the BCG portfolio management matrix in the Coca-Cola Company? Would it be considered a "star" with high relative market share and high market growth rate? A "cash cow" with high relative market share and low market growth rate? A "question mark" with low relative market share and high market growth rate? Or a "dog" with low relative market share and low market growth rate?

For reference:

Dogs. Dogs hold low market share compared to competitors and operate in a slowly growing market. In general, they are not worth investing in because they generate low or negative cash returns. But this is not always the truth. Some dogs may be profitable for long period of time, they may provide synergies for other brands or SBUs or simple act as a defense to counter competitors moves. Therefore, it is always important to perform deeper analysis of each brand or SBU to make sure they are not worth investing in or have to be divested.
Strategic choices: Retrenchment, divestiture, liquidation

Cash cows. Cash cows are the most profitable brands and should be “milked” to provide as much cash as possible. The cash gained from “cows” should be invested into stars to support their further growth. According to growth-share matrix, corporates should not invest into cash cows to induce growth but only to support them so they can maintain their current market share. Again, this is not always the truth. Cash cows are usually large corporations or SBUs that are capable of innovating new products or processes, which may become new stars. If there would be no support for cash cows, they would not be capable of such innovations.
Strategic choices: Product development, diversification, divestiture, retrenchment

Stars. Stars operate in high growth industries and maintain high market share. Stars are both cash generators and cash users. They are the primary units in which the company should invest its money, because stars are expected to become cash cows and generate positive cash flows. Yet, not all stars become cash flows. This is especially true in rapidly changing industries, where new innovative products can soon be outcompeted by new technological advancements, so a star instead of becoming a cash cow, becomes a dog.
Strategic choices: Vertical integration, horizontal integration, market penetration, market development, product development

Question marks. Question marks are the brands that require much closer consideration. They hold low market share in fast growing markets consuming large amount of cash and incurring losses. It has potential to gain market share and become a star, which would later become cash cow. Question marks do not always succeed and even after large amount of investments they struggle to gain market share and eventually become dogs. Therefore, they require very close consideration to decide if they are worth investing in or not.
Strategic choices: Market penetration, market development, product development, divestiture

Benefits of diversification.

Sally Rogers has decided to invest her wealth equally across the following three assets. What are her expected returns and the risk from her investment in the three​ assets? How do they compare with investing in asset M​ alone?  

Hint​: Find the standard deviations of asset M and of the portfolio equally invested in assets​ M, N, and O.

What is the expected return of investing equally in all three assets​ M, N, and​ O?

_____​% ​(Round to two decimal​ places.)

What is the expected return of investing in asset M​ alone?

_____% ​(Round to two decimal​ places.)

What is the standard deviation of the portfolio that invests equally in all three assets​ M, N, and​ O?

_____​% ​(Round to two decimal​ places.)

What is the standard deviation of asset​ M?

_______% ​(Round to two decimal​ places.)

By investing in the portfolio that invests equally in all three assets​ M, N, and O rather than asset M​ alone, Sally can benefit by increasing her return by

______% and decreasing her risk by _____​%. ​(Round to two decimal​ places.)

​Beryl's Iced Tea currently rents a bottling machine for $ -56,000 per​ year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two​ options: a. Purchase the machine it is currently renting for $ 163,000. This machine will require $ 22,500 per year in ongoing maintenance expenses. b. Purchase a​ new, more advanced machine for $ 258,000. This machine will require $ 18,750 per year in ongoing maintenance expenses and will lower bottling costs by $ 17,000 per year.​ Also, $ 34,000 will be spent up front to train the new operators of the machine. Suppose the appropriate discount rate is 7.5 % per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each​ year, as is the cost of the rental machine. Assume also that the machines will be depreciated via the​ straight-line method over seven years and that they have a​ 10-year life with a negligible salvage value. The marginal corporate tax rate is 38 %. Should​ Beryl's Iced Tea continue to​ rent, purchase its current​ machine, or purchase the advanced​ machine? To make this​ decision, calculate the NPV of the FCF associated with each alternative.

Suppose that a 1 year zero coupon bond with a face of $100 sells at $94.34. While a zero 2 year sells at $84.99. You are considering the purchase of a 2 year maturity bond making annual coupon payments. The face value of the bond is $100 and the coupon rate is 12% per year.

1. What is the yield to maturity of the 2 year zero?

2. What is the yield to maturity of the 2 year coupon bond?

3. What is the forward rate for the second year?

4. According to he expectations hypothesis what are (1) the expected price of the coupon bond at the end of the first year and (2) the expected holding period return on the coupon bond over the first year?

5. Will the expected rate of return be higher or lower if you accept the liquidity preference hypothesis?

Suppose a​ ten-year, $1,000 bond with an 8.5 % coupon rate and semiannual coupons is trading for $1,035.71.

a. What is the​ bond's yield to maturity​ (expressed as an APR with semiannual​ compounding)?

b. If the​ bond's yield to maturity changes to 9.1 % ​APR, what will be the​ bond's price?

Carla Vista, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the next two years, then a growth rate of 17 percent for the following two years. After that, a constant-growth rate of 8 percent is expected. The firm expects to pay its first dividend of $2.26 a year from now. If dividends will grow at the same rate as the firm and the required rate of return on stocks with similar risk is 22 percent, what is the current value of the stock? (Round all intermediate calculations and final answer to 2 decimal places, e.g. 15.20.)

1. What would be the yield to maturity for a bond with a $70 coupon, interest paid semiannually, $1000 maturity value, 12 years to maturity and a quoted price of 104.50 (Actual price of $1045)? Remember we are taking the view of the investor, so the price needs to be entered with a negative sign because if we buy the bond, that is cash out of our account

2. If the quoted price fell to 99 (actual price $990), what would be the pretax yield to maturity? How about if the quoted price instead rose to 110.5 (actual price $1105)? What do you conclude from this about the relationship between the bond price and the market rate of interest?

3. A further complication related to bonds is that interest is deductible for tax purposes, so to arrive at an after-tax cost of debt for the firm, rather than a return for investors, it is necessary to multiply the yield by (1- tax rate) to get the after-tax cost of debt. For the first example with a quoted price of 104.5 (actual price of $1045), assuming that the tax rate is 20%, what would be the after-tax cost of debt?

4. To sum up the cost of debt, we only really have three variables to work with - the market rate of interest, the bond price and the firm's tax rate. The coupon payment, time to maturity and the maturity value for a specific bond are effectively fixed. As those first three variables (market interest, bond price and firm's tax rate) change, up or down, how does that affect the firm's after-tax cost of debt?

Holly bought a 7-year bond, with a 3% coupon paid semi annually. It was priced to yield 3% when she bought it. What is the effective duration assuming a 100-basis point change in interest rates?

INTC current stock price is 23. You sold a 22 put and bought a 21 put. The premium on the 22

put is 0.6, and the premium on the 21 put is 0.3. Analyze your gain or loss if on the expiration

day the stock price is larger than 22, between 21 and 22, less than 21.

what would be the yield to maturity for a bond with a $70 coupon, interest paid semiannually, $1000 maturity value, 12 years to maturity and a quoted price of 104.50 (Actual price of $1045)?

The following is market information: Current spot rate of pound = $1.23 90-day forward rate of pound = $1.24 3-month deposit rate in U.S. = 1.1% 3-month deposit rate in Great Britain = 1.3% If you have $250,000 and use covered interest arbitrage for a 90-day investment, what will be the amount of U.S. dollars you will have after 90 days?