You are considering moving your money to new bank offering a​ one-year GIC that pays an

5 %

APR with monthly compounding. Your current​ bank's manager offers to match the rate you have been offered. The account at your current bank would pay interest every six months. How much interest will you need to earn every six months to match the​ GIC?

First convert APR into a monthly discount​ rate:

The monthly discount rate is

​%.

A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a portfolio, making portfolio risk analysis an integral part of the field of finance. Just like stand-alone assets and securities, portfolios are also exposed to risk. Portfolio risk refers to the possibility that an investment portfolio will not generate the investor’s expected rate of return.

Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio.

Consider the following case:

Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table:

What is the expected return on Andre’s stock portfolio?

13.10%

9.70%

7.28%

14.55%

Suppose each stock in Andre’s portfolio has a correlation coefficient of 0.4 (ρ = 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 36%, the portfolio’s standard deviation (σpσp) most likely is ---- 36%.

Using the financial calculator and the diagramming techniques, please answer the questions and include the diagrams Part A You wish to purchase a home and have been very successful in saving $12,000 for a down payment. You can get a 30 year mortgage at a fixed rate of 11.5%. The most you can afford is $630 / month for payment. What's the maximum you can pay for a house? Part B You plan to be married soon and your partner can contribute $250/month toward the monthly payment, but nothing toward the down payment. Now what price can you afford to pay? Part C You have learned of a special bank offer to first-time home buyers. Interest rates will be dropped to 9% for the life of the mortgage. Now, what can you afford to pay?

1.Suppose that you will receive annual payments of $14,000 for a period of 10 years. The first payment will be made 5 years from now. If the interest rate is 5%, what is the present value of this stream of payments?

a.What is the present value?

2.A store offers two payment plans. Under the installment plan, you pay 25% down and 25% of the purchase price in each of the next 3 years. If you pay the entire bill immediately, you can take a discount of 8% from the purchase price. Assume the product sells for $100.

a-1. Calculate the present value of the payments if you can borrow or lend funds at an interest rate of 5 percent.

b-1. Calculate the present value if the payments on the 4-year installment plan do not start for a full year.

On page 248 (438) of your textbook under "Cyberlaw in Action", the case of the $24.98 tickets to Paris is discussed. Make an argument for either United Airlines in declining to honor the price in the e-ad or a counter argument for the consumer that the price should be honored. You can put yourself in the position of a consumer who bought the ticket, or in the position of United Airlines. Be sure to use legal theories from the textbook. Make sure you respond to the question: "Is it ethical for a customer to insist on a contract that is based on a mistaken price?" and "Is it ethical for an e-tailer to refuse to honor a contract that is based on a mistaken price?" Even though I usually request that you use an objective standard and not insert your personal opinion, in this case you should state what you think is right or wrong from an ethical standpoint, not necessarily what the outcome would be under the law.

1. From the following balance sheet accounts,

1. Construct a balance sheet for 2013 and 2014
2. List all the working capital accounts
3. Find the net working capital for the years ending 2013 and 2014
4. Calculate the change in net working capital for the year 2014

Year Return

2013 0.24

2014 0.14

2015 0.16

2016 0.08

Find the geometric expected return for this asset.

There is a riskless asset with a return of 0.020, and a risky asset with an expected return of 0.363 and standard deviation of 0.301. If you were building a portfolio for an investor with a risk aversion of A=2.6, what proportion of their assets would you invest in the risky asset?

One year​ ago, your company purchased a machine used in manufacturing for $ 120,000. You have learned that a new machine is available that offers many​ advantages; you can purchase it for $ 140,000 today. It will be depreciated on a​ straight-line basis over ten​ years, after which it has no salvage value. You expect that the new machine will contribute EBITDA​ (earnings before​ interest, taxes,​ depreciation, and​ amortization) of $ 55,000 per year for the next ten years. The current machine is expected to produce EBITDA of $ 23,000 per year. The current machine is being depreciated on a​ straight-line basis over a useful life of 11​ years, after which it will have no salvage​ value, so depreciation expense for the current machine is $ 10,909 per year. All other expenses of the two machines are identical. The market value today of the current machine is $ 50,000. Your​ company's tax rate is 40 %​, and the opportunity cost of capital for this type of equipment is 12 %. Is it profitable to replace the​ year-old machine?

Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, r_ƒ. The characteristics of two of the stocks are as follows:

4. Bond yields

Coupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to as the bond’s yield.

Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions?

The bond has an early redemption feature.

The bond will not be called.

Consider the case of Badger Corp.:

Badger Corp. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,040.35. However, Badger Corp. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Badger Corp.’s bonds?

If interest rates are expected to remain constant, what is the best estimate of the remaining life left for Badger Corp.’s bonds?

5 years

18 years

10 years

8 years

If Badger Corp. issued new bonds today, what coupon rate must the bonds have to be issued at par?

1.

When comparing the future value of two investments: one that earns 6% p.a. simple interest and the other that earns 6% p.a interest compounding annually, the difference can best be described as:

Select one:

A. the time value of money

B. a pricing convention in money markets

C. compound interest

D. interest on interest

2.The concept that a unit of currency today is not worth the same as a unit of currency in another time period is best described as the:

Select one:

A. rate of money.

B. capital use rate.

C. time value of money.

D. economic measure of money.

3.

Investment banks perform an important role in:

Select one:

A. Providing commercial loans to business

B. Providing a range of products including options, futures and general insurance to the general public

C. Originating, underwriting and distributing new securities for issuer companies

D. Networking clients to over-the-counter markets.

4.

A monetary strategy which involves negative interest rates, is likely to:

Select one:

A. Increase the funds that households save/lend

B. Increase the demand for funds by borrowers/spenders

C. Increase the rate of inflation

D. All of the above

5.

Which of the following option(s) represent the correct formula to multiply two values located in cells B1 and B2, by each other?

Select one:

a. Entering the formula: =B1*B2

b. Entering the formula: =MULTIPLY(B1:B2)

c. Entering the formula: =SUM(B1:B2)

d. Entering the formula: =B1xB2

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 5.5%. The probability distributions of the risky funds are:

The correlation between the fund returns is 0.15.

What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Round your answer to 4 decimal places.)