Q13) The market risk premium for next period is 8.74% and the risk-free rate is 3.79% . Stock Z has a beta of 0.789 and an expected return of 10.03%. Compute the following:

a) Market's reward-to-risk ratio :

b) Stock Z's reward-to-risk ratio :

Decision #1: Which set of Cash Flows is worth more now? Assume that your grandmother wants to give you generous gift. She wants you to choose which one of the following sets of cash flows you would like to receive: Option A: Receive a one-time gift of $ 10,000 today.

Option B: Receive a $1500 gift each year for the next 10 years. The first $1500 would be received 1 year from today.

Option C: Receive a one-time gift of $18,000 10 years from today. Compute the Present Value of each of these options if you expect the interest rate to be 3% annually for the next 10 years. Which of these options does financial theory suggest you should choose?

Option A would be worth ______today.

Option B would be worth $__________ today.

Option C would be worth $__________ today.

Financial theory supports choosing Option _______

Compute the Present Value of each of these options if you expect the interest rate to be 6% annually for the next 10 years. Which of these options does financial theory suggest you should choose?

Option A would be worth $__________ today.

Option B would be worth $__________ today.

Option C would be worth $__________ today.

Financial theory supports choosing Option _______

Compute the Present Value of each of these options if you expect to be able to earn 9% annually for the next 10 years. Which of these options does financial theory suggest you should choose?

Option A would be worth $__________ today.

Option B would be worth $__________ today.

Option C would be worth $__________ today.

Financial theory supports choosing Option _______

Please show how this is done on Excel if possible, Thanks!

A)You have just taken a 30-year mortgage loan for $260,000. The annual percentage rate on the loan is 4.25%, and payments will be made monthly. Estimate your monthly payments. Assume compounding is monthly. Prepare an amortization table.

B) At age 30, Susan starts investing $18,000 per year with the investments at the end of each year. She does this for 9 years. She never invests any more but she leaves this money in the no-load mutual fund. The fund earns 8% per year. Calculate the value of the fund when Ann is 65. Assume compounding is annually.

C) For question B above, assuming Ann makes equal withdrawals from her retirement account at the end of each year from age 65 to age 85, how much does she withdraw to bring the fund to zero?

Explain why some bonds sell at a premum over par value while other bond sell at a discount?

Statement of Shareholders' Equity

On January 1, 2016 the Knox Company showed the following alphabetical list of Shareholders' Equity balances:

During 2016, the following events occurred and were properly recorded by the company:

Knox purchased an investment in available-for-sale securities. At year-end, the fair value of the securities had increased by $9,000.

Knox issued 2,000 shares of common stock for $25 per share.

Knox issued 110 shares of preferred stock for $116 per share.

Knox reacquired 400 shares of its common stock as treasury stock at a cost of $26 per share. (Hint: Record the reacquisition cost in a Treasury Stock account.)

Knox earned net income of $57,000.

Knox paid a $7 per share dividend on the preferred stock and a $1.25 per share dividend on the common stock outstanding at the end of 2016 (treasury stock is not entitled to dividends).

Required:

Prepare a statement of shareholders' equity for 2016, including retained earnings.

Assume that 8 years ago you borrowed $200,000 as a 30-year mortgage on your home with an annual percentage rate of 7% at monthly payments (12 payments per year). You plan to refinance this mortgage with a new 30 year low at the current rate of 5%.

a. What is the monthly payment of the original mortgage.

b. How much do you still owe of the original principal after seven years? (Hint: for a loan that is amortized, like a mortgage, the amount you still owe at any time is the present value of the remaining payments that have not yet been made).

c. How much money can you borrow now at the new interest rate if you keep the same monthly payments as the original mortgage?

1. Your local lender offers you a fixed-rate mortgage with the following terms: $200,000 at 5.50% for 30 years, monthly payments. The lender will charge you two discount points and the loan has a 4% prepayment penalty.

   A. (1 pt) What is the annual percentage rate (APR) of the loan?

   B. (1 pt) How many points are required to yield an APR of 5.75%?

2. Suppose you take a fixed-rate mortgage for $175,000 at 4.50% for 30 years, monthly payments.

   A. (1 pt) How much of the payment is interest for month 100?

B. (1 pt) How much total interest do you pay in the first six years?

3. Suppose you take a $250,000 thirty-year fixed-rate mortgage at 5.25%, two discount points, monthly payments. At the end of the first year you inherit $20,000 from your now-favorite aunt. You decide to apply this $20,000 to the principal balance of your loan.

   1. (1 pt) How many monthly payments are remaining after the extra lump sum payment is made?

   2. (1 pt) What is your net interest savings over the life of the loan, assuming the loan is held to its maturity?

4. You just took a fixed-rate mortgage for $200,000 at 4.50% for 30 years, monthly payments, two discount points. Before you make any payments you receive a nice raise so you plan to pay an extra $160 per month on top of your normal payment.

   1. (1 pt) How many monthly payments do have to make at the higher payment to fully amortize the loan?

   2. (1 pt) What is your net interest savings over the life of the loan, assuming the loan is held to its maturity?

   3. (1 pt) If you make this higher payment and hold the loan for its full life, what is the effective cost of the loan?

5. Suppose you take a 30 year fixed-rate mortgage for $180,000 at 6.25%, monthly payments with a two discount point rebate (negative discount points) to the borrower. Assume that you have no other financing fees.

A. (1 pt) What is the APR of the loan?

B. (1 pt) What is the effective cost with a five-year holding period?

6. Suppose you borrow $200,000 at 5% for 30 years, monthly payments. You pay 2 discount points.

A. (1 pt) Your APR on this loan is 5.375%. What amount of other financing fees did you pay?

B. (1 pt) Suppose that your effective cost over a five-year holding period is 5.625%. What amount of other fees did you pay?

7. Suppose you borrow $150,000 at 6% for 30 years, monthly payments with two discount points. Your mortgage contract includes a prepayment penalty of 4% over the entire loan term.

A. (1 pt) What is the APR of this loan?

B. (1 pt) What is the effective cost if you prepay the loan at the end of year five?

Please include the calculator solutions (Ex. N=, PMT=, PV=)

 Personal finance problem   Gina Vitale has just contracted to sell a small parcel of land that she inherited a few years ago. The buyer is willing to pay

​$24 , 000

​now, or the buyer will make a series of payments starting now and continuing at annual intervals shown in the following​ table,

LOADING...

.

Because Gina​ doesn't really need the money​ today, she plans to let it accumulate in an account that earns

77​%

annual interest. Given her desire to buy a house five years after selling the​ lot, she decides to choose the payment

alternativelong dash—either the lump sum or the mixed streamlong dash—that

provides the higher future value at the end of 5 years. Which alternative will she​ choose?

Begining of the year/ Cash flow

0 $2000

1 $4000

2 $6000

3 $8000

4 $10,000

The future​ value, FV Subscript nFVn​, of the lump sum deposit is

The future value of the mixed stream of payments is

​

You have an outstanding student loan with required payments of $ 500 per month for the next four years. The interest rate on the loan is 9 %APR​ (compounded monthly). Now that you realize your best investment is to prepay your student​ loan, you decide to prepay as much as you can each month. Looking at your​ budget, you can afford to pay an extra $ 250 a month in addition to your required monthly payments of $ 500 or $ 750 in total each month. How long will it take you to pay off the​ loan? ​

Note: Be careful not to round any intermediate steps less than six decimal​ places.)

The number of months to pay off the loan is

Suppose you intend to purchase a new car after you graduate. You expect to put $5,000 down and finance the balance over a 5-year period. The maximum amount you are willing to pay each month is $600. What is the maximum price you can pay for the car in other words, how much you can afford to pay for the car, assuming an interest rate of 8% per year, compounded monthly?

Common text for questions 3 and 4:

An investor buys three shares of XYZ at the beginning of 2002 for $100 apiece. After one year, the share price has increased to $110 and he receives a dividend per share of $4. Right after receiving the dividend, he buys two additional shares at $110. After another year, the share price has dropped to $90, but the investor still receives a dividend per share of $4. Right after receiving the dividend, he sells one share at $90. After another year, the share price has gone up to $95, the investor receives a dividend per share of $4 and sells all shares at $95 immediately after receiving dividends.

3. What are the arithmetic and geometric average time-weighted rates of return and what is the dollar-weighted rate of return of the investor in the above example (for the dollar-weighted return assume that (i) the cash flows from dividends received at the end of a given year are based on the number of shares held at the beginning of that year, and (ii) cash flows from dividends occur on the same day as the cash flows from buying and selling shares)?

4. Why is the dollar-weighted average rate of return in the above example lower than the geometric average rate of return?

You are considering an investment in a mutual fund with a 3% load and an expense ratio of 1.2%. You can invest instead in a bank CD paying 5% interest.

c. Now suppose that instead of a front-end load the fund assesses a 12b-1 fee of 1.45% per year. What annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

The wealth of an economy is generated by real assets. The availability of tradable financial assets has no effect on the wealth of an economy. Do you agree? Why or why not?

At the end of the year ABC Company reported long-term debt of $3,974 million and the current portion of long-term debt of $219 million. At the end of the prior year they reported long-term debt of $3,503 million and the current portion of long-term debt of $268 million. How much (in $ millions) did the company receive from issuing new long-term debt or pay off any existing debt? If they issued debt, enter your answer as a positive number; if they repaid debt, be certain to place a negative sign in front of your answer. (please show all steps)