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a) You purchased 3,200 shares in the New Pacific Growth Fund on January 2, 2016, at an offering price of $47.50 per share. The front-end load for this fund is 4 percent, and the back-end load for redemptions within one year is 2 percent. The underlying assets in this mutual fund appreciate (including reinvested dividends) by 5 percent during 2016, and you sell back your shares at the end of the year. If the operating expense ratio for the New Pacific Growth Fund is 1.83 percent, what is your total return from this investment? (Assume that the operating expense is netted against the fund’s return.) (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b) You are going to invest in a stock mutual fund with a front-end load of 4.5 percent and an expense ratio of 1.45 percent. You also can invest in a money market mutual fund with a return of 2.3 percent and an expense ratio of 0.20 percent. If you plan to keep your investment for 2 years, what annual return must the stock mutual fund earn to exceed an investment in the money market fund? What if your investment horizon is 12 years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)c

c)

Suppose you’re evaluating three alternative MMMF investments. The first fund buys a diversified portfolio of municipal securities from across the country and yields 3.2 percent. The second fund buys only taxable, short-term commercial paper and yields 5.4 percent. The third fund specializes in the municipal debt from the state of New Jersey and yields 3.4 percent. Your federal income tax rate is 35 percent and you are a resident of Texas, which has no state income tax.

Calculate the after-tax yield for each of the alternatives. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Municipal Fund____

Taxable Fund_____

New Jersey Municipal Fund____

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 $___10,000.00__ today.

      Option B would be worth $___12,795.30__ today.

       Option C would be worth $___13,393.69__ today.

       Financial theory supports choosing Option __C_____

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 $__10,000.00__ today.

       Option B would be worth $__11,040.13__ today.

       Option C would be worth $__10,051.11__ today.

      Financial theory supports choosing Option __B_____

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 $10,000.00_ today.

       Option B would be worth $_9,626.49 _ today.

       Option C would be worth $_7,603.39_ today.

       Financial theory supports choosing Option __A_____

Decision #2 begins at the top of page 2!

Decision #2: Planning for Retirement

Erich and Mallory are 22, newly married, and ready to embark on the journey of life.   They both plan to retire 45 years from today. Because their budget seems tight right now, they had been thinking that they would wait at least 10 years and then start investing $3000 per year to prepare for retirement. Mallory just told Erich, though, that she had heard that they would actually have more money the day they retire if they put $3000 per year away for the next 10 years - and then simply let that money sit for the next 35 years without any additional payments – then they would have MORE when they retired than if they waited 10 years to start investing for retirement and then made yearly payments for 35 years (as they originally planned to do).   Please help Erich and Mallory make an informed decision:   

Assume that all payments are made at the END a year (or month), and that the rate of return on all yearly investments will be 7.2% annually.  

(Please do NOT ROUND when entering “Rates” for any of the questions below)

1. How much money will Erich and Mallory have in 45 years if they do nothing for the next 10 years, then put $3000 per year away for the remaining 35 years?

$467,430.91

2. How much money will Erich and Mallory have in 10 years if they put $3000 per year away for the next 10 years?

$47,855.67

b2) How much will the amount you just computed grow to if it remains invested for the remaining

35 years, but without any additional yearly deposits being made?

                $545,444.90

3. How much money will Erich and Mallory have in 45 years if they put $3000 per year away for each of the next 45 years?

$978,682.67

How much money will Erich and Mallory have in 45 years if they put away $250

4. per MONTH at the end of each month for the next 45 years? (Remember to adjust 7.2% annual rate to a Rate per month!)

5. If Erich and Mallory wait 25 years (after the kids are raised!) before they put anything away for retirement, how much will they have to put away at the end of each year for 20 years in order to have $1,000,000 saved up on the first day of their retirement 45 years from today?

Please verify and answer D and E!!!!

It is the end of your final year of study as a student in the Master of Finance program and you are trying to determine what you are going to do over the remaining 35 years of your working life. You are trying to decide whether you should remain at university and do your PhD in finance or alternatively leave university and become a consultant.

You anticipate that it will take you 5 years to complete your PhD during which time you will earn a real net cash flow of $25,000 p.a. At the end of these 5 years you must decide whether to remain at the university as an academic or take up a career as a consultant.  There is a 10% chance that you will enjoy great success as an academic earning a salary of  $85,000 p.a., a 50% chance that you will have a moderately successful career earning a salary of $65,000 p.a. and a 40% chance that you will have an unsuccessful academic career earning a salary of only $45,000 p.a. If you decide to become a consultant then it will initially cost you $100,000 to set up your business and there is an 80% chance of generating $60,000 p.a. and a 20% chance of generating $120,000 p.a..

If you decide not do a PhD and instead become a consultant immediately, there is a 60% chance that you will earn $70,000 p.a. and a 40% chance that you will earn $50,000 p.a. over the remainder of your working life.

Assume that all cash flows (other than those specified otherwise) occur at year-end, are expressed in real terms (that is in terms of purchasing power today) and that the real opportunity cost of capital is 10%.

You are to assume that for personal (as opposed to financial) reasons, you have decided to do a PhD. Using the decision tree approach, estimate the value of the option associated with not having to stay in academia after you acquire your PhD.

What are the cost of overregulation and underregulation of equity markets? the solution I found on Chegg does not really explain anything

3. Calculate the cost of debt for They currently have outstanding 30 year, 8%, bonds that were issued 12 years ago. The company has 5,000 bonds outstanding that are currently selling for 89% of their face value.  pays 34% of income in taxes.

Choose a company to write a comprehensive report
Component
a. Firms’ business model (i.e. business concept and strategy)
b. How well firms utilise their assets
c. Firms’ ability to manage short-term financial obligations
d. Firms’ ability to manage long-term financial obligations
e. How well firms generate profits

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 5.6%. The probability distributions of the risky funds are:

The correlation between the fund returns is 0.0600.

Required: What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal points).

P.S. If you do the problems in Excel, can you show what formulas you used? I'm not sure how to do the covariance that's required for the question.

1. What determines the value of an economic asset?

2. If we know the projected cash flows from loan notes and their current market value, what approach would we take to deducing the cost of the loan notes?

3. Why does it seem likely that businesses have a target gearing ratio?

4. What is wrong with using the cost of the specific capital used to finance a project as the discount rate in relation to that project?

5. When calculating the weighted average cost of capital (WACC) should we use market values or balance sheet values as the weights of debt and equity? Explain

Please comment on the following remark:

(a) ‘Leasing is a zero sum game between the lessee and lessor.’

(b) Briefly discuss the reasons for firms to lease even if NALs are negative.

Jane is the financial manager for Alpha Corporation. She has been asked to perform a lease-versus-purchase analysis on a new printing machine.

The machine costs $360,000 and will be depreciated using the straightline method with zero residual value over five years. Alternatively, the company

can lease the machine with year-end payments of $95,000 over five years. The company’s tax rate is 35% and its before-tax cost of borrowing is 10%.

Required:

a Given the above information, calculate the net advantage to leasing (NAL) for Alpha Corporation to obtain the new printing machine,

assuming the company will use its own reserves rather than borrowing from the bank. Which option would you recommend? Explain.

b Suppose only $300,000 purchase price of the machine is borrowed from ABC Bank. Should Alpha Corporation change its buy or lease decision

on the printing machine? Discuss.

Calculate the expected standard deviation on stock:

What is the Macaulay’s Duration of a portfolio of bonds that invests 40% in a 5-year zero coupon bond with a par of $100 and 60% in a 3 year, 5% coupon interest bond (p.a.), with a par of $100. Assume Yield to Maturity is 8% p.a.?

*Please assist with a worked answer

1. Nike has a project that will produce cash flows $200 next year if the economy is strong and $50 if the economy is weak. Suppose the corporate tax rate is 0. The economy will be strong with probability 50%. Nike issued both debt and equity to raise funds out of this project as much as possible. Specifically, Nike raised $60 by issuing debt with a face value $80. So, the creditors will receive $80 in total if the economy is strong but receive only $50 if the economy is bad because Nike defaults in this case. Nike also raised $50 by issuing equity as much as possible. The market risk premium is 7% and the risk-free rate is 5%. The entrepreneur of Nike has no equity shares in her firm. Now, suppose there is another shoes company, New Balance. This firm also has a project that will produce $200 next year if the economy is strong and $50 if the economy is weak. But the entrepreneur of New Balance wants to raise only $40 by issuing debt to avoid the chance of default. Assuming issued at risk-free rate and face value of $42 on the debt. She also plans to issue equity to raise funds as much as possible out of her project.

1. Suppose investor A is a single investor of Nike, who holds all the bonds and equities issued by Nike. Also, suppose investor B is a single investor of New Balance. The payoffs to these two investors will be the same?
2. If yes, how much can New Balance raise from equity holders? Does the total amount of funds that can be raised depend on the default risk of a firm?
3. What’s the expected return of equity for New Balance? What’s the equity beta?
4. What’s the cost of capital of New Balance?