A twelve year 5,000 par valued floating rate bond with annual coupons has a price P such that the investor’s APY is 8%. The annual coupon rate for the n-th year is given by the function .07+.0035*n
a. Find the price P
b. Find the amount of Principal P6 in the sixth coupon payment
c. Find the interest i5 in the fifth coupon payment
d. Find the amount of the discount or premium for this bond.
Please show all work for all parts
In: Finance
Bob borrows 540,000 at annual effective interest rate 3%. She repays this loan by paying off only the interest due at the end of each year to the lender and depositing a level amount Q at the end of each year into a sinking fund account paying 6% APY. The goal is to accumulate the full balance of the loan amount in the sinking fund at the end of 10 years.
a. Find the level sinking fund deposit.
b. What rate (AEIR) does Anita end up paying on this loan?
c. What is the lender’s APY?
In: Finance
Tom owns 22 hotdog stands.
Tom earned $10,000 last year from the hotdog stands business.
For $4000, Tom can build two more stands, each stand costs $2000. Assume it costed Tom $2000 to build each of 22 stands.
If Tom has 24 stands instead of 22, its yearly income will rise from $10,000 to $11,000. Let’s assume Tom indeed added two more stands using the money he earned last year.
David
Everything is the same except for David borrows $4000 at 6% interest rate to finance two more stands. What would be ROE for David's plan?
24.4%
14.8%
18.3%
12.2%
In: Finance
Project scenario:
You are the principal of a consulting firm, IDSCDR2 Inc. Your consulting firm provides two basic services to clients. First, you provide advice to clients that wish to reduce their exposure. Second, you provide advice to clients that wish to implement sophisticated, non-traditional strategies to take advantage of their market beliefs.
IDSCDR2‘s most important client is the insurance company RestLife, Inc. RestLife has contacted IDSCDR2 to assist RestLife in implementing a plan that aligns RestLife’s exposure to RestLife’s market beliefs.
RestLife’s beliefs are twofold. First, they believe that the risk free rate of interest rates will increase dramatically over the next six months. Second, they believe that BBB corporate will be extensively downgraded by credit ratings agencies over the next six months while A, AA, and AAA corporate will retain their existing credit ratings.
Based on these beliefs, RestLife is looking for IDSCDR2‘s advice. Due to the proprietary nature of their portfolio, RestLife will not provide IDSCDR2 detailed characteristics of the portfolio regarding which RestLife is requesting advice, beyond the following:
RestLife is requesting IDSCDR2 provide advice in relation to the following strategies. Specifically, they would like IDSCDR2 to provide methodologies through which they can gain beneficial exposure to the forecasted downgrade of BBB corporate and increase in the risk free rate.
RestLife emphasizes that they do not require IDSCDR2 to actually perform the calculations required to implement the proposed strategy – indeed, they have not provided sufficient information to permit IDSCDR2 to do so. Instead, they require IDSCDR2 input regarding the types of strategies and calculations they should implement.
Teams will make a 25 - 30 minute presentation followed by a question and answer session with the reviewers. In addition, each team will submit a briefing book documenting their work. The briefing book will be in the form of a CD ROM. The following list of deliverables must be addressed in the presentation and the sequencing of the deliverables should remain the same as requested by RestLife.
Deliverables:
In: Finance
Explain the term Survivorship Bias and how it impacts the evaluation of the investment returns of a group of portfolios.
In: Finance
Calculate the Net Present Value given two proposed projects of AIM Manufacturing Corp.
Project # 1:
Initial Investment: $100,000
Cash Inflows:
Year 1: $45,000
Year 2: $48,000
Year 3: $55,000
Year 4: $75,000
Year 5: $150,000
Project # 2:
Initial Investment: $100,000
Cash Inflows:
Year 1: $65,000
Year 2: $45,000
Year 3: $25,000
Year 4: $10,000
Year 5: $1,000
What are the Payback Period for each project using the NPV Method? Which project would you select in you were looking for higher cash inflows in your capital budget? Why....
In: Finance
American Products is concerned about managing cash efficiently. On the average, inventories have an age of
8484
days, and accounts receivable are collected in
3939
days. Accounts payable are paid approximately
3333
days after they arise. The firm has annual sales of about
$3737
million. Cost of goods sold are
$2020
million, and purchases are
$1616
million.
a. Calculate the firm's operating
cycle.
b. Calculate the firm's cash conversion
cycle.
c. Calculate the amount of resources needed to support the firm's cash conversion cycle.
d. Discuss how management might be able to reduce the cash conversion cycle.
a. American Products' operating cycle, OC, is
nothing
days. (Round to the nearest whole number.)
In: Finance
What are the conditions under which exchange rate changes could actually reduce the risk of foreign investment for the company?
In: Finance
Provide positive feedback:
Pay-for-Performance Link. Based on your understanding of linking organization strategy to compensation and performance management, as discussed in Chapter 9, discuss how to strengthen the pay-for-performance link.
Powerful incentives can cause undesired behaviors. Suggest ways to solve this problem, using something you know a great deal about – academic performance.
Oooh, fascinating question! At the end of last year I read Smartest Kids in the World by Amanda Ripley. One of the stories a South Korean boy killed his mom and hid her corpse in their apartment for months. He was under so much stress about his high school graduation exams and had so much pressure to preform well for his family that he snapped. That would be pretty extreme in the US.
Here I would expect cheating if incentives became too high. Maybe it would be in the form of buying paper. Maybe it would be in the form of parents bribing administrators or admissions counselors.
To promote ethical behavior teachers could try to promote class unity by recognizing accomplishments in a way that does not pit students against each other in competition. Maybe schools could offer teaching classes on ethics. Maybe they could lower the incentives or increase punishments for fraud and cheating.
How would you design a pay-performance system that uses powerful incentives to motivate behavior, yet keep the behavior from veering into the unethical? (Hint: You want to keep the powerful incentive effect of pay. So don’t recommend eliminating incentive pay or reducing the size of the incentive component.) What’s left?
We could try increasing the punishments for unethical behavior. We could do things to promote group unity or at least keep students in pairs - oh but I had group projects. We could try peer reviews to verify that those who are receiving top incentives deserve them honestly.
How do you ensure ethical behavior?
My first thought is to hire ethical employees. Another thought is to encourage ethical behavior from the top down and to be quick to remove anyone caught committing fraud. At the end of the day, I don't think we can totally ensure other people's ethical behavior.
In: Finance
What are the differences between commercial banking, investment banking and hedge funds? Describe their main functions and briefly explain the way their balance sheets differ from each other. Lastly explain the regulatory framework that applies to each one of these different types of financial institutions.
500-700 words.
In: Finance
Please complete the following problems in Microsoft Word / Excel document and post to the drop box.
1) Interest rates and bond ratings (LO16-2) A previously issued A2, 15-year industrial bond provides a return three-fourths higher than the prime interest rate of 11 percent. Previously issued A2 public utility bonds provide a yield of three-fourths of a percentage point higher than previously issued A2 industrial bonds of equal quality. Finally, new issues of A2 public utility bonds pay three-fourths of a percentage point more than previously issued A2 public utility bonds.What should be the interest rate on a newly issued A2 public utility bond?
|
2) Fourteen years ago, the U.S. Aluminum Corporation borrowed $6.5 million. Since then, cumulative inflation has been 98 percent (a compound rate of approximately 65 percent per year). a. When the firm repays the original $6.5 million loan this year, what will be the effective purchasing power of the $6.5 million? (Hint: Divide the loan amount by one plus cumulative inflation.) b. To maintain the original $6.5 million purchasing power, how much should the lender be repaid? (Hint: Multiply the loan amount by one plus cumulative inflation.) c. If the lender knows he will receive $6.5 million in payment after 14 years, how might he be compensated for the loss in purchasing power? A descriptive answer is acceptable. |
3)Tobacco Company of America is a very stable billion-dollar company with sales growth of about 5 percent per year in good or bad economic conditions. Because of this stability (a correlation coefficient with the economy of +.3 and a standard deviation of sales of about 5 percent from the mean), Mr. Weed, the vice-president of finance, thinks the company could absorb some small risky company that could add quite a bit of return without increasing the company’s risk very much. He is trying to decide which of the two companies he will buy. Tobacco Company of America’s cost of capital is 10 percent.
|
Computer Whiz Company
(CWC) |
American Micro-Technology (AMT) (cost $75 million) |
|||
|
Probability |
Aftertax Cash Flows for
10 Years |
Probability |
Aftertax Cash Flows for
10 Years |
|
|
0.3 |
$ 6 |
0.2 |
$(1) |
|
|
0.3 |
10 |
0.2 |
3 |
|
|
0.2 |
16 |
0.2 |
10 |
|
|
0.2 |
25 |
0.3. |
25 |
|
|
0.1 |
31 |
|||
a. What is the expected cash flow for each company?
b. Which company has the lower coefficient of variation?
c. Compute the net present value of each company.
d. Which company would you pick, based on net present values
In: Finance
Return on Equity (ROE) is one profitability ratio that is used to determine financial performance. Can you see any limitations with using ROE to determine the health of a startup business or business that is 1-2 years old?
In: Finance
Using a spreadsheet, prepare a cash budget for New Tech for the next year (January through December) based on the following information.
OCT NOV DEC
Sales revenue (previous year) 325.0 325.0 325.0
Purchases 59.2
PAYMENT SCHEDULE
Cash sales 5 10%
30-day payment = 70%
60-day payment = 20%
PURCHASE SCHEDULE
Paid in first month = 40%
Paid during second 60 days = 60%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Sales Revenue 325 300 275 325 350 375 400 375 350 300 275 250
Purchases 59.0 59.2 59.2 59.2 59.2 59.2 59.2 59.2 59.2 59.2 59.2 59.2
Disbursements
Freight in 4.2 4.0 5.1 5.4 7.3 6.5 6.7 6.6 6.1 7.0 5.8 5.7
Labor 40.0 39.0 38.0 42.0 38.4 44.3 42.5 41.0 38.0 39.0 39.5 38.0
Utilities, 2.5 2.2 2.4 2.5 2.5 2.8 2.7 2.5 2.6 2.6 2.6 2.4
Insurance, etc.
Salaries – selling 60.0 62.0 65.8 62.8 62.7 67.9 71.6 62.8 64.9 66.9 68.0 65.0
Commissions 5.9 5.0 5.8 6.8 6.9 7.4 8.0 7.8 6.5 6.8 6.4 6.4
Travel 7.0 7.1 6.9 6.8 7.6 7.8 8.4 7.5 7.7 7.7 7.9 7.4
Advertising 6.0 6.5 7.0 9.0 8.5 8.7 8.3 8.1 7.0 7.2 6.0 7.5
Other charges 5.0 6.0 3.0 40.0 50.0 21.5 18.3 18.7 18.9 16.0 8.5 14.0
Selling
Salaries 35.0 35.0 34.0 33.0 36.0 36.0 38.0 39.0 35.0 33.0 32.0 34.0
administration
Leasing 5.8 5.8 5.8 5.8 5.8 5.8 5.8 5.8 5.8 5.8 5.8 5.8
Research n 8.3 10.3 15.6 7.5 8.3 7.7 7.9 6.2 6.7 6.9 6.3 8..3
development
Taxes 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3
Purchase of assets 40.0 45.0 33.0 350.0 500 16.8 23.8 23.0 18.0 20.0 20.0 10.0
In: Finance
A deposit of $5,000 earns interest at 4% compounded semi-annually. After three-and-a-half years, the interest rate is changed to 4.5% compounded quarterly. How much is the account worth after 7 years?
Jan is saving for a new bike that will cost $800. She has $500, which she has invested at 7% compounded semi-annually. How many years will it be (approximately) until she has $800?
How long will it take for money to double if it is compounded quarterly at 6%?
In: Finance
DeLuxe Furniture is thinking of buying a wood cutting machine for $150,000 that would save it $40,000 per year in production costs. The savings would be constant over the project's 3-year life. The machine is to be linearly depreciated to zero and will have no resale value after 3 years.
The machine would require an additional $9,000 in net operating working capital. The appropriate cost of capital for this project is 14% and the company's tax rate is 35%.
| Year 0 | Year 1 | Year 2 | Year 3 | |
| Cost savings | 0 | 40,000 | 40,000 | 40,000 |
| Depreciation | 0 | 50,000 | 50,000 | 50,000 |
| EBIT | 0 | -10,000 | -10,000 | -10,000 |
| Taxes (35%) | ||||
| Net income | ||||
| Depreciation | ||||
| NOPAT + DEP | ||||
| CAPEX | ||||
| ΔNOWC | ||||
| FCF |
Attempt 1/5 for 8 pts.
Part 1
What is the free cash flow in year 0? Choose the right sign.
Try againSee solution (-2 pts.)Move on
Attempt 1/5 for 8 pts.
Part 2
What is the free cash flow in year 1?
Try againSee solution (-2 pts.)Move on
Attempt 1/5 for 8 pts.
Part 3
What is the free cash flow in year 2?
Try againSee solution (-2 pts.)Move on
Attempt 1/5 for 8 pts.
Part 4
What is the free cash flow in year 3?
Hint: add the recovery of net operating working capital.
Try againSee solution (-2 pts.)Move on
Attempt 1/5 for 8 pts.
Part 5
What is the NPV of this project?
In: Finance