1.. Suppose $2000 is invested at 6% annual interest rate for 10 years and the interest is compounded monthly. How much will the investment be worth at the end of the 10 years?

2. Suppose John invests his tax refund of $1666 in an account that earns interest compounded continuously at the rate of 3.5%. How much will John have in 7.5 years? Show your work details.

3. What is the present value of an account that will be worth $10,000 in 5 years if the annual interest rate is 10% and the interest is compounded continuously? Show your work details.

4.A company shows the following profit figures for the years 2000, 2004, and 2008. In 2000 the profit was $250 million; in 2004, the profit was $400 million; and, in 2008, the profit was $550 million. If x is the number of years after 2000, write a linear function representing this profit. Using this linear model determine what the projected profit will be in the year 2020. Show work details.

5. The table shows the year and the number of people unemployed in a particular city for several years. Determine whether the trend appears to be approximately linear. If so, and assuming the trend continues, in what year will the number of unemployed reach 15 people?

Year                          1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Number Unemployed 750   670   650   605   550   510   460   420   380   320

6. Wilbur and Cody are selling pies for a school fundraiser. Customers can buy cherry pies and blackberry pies. Wilbur sold 8 cherry pies and 2 blackberry pies for a total of $110. Cody sold 7 cherry pies and 6 blackberry pies for a total of $177. What is the cost each of one cherry pie and one blackberry pie? Show work details.

Using historical prices of the Australian All Ordinaries Index (AORD) and the following four companies traded on the Australian Stock Exchange: Rio Tinto Limited (RIO.AX), ANZ Ltd (ANZ.AX), Wesfarmers Ltd (WES.AX) and Telstra Corp. (TLS.AX) provided above, answer the following questions:

1. Compute the monthly return correlation coefficients between each pair of two stocks and between each stock and the market index. which pair of stock has the highest and lowest correlation? Which stock (s) has the highest and lowest correlations with the market?

Hint: use Excel function CORREL() to compute the correlation coefficient between two data series.

1.1. Can you suggest some economic reasons to explain the high and low correlation between stocks in (1)? If you were to form a portfolio of two stocks, which ones would you choose to maximise the benefits of diversification? Give reasons for your answer.

Having a sound business plan is essential for securing finance, regardless of the type of loan sought. Explain. (100–150 words)

Financial Management

Question 1

John met his insurance agent to discuss the purchase of an insurance plan to fund his 8 year-old daughter's university education in 11 years' time. The payout from the insurance company is as follows:

* Receive $30,000 at the begining of each year for 4 years with the first receipt starting 11 years from today.

The insurance company had 3 payment proposals:

Proposal 1:

* Pay $35,000 today

Proposal 2:

* Beginning 2 years from today, pay $8,000 each year for the next 8 years.

Proposal 3:

* Beginning 2 years from today, make payments each year for the next 8 years. The first payment is $7,000 and the amount increases by 5% each year.

(a) Calculate the present value of each proposal. Use a 10% discount rate. (7m)

(b) Which proposal should John choose? Explain. (5m)

(c) If the discount rate is not given to you, what would be an appropriate discount rate to use? (3m)

The MoMi Corporation’s cash flow from operations before interest and taxes was $3 million in the year just ended, and it expects that this will grow by 5% per year forever. To make this happen, the firm will have to invest an amount equal to 15% of pretax cash flow each year. The tax rate is 35%. Depreciation was $250,000 in the year just ended and is expected to grow at the same rate as the operating cash flow. The appropriate market capitalization rate for the unleveraged cash flow is 8% per year, and the firm currently has debt of $4.5 million outstanding. Use the free cash flow approach to value the firm’s equity. (Round answer to nearest whole number. Enter your answer in dollars not in millions.)

explain how forward contracts differ from futures contracts? As it relates to future contracts, explain your understanding of marking to market.

protective put, covered calls, straddle, spreads, and collars. explain how these strategies work, and provide a specific example.

MGM Co. has decided to sell a new line of golf clubs. The clubs will sell for $850 per set and have a variable cost of $400 per set. The company has spent $300,000 for a marketing study that determined the company will sell 68,500 sets per year for seven years. The marketing study also determined that the company will lose sales of 12,400 sets of its high-priced clubs. The high-priced clubs sell at $1,200 and have variable costs of $660. The company will also increase sales of its cheap clubs by 14,400 sets. The cheap clubs sell for $420 and have variable costs of $210 per set. The fixed costs each year will be $10,400,000. The company has also spent $2,500,000 on research and development for the new clubs. The plant and equipment required will cost $38,500,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $2,900,000 that will be returned at the end of the project. The tax rate is 21 percent, and the cost of capital is 12 percent.

Suppose you feel that the values are accurate to within only +/- 10 percent. What are the best-case and worst-case NPVs? (hint: the price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain) *(Can Not use Excel)

Suppose that an US airline receives a considerable portion of its revenues in euros, and is concerned about exchange rate risk. Two hedging choices the firm is considering are (i) futures contracts on the euro and (ii) call or put options on the euro.

Explain whether this firm should buy or sell futures contracts on the euro. Alternatively, the firm could hedge using options. In that case, should the firm use call or put options and should the firm buy or sell these options?

Discuss the advantages and disadvantages of hedging using options as compared to futures contracts.

MGM CO. has been approached to bid on a contract to sell 500 voice recognition(VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be outdated, and no sales will be possible. The equipment necessary for the production will cost $3 million and will be depreciated on a straight-line basis to a zero-salvage value. Production will require an investment in net working capital of $395,000 to be returned at the end of the project, and the equipment can be sold for $305,000 at the end of production. Fixed costs are $570,000 at the end of the production. Fixed costs are 570,000 per year, and variable cost are $75 per unit. In addition to the contract, you feel your company can sell 11,400, 13500, 17900, and 10400 additional units to companies in other countries over the next four years, respectively, at the price of $180. This price is fixed. The tax rate is 21 percent, and the required return is 12 percent. Additionally, the president of the company will undertake the project only

if it has an NPV of $ 120,000. What bid price should you set for the contract?

Solve with Pro Forma Income Statement

MGM Co. has been approached to bid on a contract to sell 5,000 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $3 million and will be depreciated on a straight-line basis to a zero salvage value. Production will require an investment in a net working capital of $395,000 to be returned at the end of the project, and the equipment can be sold for $305,000 at the end of production. Fixed costs are $570,000 per year, and variable costs are $75 per unit. In addition to the contract, you feel your company can sell 11,400, 13,500 17,900, and 10,400 additional units to companies in other countries over the next four years, respectively, at a price of $180. This price is fixed. The tax rate is 21 percent, and the required return is 12 percent. Additionally, the president of the company will undertake the project only if it has an NPV of $120,000. What bid price should you set for the contract? (Can NOT use Excel)

A firm has an outstanding debt with a coupon rate of 55​%, seven years​ maturity, and a price of​ $1000 per​ $1000 face value. What is the​ after-tax cost of debt if the marginal tax rate of the firm is 30%?

Describe three sources of finance and outline their advantages and disadvantages (150 to 180 words).

Describe the advantages and disadvantages of using a regulated lender such as a bank or credit union.

Explain the return and risk relationship concept in finance.

Describe a situation whereby a department’s attitude is: Risk neutral, risk-averse or risk-seeking.

Explain and critically analyse the distinction between decision tree, expected value and maximax, maximin and regret criterion can be used for decision-making under conditions of risk and uncertainty. The managing director of Bounce Ltd has asked you to explain how each method of the above can be applied in decision-making and comment on the strengths and limitations of each method.