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1. Assume that the current 1-year interest rate is 3%, the expected 1-year rate next year is 2%, and the expected 1-year rate in the following year (3^rd year) is 4%.

1. Calculate the 2-year interest rate and the 3-year interest rate based on the expectations theory. (Show calculations)
2. Draw the yield curve based on your data above. Label your axis and mark the numbers along the axis, so you can read the actual interest rates in your graph. (This doesn’t need to be 100% precise, but your graph should look consistent with the numbers. Sloppy graphs will lose points.)
3. Assume that investors want a liquidity premium with a higher compensation for holding long-term bonds. Add the liquidity premium in your graph above. Make clear which curve is based only on the expectations theory and which takes into consideration the liquidity premium.
4. Based on this yield curve: What do you think market participants expect from future inflation and the economy (Write brief answers.)

1. in the next 2 years?
2. From year 3?

Consider a project with the following cash flows:

Year 0: -$1160
Year 1: $80
Year 2: -$270
Year 3: $580
Year 4: $2290

What is the MIRR of the project if the WACC is 13% and the financing costs are 2% ?

Group of answer choices

22.23%

21.18%

23.27%

A statistical program is recommended.

Consider the following time series.

Use the following dummy variables to develop an estimated regression equation to account for seasonal effects in the data:

x₁ = 1 if quarter 1, 0 otherwise; x₂ = 1 if quarter 2, 0 otherwise; x₃ = 1 if quarter 3, 0 otherwise.

=

(c) Compute the quarterly forecasts for next year.

quarter 1 forecast

quarter 2 forecast

quarter 3 forecast

quarter 4 forecast

The 5-year, 8-year, and 10-year zero rates are 5%, 7%, and 8%. The rates are given per annum with annual compounding.

a) What is the forward rate for an investment initiated 5 years from today and maturing 10 years from today? (Give your answer per annum with annual compounding)?

b) What is the forward rate for an investment initiated 5 years from today and maturing 8 years from today? (Give your answer per annum with continuous compounding)?

Pepsi Co. paid dividends of $7,000; $11,000; and $14,000 during Year 1, Year 2, and Year 3, respectively. The company had 1,400 shares of 7.0%, $100 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be:

A. $4,000.

B. $2,800.

C. $2,600.

D. $9,800.

Basically if the year is divisible by 4( think year%4==0) it’s a leap year UNLESS its divisible by 100 in which case its not a leap year UNLESS its also divisible by 400 , in which case it is.

Write a program that evaluates the years from 1890 to 2017 and write out the year if it is a leap year. Otherwise do not write out anything.

Hints

1. Loops can begin at any integer(think begin at 1890; test will be year <=2017)
2. Use && and || to get desired result in the if statements
3. There is nothing to write out in the case its not a leap year. If none of the conditions for a leap year are true, the loop “block” would end and you would increment , test to see if less than 2017 and then evaluate the next year.

Here is what the output should look like

1892 is a leap year

1896 is a leap year

1904 is a leap year

1908 is a leap year

1912 is a leap year

1916 is a leap year

1920 is a leap year

1924 is a leap year

1928 is a leap year

1932 is a leap year

1936 is a leap year

1940 is a leap year

1944 is a leap year

1948 is a leap year

1952 is a leap year

1956 is a leap year

1960 is a leap year

1964 is a leap year

1968 is a leap year

1972 is a leap year

1976 is a leap year

1980 is a leap year

1984 is a leap year

1988 is a leap year

1992 is a leap year

1996 is a leap year

2000 is a leap year

2004 is a leap year

2008 is a leap year

2012 is a leap year

2016 is a leap year

1) What are the firm’s major strengths and weaknesses? Explain briefly.

An investment is expected to produce the following annual year-end cash flows: year 1: $5,000 year 4: $5,000 year 2: $1,000 year 5: $6,000 year 3: $0 year 6: $863.65 The investment will cost $13,000 today. I got that IRR is 10%

Prove your answer for IRR by showing how much of each year’s cash flow is recovery of the $13,000 investment and how much of the cash flow is return on investment. (Hint: See Exhibit 3–13 and Concept Box 3.2.)

Curtain Co. paid dividends of $1,500; $3,000; and $4,000 during Year 1, Year 2, and Year 3, respectively. The company had 700 shares of 3.5%, $100 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be:

• 2,450.

• $1,500.

• $950.

• $1,150.

You have found the following historical information for the Daniela Company:

Earnings are expected to grow at 8 percent for the next year. Using the company's historical average PE as a benchmark, what is the target stock price in one year?