6. What discount rate results in the maximum NPV for this project? What is that maximum NPV? Write a note to your client (or an old-school boss), who has little knowledge about the “Solver”, explaining what parameters you chose as inputs in the solver and what you asked the solver to do. Be sure to refer to the cell ID (e.g. cell D52) where appropriate so your client/boss can follow what you are talking about.

(A) What type of pattern exists in the data?
a. Positive trend, no seasonality
b. Horizontal trend, no seasonality
c. Vertical trend, no seasonality
d. Positive tend, with seasonality
e. Horizontal trend, with seasonality
f. Vertical trend, with seasonality

(B) Use a multiple regression model with dummy variables as follows to develop an equation to account for seasonal effects in the data. Qtr1 = 1 if Quarter 1, 0 otherwise; Qtr2 = 1 if Quarter 2, 0 otherwise; Qtr3 = 1 if Quarter 3, 0 otherwise. If required, round your answers to three decimal places. For subtractive or negative numbers use a minus sign even if there is a + sign before the blank. (Example: -300) If the constant is "1" it must be entered in the box. Do not round intermediate calculation.

(C)

(D)Use a multiple regression model to develop an equation to account for trend and seasonal effects in the data. Use the dummy variables you developed in part (b) to capture seasonal effects and create a variable t such that t = 1 for Quarter 1 in Year 1, t = 2 for Quarter 2 in Year 1,… t = 12 for Quarter 4 in Year 3. If required, round your answers to three decimal places. For subtractive or negative numbers use a minus sign even if there is a + sign before the blank. (Example: -300)

(E) Compute the quarterly forecasts for next year based on the model you developed in part (d).
Do not round your interim computations and round your final answer to three decimal places.

(F) Is the model you developed in part (b) or the model you developed in part (d) more effective? If required, round your intermediate calculations and final answer to three decimal places.

2. Using Excel, plot a graph that demonstrates the relationship between the discount rate and the NPV

   of the project. Be sure to label the graph where appropriate so that it is self-explanatory to your client. Hint: In the spreadsheet, you will need to first construct a table that contains the NPV of the project with varies of discount rate, and then use that table to construct a plot.

3. Basedonthegraphyouplotinquestion4, comment on what valuable information can you derive from the graph, and how you could use this graph to make an investment decision for the firm?

Ch.8 #5

Consider the following time series data.

1)  Use a multiple regression model with dummy variables as follows to develop an equation to account for seasonal effects in the data. Qtr1 = 1 if Quarter 1, 0 otherwise; Qtr2 = 1 if Quarter 2, 0 otherwise; Qtr3 = 1 if Quarter 3, 0 otherwise.

If required, round your answers to three decimal places. For subtractive or negative numbers use a minus sign even if there is a + sign before the blank. (Example: -300) If the constant is "1" it must be entered in the box. Do not round intermediate calculation.

Value = ________ + __________ Qtr1 + ___________ Qtr2 + ___________ Qtr3

2) Compute the quarterly forecasts for next year based on the model you developed in part (b). If required, round your answers to three decimal places. Do not round intermediate calculation.

Quarter 1 forecast _____________

Quarter 2 forecast_____________

Quarter 3 forecast_____________

Quarter 4 forecast_____________

3) Use a multiple regression model to develop an equation to account for trend and seasonal effects in the data. Use the dummy variables you developed in part (b) to capture seasonal effects and create a variable t such that t = 1 for Quarter 1 in Year 1, t = 2 for Quarter 2 in Year 1,… t = 12 for Quarter 4 in Year 3.

If required, round your answers to three decimal places. For subtractive or negative numbers use a minus sign even if there is a + sign before the blank. (Example: -300)

Value = __________ + __________ Qtr1 + __________ Qtr2 + ___________ Qtr3 + ________ t

4) Compute the quarterly forecasts for next year based on the model you developed in part (d).

Quarter 1 forecast _____________

Quarter 2 forecast_____________

Quarter 3 forecast_____________

Quarter 4 forecast_____________

5) Is the model you developed in part (b) or the model you developed in part (d) more effective?

Justify your answer.

Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:

₁R₁ = 3.26%, E(₂r₁) = 4.70%, E(₃r₁) = 5.20%, E(₄r₁) = 6.70%

Using the unbiased expectations theory, calculate the current (long-term) rates for 1-, 2-, 3-, and 4-year-maturity Treasury securities. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

1

2

3

4

Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1 = 2.54%, E(2r1) = 3.80%, E(3r1) = 4.30%, E(4r1) = 5.80% Using the unbiased expectations theory, calculate the current (longterm) rates for 1-, 2-, 3-, and 4-year-maturity Treasury securities. Plot the resulting yield curve.

Pure Expectations Theory

The yield on 1-year Treasury securities is 6%, 2-year securities yield 6.2%, 3-year securities yield 6.3%, and 4-year securities yield 6.5%. There is no maturity risk premium. Using expectations theory and geometric averages, forecast the yields on the following securities:

a. 1 year security, 1 year from now

b. 1 year security, 2 years from now

c. 2 year security, 1 year from now

d. A 3 year security , 1 year from now

Given a 14 percent interest rate, compute the present value of deposits made in in the amount of $1,000 in year 1, $1,385 in year 2, $1,270 in year 3, and $1,450 in year 4.