What is the annual capital gains yield expected over the next year for a 15 year bond with 9% coupon rate paying the coupons every six months and selling at $1,082 (enter answer as a percentage)?

1. How much interest will you pay in the 13th year of a $120,000, 8.5%, 25 year mortgage, assuming annual compounding?

a. 7,351.362

b. 7,514.997

c. 7,665.261

2. How much interest will you pay in the 12th year of a $120,000, 8.5%, 25 year mortgage, assuming monthly compounding? (Hint: 144-AMORT, you need to think about what should be entered for INPUT)

Hint: INPUT = AMORT - # of specified periods + 1

a.7,411.813

b.7,648.124

c.7,911.599

3. A reset mortgage allows for one interest rate reset during the life of the loan. The mortgage rate will be reset after 6 years, to fully amortize at the end of the original 30 year period (i.e. after 24 more years). For a 6.625%, $100,000, mortgage, please compute the reset payment if the new rate resets to 7.375%. (Hint: calculate how much balance is left after you pay for 6 years at the rate of 6.625%, then use the left balance as the new PV, pay it off for the rest of the 24 years @ the rate of 7.375%). Assuming monthly compounding.

First six years: 1-INPUT, 72-AMORT.

a. 450.76

b. 489.11

c. 652.37

d. 683.93

Calculate the federal debt and year-over-year percentage growth. Explain the economic impact.

Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return (%) T-Bill Return (%) 2011 ?34.33 4.30 2012 31.70 0.70 2013 14.56 0.27 2014 3.58 0.04 2015 19.46 0.06

a. What was the risk premium on common stock in each year? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

b. What was the average risk premium? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. What was the standard deviation of the risk premium? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a coupon of 3.5% if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as shown in the table below. (Assume the entire 3.5% coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

A project with a 3-year life has the following probability distributions for possible end of year cash flows in each of the next three years: Year 1 Prob then Cash Flow 0.30 $300 0.4 $500 0.3 $700. Year 2 0.15 $100 0.35 $200 0.35 $600 0.15 $900. Year 3 0.25 $200 0.75 $800. Using an interest rate of 8 percent, find the expected present value of these uncertain cash flows. (Hint: Find the expected cash flow in each year, then evaluate those cash flows.) a. $1,204.95 b. $835.42 c. $1,519.21 d. $1,580.00 e. $1,347.61

Ayura is offered mortgage rates of 4.13% on a 15-year and 4.70% on a 30-year. She is able to make either payment and is buying a house with an initial loan balance of $245,000. Her lender is offering 1.5 discount points and she will pay $8,700 is third party expenses. If she is able to earn 10.9% investing in the S&P 500.

Then a. What is her monthly payment for each loan?

b. What is the lender's yield on each loan?

c. What is the effective borrowing cost of each loan?

d. Based on present value computations which loan is a better option for her?

You currently make $100,000 a year and expect your salary increase by 10% a year for 20 years.   You are considering an MBA which will cost you $120,000 for the entire education. If you take the MBA, you will have to pay the full tuition today (all upfront) and you will make zero earnings at the end of years 1 and 2. However, after graduation you’ll have an opportunity to join an investment bank, which promises $130,000 a year, which will grow by 15% for 18 years after graduation. Is the MBA a good deal? Assume a constant discount rate of 15%. What if rates fall to 10%? What if rates rise to 17%, how does your answer change? Show your detailed spreadsheet calculations using Excel.

Question 1 Sales for the Forever Young Cosmetics Company (in $ millions) are as follows:

(a) Develop a three-year moving average.

(b) Develop a four-year moving average.

(c) Develop a five-year moving average.

(d) Develop a seven-year rmoving average.

1. You are analyzing a project with the following cash flows:

Year 0:      -240,000

Year 1:      + 10,000

Year 2:      + 55,000

Year 3:      +100,000

Year 4:      +380,000

What is the NPV for this project, using a 15% discount rate?

Multiple Choice

• The Project has an NPV of $69,281

• The Project has an NPV of $58,445

• The Project has an NPV of $70,617

• The Project has an NPV of $93,301

What is the IRR for this project?

Multiple Choice

• The Project has an IRR of 26.51%

• The Project has an IRR of 28.13%

• The Project has an IRR of 22.93%

• The Project has an IRR of 19.32%

What is the Payback for this project:

Multiple Choice

• The Project has a payback of 3.20 years

• The Project has a payback of 3.88 years

• The Project has a payback of 3.05 years

• The Project has a payback of 3.28 years

What is the Profitability Index for this Project

Multiple Choice

• The Project has a P.I. of 1.65

• The Project has a P.I. of 2.33

• The Project has a P.I. of 1.39

• The Project has a P.I. of 1.44

Based on your analysis and given what you know about capital budgeting, which one of the following statements is correct regarding the Project just analyzed in the previous 5 questions (#14-#18)?

Multiple Choice

• You should accept the Project since its IRR is lower than the hurdle rate of 15%

• You should reject the Project

• You should accept the Project, since its Profitability Index is less than 1.0

• You should accept the Project, since its NPV is positive