as part of your retirement package, your company has agreed to pay you monthly payments over the next three years that have the following characteristics.

1. you will receive 12 monthly payments each year, with the first payment for the year being made on January 1st, and the last payment for the year being made on December 1st
2. monthly payments for the first year will be $4,000 per month.
3. after year 1, you will receive an annual cost of living adjustment (COLA) of 10 percent that will be effective as of the January 1st payment for each subsequent year. That is, in Year 2, your monthly payment will be 1.0 percent higher than in Year 1 (i.e. $4,000*1.01=$4.040), and in Year 3, it will be 1.0 percent higher than in Year 2.
4. you believe that interest rates will increase in the future and that you will be able to deposit your payments into an investment account and receive the following effective annual rates of return (over the 12 months fro January 1st to December 31st of each year): Years 1 and 2 = 6.6759627%, Year 3(and after)= 8.2139158%

Given this information, determine how much you should expect to have in your investment account one month after your 36th deposit, on December 31st of Year 3.

Answer is whole dollars, rounded to the nearest dollar, with no punctuation. For example, if your answer is $150,224.75, enter “150225

Problem D. Take 3 semi-annual coupon paying bonds with face values of $100. They carry D1 percent, D2 percent and D3 percent coupons, mature in ½ year, 1 year, and 1 ½ year, with current market prices of D4, D5, and D6, respectively. Find the “crude” (which does not use regression) term structure of discount factor, spot interest rate and forward interest rate. Assume semi-annual compounding and write your answers for:

23. Half-year discount factor.
24. One-year discount factor.
25. One and half-year discount factor.
26. Half-year spot rate.
27. One-year spot rate.
28. One and half-year spot rate.
29. Forward rate for period (0.5 – 1.0) year.
30. Forward rate for period (1.0 – 1.5) year.
31. What is the current fair price of a 1.5 year bond with face value 100, carrying an annual coupon of 10 percent, paid two times per year?
32. What is the current fair price of a 1 year zero coupon bond with face value 100?
33. What is the current fair price of a 6-month strip with face value 100?

D1 = 11
D2 =14
D3 = 9
D4 = 103
D5 = 107
D6 = 107

Please show work.

The following data apply to Computational Problems 7‐1 through 7‐4. Assume expected returns and standard deviations as follows:

EG&G Return (%)   25

Standard deviation (%)   30 Covariance   112.5 The correlation coefficient,

ρ, is 0.15. GF 23 25

EG&G wi 1.0 0.8 0.6 0.2 0.0

GF wj = (1 − wi) 0.0 0.2 0.4 0.8 1.0

(1) Portfolio Expected Returns (%) 25.0 24.6 24.2 23.4 23.0

(2) Variance 900 637 478 472 625

(3) Standard Deviation (%) 30.0 25.2 21.9 21.7 25.0

7‐1   Confirm the expected portfolio returns in column 1.

7‐2   Confirm the expected portfolio variances in column 2.

7‐3   Confirm the expected standard deviations in column 3

. 7‐4   On the basis of these data, determine the lowest risk portfolio.

7‐5   Assume that the risk‐free rate is 7 percent, the estimated return on the market is 12 percent, and the standard deviation of the market’s expected return is 21 percent. Calculate the expected return and risk (standard deviation) for the following portfolios:

a. 60 percent of investable wealth in riskless assets, 40 percent in the market portfolio

b.   150 percent of investable wealth in the market portfolio

c.   100 percent of investable wealth in the market portfolio

Question 2: Further Aspects of Budgeting and Variance Analysis-Sales mix and volume variance                                                                                                                                                                                  

Jack plc makes and sells three types of fan for which the following budget/standard information and actual information are available for a four-week period.

Budgeted fixed costs are $250,000 for the four-week period. Jack plc allocates fixed costs on the basis of budgeted units of sale in calculating expected net profit.

1. You have the following cost and revenue information on a project that invests in the conversion of a coal-fired electricity generating plan into a gas-fired unit.

Cost of new equipment: $200 million.

The equipment will be depreciated over 8 years on a straight-line basis to zero book value.

Proceeds from the sale of old equipment which has a book value of $15 m is 40 million,

Expensible installation cost: 0.50 million.

Estimated Revenue from the sale of electricity in the first year: $65 million and it remains the same for all 5 years;

Cost of gas: $25 million;

Operating and other expenses: $4 million;

Initial working capital expenses: $1 million;

Project’s assets estimated resale value: $65 million.

The project is subject to a tax rate of 30%,

Anticipated clean-up expense: $1.0 million.

The investment is eligible for $1.0 million investment tax credit.

The weighted average cost of capital (WACC) of the project is 5%.

Using these data,

1. calculate the following cash flows associated with the project: (i) Net initial investment outlay; (ii) Net operating cash flows (NOCF) also known as CFAT and (iii) net salvage value, and

assuming that the net operating cash flows will remain the same for all five years, calculate the NPV and the IRR of the project.

Please show all work

In Village A, one farmer, i.e., one unit of labor, can produce either 10 bottles of wine (W) or 2 bottles of olive oil (O). In Village B, one farmer can produce either 5 bottles of wine (W) or 15 bottles of olive oil (O). For now, the two villages are in a state of “autarky” and do not trade with each other or with anyone else. People in Village A consume 100 bottles of (W) and 20 bottles of (O), while people in Village B consume 50 bottles of (W) and no bottles of (O).

a)  How much labor is required per bottle of (W) and per bottle of (O) produced in each village? How many farmers does each village have? Explain your answer. [Mark: 0.5]

b)  Each village decides to specialize in the good in which it has comparative advantage. How much is the increase in the aggregate production of each good in the two villages relative to autarky? Explain your answer. Note: aggregate production means the sum of the production levels in the two villages. [Mark: 1.0]

c) The two villages decide to trade freely with each other. Assume that after free trade each bottle of (W) is worth 1.5 bottles of (O). At this price they trade 50 bottles of (W) between them. How many bottles of (W) and of (O) does each village consume? Explain your answer. [Mark: 1.0]

Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $5.4 million. The equipment will be depreciated straight line over 6 years to a value of zero, but in fact it can be sold after 6 years for $668,000. The firm believes that working capital at each date must be maintained at a level of 15% of next year’s forecast sales. The firm estimates production costs equal to $1.60 per trap and believes that the traps can be sold for $6 each. Sales forecasts are given in the following table. The project will come to an end in 6 years, when the trap becomes technologically obsolete. The firm’s tax bracket is 35%, and the required rate of return on the project is 9%. Use the MACRS depreciation schedule.

Year: Sales (millions of traps)

Year 0 ---------------------0

Year 1----------------------0.6

Year 2----------------------0.8

Year 3----------------------1.0

Year 4----------------------1.0

Year 5----------------------0.9

Year 6----------------------0.6

Thereafter-----------------0

a. What is project NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 4 decimal places.)

NPV-----------$

b.  By how much would NPV increase if the firm depreciated its investment using the 5-year MACRS schedule? (Do not round intermediate calculations. Enter your answer in whole dollars not in millions.)

The NPV increases by $

(b) To compare the effectiveness of three types of weight-reducing diets, a homogeneous group of 22 women was divided into three sub-groups and each sub-group followed one of these diet plans for a period of two months. The weight reductions, in kgs, were noted as given below:

Use the Kruskal-Wallis test to test the hypothesis that the effectiveness of the three weight reducing diet plans is same at 1% level of significance.

Bill owns a building and wants to insure it for $5 million. He places $3.5 million with company A, $1.2 million with company B, and $0.3 million with company C. How much does he receive from each company if a $1.8 million loss occurs and there is a pro-rata liability provision in place? How much does he receive from each company if a $1.8 million loss occurs and there is a contribution by equal shares provision in place? show the work for any calculation

Explain why ACV is determined by replacement cost minus depreciation for property. How does this relate to the principle of indemnity? How does this relate to the principle of subrogation?

Consider a set of risky assets that has the following expected return and standard deviation:

If your utility function is as described in the book/lecture with a coefficient of risk aversion of 4.0  , then what is the second-lowest utility you can obtain from an investment in one (and only one) of these assets? Please calculate utility using returns expressed in decimal form (e.g., use .12, not 12 for the expected return of Asset 1). Please enter your answer rounded to the third decimal place