Present and Future Values of Single Cash Flows for Different Interest Rates

Use both the TVM equations and a financial calculator to find the following values. Round your answers to the nearest cent. (Hint: Using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in parts b and d, and in many other situations, to see how changes in input variables affect the output variable.)

An initial $300 compounded for 10 years at 5.4 percent.
$   

An initial $300 compounded for 10 years at 10.8 percent.
$   

The present value of $300 due in 10 years at a 5.4 percent discount rate.
$   

The present value of $300 due in 10 years at a 10.8 percent discount rate.
$  

Find the duration of a 8% coupon bond making annual coupon payments if it has three years until maturity and a yield to maturity of 7%.

Find the bond price.

If the market interest rates decrease by .5% per year (i.e. YTM becomes 6.5%). Use duration formula to find how such interest rate change will affect the bond price?

Find the new bond price using a financial calculator.

Compare actual and duration predicted bond price changes.

Which change is larger? What role does bond price convexity play here?

If the market interest rates decrease by .5% per year (i.e. YTM becomes 6.5%).

Use the duration formula to find how such interest rate change will affect the bond price?

Find the new bond price?

Compare actual and duration predicted bond price changes. Which change is larger? What role does bond price convexity play here?

Consider a Carnot-cycle heat pump with R-410a as the working fluid. Heat is rejected from the R410a at 35 oC, during which process the R-410a changes from saturated vapor to saturated liquid. The heat is transferred to the R-410a at 0 oC. The specific volume during the isothermal heat addition process at 0 oC changes from 0.00841 m3 /kg to 0.02994 m3 /kg.

a. Show the cycle on P-T, P-v, and T-v diagrams.

b. Find the quality at the beginning and at the end of the isothermal heat addition process at 0 oC.

c. Find the pressure and specific volume at the four points.

d. Find the specific heat and specific work at each process.

e. Find the net specific heat and the net specific work during the cycle.

f. Determine the COP of the cycle using heat and work.

g. Determine the COP of the cycle using temperatures.

An experiment was conducted in laying hens to examine the in
uence of several hormones on biliary secretionsin laying hens. White leghorn hens were surgically
tted with cannulas for collecting secretions and a jugular cannula for continuous
infusion of the hormones under investigation. One trial per day was conducted on
each hen, as long as her implanted cannulas remained functional. Each trial began
with an infusion of saline for 20mins, after which biliary secretions were collected
and new vials attached to the cannulas. Infusion of a hormone was then begun and
continued for 40mins. Measurement of secretion levels was then repeated. The le
\A2Q3.txt" contains data for two di erent hormones. The variables \Bilsecpr" and
\Bilsecpt" contain the pre- and post- hormone treatment measurements. Are there
significant changes in secretion rates with any of the hormones? Compare also the
changes in secretion rate between the two hormones and comment on your findings.

What type of test to use, assumptions and hypothesis with the selected test?

1. Portfolio A consists of $5,000 investment in a 1-year zero-coupon bond and $20,000 investment in a 20-year zero-coupon bond. Portfolio B consists of a 10-year zero-coupon bond with a face value of $17,000. The current yield on all bonds is 4% per annum (continuously compounded).
   1. Compute the actual percentage changes in the values of the two portfolios for a 20-basis point increase in yields.
   2. Compute the actual percentage changes in the values of the two portfolios for a 200-basis point increase in yields.
   3. Compute the duration for each portfolio. Use these durations to forecast the change in the value of each portfolio for a 20-basis point and a 200-basis point increase in yields.
   4. Compute the convexities for each portfolio. Use duration and convexity to forecast the change in the value of each portfolio for a 20-basis point and a 200-basis point increase in yields.
   5. Find the percentage forecast errors from c and d. Discuss your results.

Present and Future Values of Single Cash Flows for Different Interest Rates

Use both the TVM equations and a financial calculator to find the following values. (Hint: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in parts b and d, and in many other situations, to see how changes in input variables affect the output variable.) Do not round intermediate calculations. Round your answers to the nearest cent.

1. An initial $200 compounded for 10 years at 5%.

   $ __________

2. An initial $200 compounded for 10 years at 10%.

   $ _________-

3. The present value of $200 due in 10 years at a 5% discount rate.

   $ ___________

4. The present value of $200 due in 10 years at a 10% discount rate.

   $ _______

We are evaluating a project that costs $832,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 40,000 units per year. Price per unit is $40, variable cost per unit is $15, and fixed costs are $728,000 per year. The tax rate is 35 percent, and we require a return of 18 percent on this project.

a. Calculate the accounting break-even point.

Break even point ______ units

b-1 Calculate the base-case cash flow and NPV.

Cash flow______

NPV _______

b-2 What is the sensitivity of NPV to changes in the sales figure?

change NPV/Change in Q _________

b-3 Calculate the change in NPV if sales were to drop by 500 units.

NPV would (increase/decrease) by $_____.

c. What is the sensitivity of OCF to changes in the variable cost figure?

Change in OCF/ Change in VC ___________

A $1,000 face value bond has a coupon of 5% (paid annually) and will mature 20    years from today?

A.   Assume that the yield-to-maturity is 6%. What is the bond’s:

            i. Duration

           ii. Modified Duration

B.    Assume that the bond’s yield-to-maturity immediately changes from 6% to 6.1% (the bond still has 20 years to maturity).

            i. Estimate the % change in the bond’s price using

                                                             modified duration

                                          ii.    What is actual bond price (at YTM = 6.1%), and the % price change (from YTM = 6% to 6.1%)?

C.    Assume that the bond’s yield-to-maturity immediately changes from 6% to 7% (the bond still has 20 years to maturity).

      i.    Estimate the % change in the bond’s price using modified

                duration

                                            ii. What is actual bond price (at YTM = 7%), and the % price    

                                                       change (from YTM = 6%)?

D.   Why is the estimated % price change closer in Part B than it is in Part C? Be precise!

A friend of yours has approached you about starting a hot dog stand at the courthouse. She has collected the following information and would like you to help her evaluate the business. The sale price will be 3.50 for a hot dog, potato chips and a drink. The projected cost per sale is 1.35. Condiments are projected to be $ .35 per sale. The hot dog cart will be leased for a 12-month period for $ 425 per month. Liability insurance will be $ 1,200 per year. The owner wants to earn $ 20,000 per year and assumes a tax rate of 20%. An annual profit is projected to be $10,000.

Complete the Break-Even analysis and answer the following questions.

1. What are the total expenses per the income statement?

2. How many units must be sold per year?

3. If the sales price changes to $ 4.00 and the owner salary changes to $ 15,000, how many units must be sold?

In Working’s experiment, he found that commodity traders could tell the difference between graphs of commodity price changes and graphs of changes in the sequence of random numbers.

According to statistics professor Maurice Kendall,

"Investors can, perhaps, make money on the Stock Exchange, but not, apparently, by watching price movements and coming in on what looks like a good thing…"

In the face of two strong statements supporting randomness over observable patterns, does this make you reconsider your position on Dow Theory and on the value of stock price patterns in general? If so, how? If not, why not? Be sure to state your position.

What is a head and shoulders top? What do traders believe will happen next?

What are “noise traders” and how do they factor into investors’ efforts to beat the market?

Do you believe that stock priced follow observable trends or are random?

Would you trade purely on technical analysis? Why or why not ?