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Concepts of FV, NPV, annuities, risk, bonds, US Treasuries

1. A new SUV costs $33,000. You must pay 6% sales tax. You will put 10% of this total as a down payment.
For 60 months, you must borrow at an annual rate of 10%.
What annual rate would have the same payments stream at 48 months?
(Payments at 10% for 60 months = "X" % for 48 months).

2. A rare painting increases in value 3% each year.
You bought it for $50,000 by financing $40,000 at 6% for 30 years (use annual compounding).
What is the painting's value at the end of 5 years?

3. What is the total equity achieved in #2 above after 5 years? (Market value less loan amount)

4. Say a college education costs $40,000 on average.
Say an uneducated person earns, on average, $25,000 per year
Say an educated person earns, on average, $48,000 per year.
What is the present value of the benefit of education, if you used an 8% rate and 40 years?

Cash 0 Accounts Payable

Accounts receivable Long-term Debt 60,000

Inventories Common Stock

Fixed Assets Retained Earnings 97,500

Total Assest 300,000 Total Liabilities and Equity

Sales Cost of Goods Sold

Debt ratio 50%
Current Ratio 1.8X
Total asset Turnover 1.5X
Days sales Outstanding 36.5 (Based on 365 day year)
Gross Profit [ (Sales -COGS)/ Sales ] 25%
Inventory Turnover 5X

5 What is annual sales figure?

6 What is the COGS?

7 How much cash does the company report?

8 What are the A/P?

Maturity Treasury Bond AA-rated BBB-rated
1 5.50% 6.70% 7.40%

5 6.10% 7.40% 8.10%

10 6.80% 8.20% 9.10%

20 7.40% 9.20% 10.20%

30 7.70% 9.80% 11.10%
(Note: a basis point is 1/100th of a percent; or 0.01%)

9 How many basis points are the riskiest bonds trading over treasuries in the 20 year spectrum?

10 How many basis points are gained by selling a 5-yr US Treasury and buying a 30-yr BBB?

11 What maturity has the biggest spread between high grade corporates and low grade corporate bonds?
12 Suppose you purchase a 10 US Treasury bond and held it for 5 years.
Further suppose that this chart does not change for 5 years (or in 5 years this is what exits).
If you hold the bond for that entire period and sold it at that time, what would be your holding period yield?

Solution Summary

The concepts of FV, NPV, annuities, risk, bonds and the US treasuries is examined.