# Calculating Investments and Stocks

Question 1:

You would like to have $1,000,000 accumulated by the time you turn 65, which will be 40 years from now. How much would you have to put away each year to reach your goal, assuming you're starting from zero now and you earn 10% annual interest on your investment?

Question 2:

You hold a portfolio of stocks consisting of the following:

Stock Beta Current Value

John Deere 1.0 $20,000

BankAmerica 0.6 $22,000

McDonalds 0.7 $18,000

Boeing 1.1 $16,000

Total: 76,000

a. What is the beta of the portfolio?

b. You have decided to sell Boeing for $16,000 and use the proceeds to buy $16,000 of Raytheon stock with a beta of 1.5. After the transaction is complete, what will be the new beta of the portfolio? (Disregard any commissions on the buy and sell transactions.)

Question 3:

If the risk-free rate is 2% and the expected rate of return on the stock market is 9%, what is the required rate of return per the CAPM for a stock that has a beta of 1.2?

Question 4:

a. Joe's Company's bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity (YTM) of 9%. Given these conditions, what should be the current price of these bonds?

b. Jane's Company's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. The bonds have a current market price of $829. Given these conditions, what should be the yield to maturity (YTM) of these bonds?

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#### Solution Summary

Solution is comprised of calculations in an Excel spreadsheet. Calculations include annuity payments, portfolio beta, required rate of return, value of bond, and yield to maturity (YTM).

Rate of return

Ann purchased stock in a German firm at a price per share of 101.28 euros when the US $/euro exchange rate was $1.023. After six months, Ann sold the stock for 103.40 euros when the US $/euro exchange rate was $0.987. The stock does not pay a dividend. What is Ann's rate of return on this investment?

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