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The Time Value of Money

Rate of Return on a Stock

As an equity analyst you are concerned with what will happen to the required return to Universal Toddler Industries's stock as market conditions change. Suppose rRF = 5%, rM = 12%, and bUTI = 1.4. (a) Under current conditions, what is rUTI, the required rate of return on UTI stock? (b) Now suppose rRF (1) increases to 6% or

Insurance Coinsurance Pay

Michael Howitt of Berkley, Michigan, recently had his gallbladder removed. His total bill for this event, which was his only health care expense for the year, came to $13,890. His health insurance plan has a $500 annual deductible and an 80/20 coinsurance provision. The cap on Michael's coinsurance share is $2,000. a. How muc

Risks in Common Stocks

Select a portfolio of common stocks in five companies whose stock is traded on the New York Stock Exchange (NYSE). Base your selection of stocks on your own personal willingness to take risks. Look up the beta of each company. Using equal weights, compute the portfolio beta, showing your work. Discuss how the portfolio beta comp

When NPV Equals Zero

Which one of the following is FALSE for a project whose NPV equals zero? 1) The project earns more than the required return. 2) The projects cash outflows are equal to the present value of the cash inflows. 3) The project will have no impact on firm value. 4) The IRR is equal to the required rate of return

Ethically behaving corporations

Do corporations have any responsibilities to society at large? Is stock price maximization good or bad for society? Discuss why firms should behave ethically. Define "ethically."( this is not an assignment) I need at least 300 words

Time value of money SLP 1

Select a publicly traded U.S. company that has paid a dividend for at least the last three years, and conduct a financial ratio analysis. You will be using this company for other assignments in this course; thus, please spend adequate time locating a company. Please consider reviewing http://finance.yahoo.com to locate a company

Explanations of How to Calculate Interest Rates

a. What amount of money should you pay each month to retire a $12000 debt in five years if the interest rate on money is 10% nominal annual interest rate compounded monthly? b. What amount of money today is equivalent to $100 per month compounded quarterly for ten years at 5%? c. If you buy a piece of land for $10,000 and

Investments compounded annually

a. What amount of money should you put in the bank today so that you will have $12,000 at the end of six years if you can earn 8% compounded annually? b. How much money should you save annually so that you will have $1500 after eight years if you can earn 9% compounded annually? c. What interest rate would allow you to ac

Problems regarding interest rates

a. If you put $1200 in the bank now, how much will you have after six years? What if you earn 12% compounded interest per year? b. If you buy a painting for $300 and are able to sell it after 4 years for $500, what was your effective annual interest rate on your investment? c. What is the effective interest rate of an adve

Time Value of Money & Risk and Return

1. Discuss the time value of money and its importance. Explain the relationship of discounting and compounding. Suppose you were considering depositing your savings in one of three banks, all of which pay 5 percent interest; bank A compounds annually, bank B compounds semiannually, and bank C compounds daily. Which bank would y

Finance Questions: Stock Prices, Gold Value

A stock is expected to pay a dividend of $2 per share in one month and in four months. The stock price is $40 and the risk-free rate of interest is 6% per annum with continuous compounding for all maturities. An investor has just taken a short position in a five-month forward contract on the stock. What are the forward price an

Exxon: Ethical responsibility and shareholder value

Documents uncovered after the Exxon Valdez oil spill in Alaska revealed that Exxon could have used double-hulled oil tankers that would have prevented the spill, but the cost of refitting their fleet of single-hulled tankers was considered too high. Exxon determined that the cost of cleaning up an oil spill would be less than th

Basic Word Problems in Algebra

1. Use the appropriate form of the percentage formula. Find P if R=6623% and B=150. 2. The formula Total cost=Cost+Shipping cost+Installation is used to find the total cost of a business asset. The formula can be written in symbols as T=C+S+I. Solve the formula for I, the installation cost of the asset. 3. Complete the inc

Finance Questions: Practice

1. One manufacturer needs to calculate the net price of an order with a list price of $900 and a trade discount series of 10/8/5. Use the net decimal equivalent to find the net price. 2. Find the acid-test ratio for a business if the balance sheet shows the following amounts: cash, $32,776; receivables, $13,039; marketable

Cost of Reinvested Capital

9-11 Cost of reinvested profits and new common shares - CAPM Using the data for each firm shown in the following table, calculate the cost of reinvested profits and new common shares using the CAPM. P0 Rf Market Total of Firm

Future Value/Interest Question Sample Solutions

18. Find the amount that should be set aside today to yield the desired future amount. Future amount needed $9000 Interest rate 48% Compounding period Quarterly Investment time 4 years 19. Rosa Burnett needs $6,000 in three years to make the down payment on a new car. How much must she invest today if she receives 2.5

Calculating the future value and effective rate

15. Compute the compound amount and the interest on a loan of $10,800 compounded annually for five years at 8%. Use the $1.00 future value table or the future value and compound interest formula. 16. John Smith has $9,000 that he plans to invest in a compound-interest-bearing instrument. His investment agent advises him th

Interest And Future Income Calculations

Here are two questions regarding the interest and investments. Margaret Hillman invested $8,000 at 1.8% compounded quarterly for one year. Find the future value and the interest earned for the year. How much should Linda Bryan set aside now to buy equipment that costs $6,200 in one year? The current interest rate is 0.95

Sample Interest and Effective Rate Calulcation

8. A loan for $3,500 with a simple annual interest rate of 11% was made on September 5 and was due on November 21. Find the ordinary interest. 9. Find the discount and proceeds on a $3,220 face-value note for three months if the discount rate is 9.5%. (Use the banker's rule.) 11.Shanquayle Jenkins needs to calculate the

Calculating the break even bonus amount

Your salary for the coming year is $100,000 (payable one year from now) and you expect to work for another 30 years. You expect your annual base salary to grow at a 4% annual rate during the remainder of your career. Your company's pension plan calls for you to receive a yearly pension payment after you retire equal to 25% of yo

Sample Compounding Interest Questions

Find the amount that should be set aside today to yield the desired future amount. Future amount needed, $7000, interest rate, 12%, compounding., Semiannually, investment time, two years. (see attached chart) Dewey Sykes plans to open a business and four years when he retires. How much must he invest today to have $10000 whe

Sample Solutions For Investment and Interest Questions

11. A man makes a simple discount note with a face value of $2300, a term of 160 days, and a 18% discount rate. Find the discount. (Use the banker's rule) 12. A man has a simple discount note for $6600, at an ordinary bank discount rate of 8.72%, for 40 days. What is the effective interest rate? Round to the nearest 10th of a

Forecasting Net Income for Herbat Housing Corporation

Q4 The company is in the 40 percent tax bracket. Its cost of goods sold always represents 60 percent of its sales. That is, if the company's sales were to increase to RM1.5 million, its cost of goods sold would increase to RM900,000. Q5 The company's CEO is unhappy with the forecast and wants the firm to achieve a net incom

Effective annual rate, EBIT and net income

Q1 You have just borrowed RM20,000 to buy a new car. The loan agreement requires for 60 monthly payments of RM444.89 each to begin one month from today. If the interest is compounded monthly, what is the effective annual rate on this loan? Q2 Era Baru Bhd. recently reported net income of RM385,000. The tax rate is 40 percen

Develop a Retirement & Capital Needs Analysis

Larry is 40 year old and has never married. He wants to retire at age 62 with an 80% wage replacement ratio. Larry currently earns $100,000 as an employee and has managed to save $100,000 towards his retirement goal (including investment assets and cash equivalents). He is currently saving $5,000 per year in his 401(k) plan.

Investments, Loans, Insursance Terms & Calculations

1. Why is it necessary to know about time value of money concepts? Why can't you just make judgments about future cash flows based purely on the size of the cash flows? 2. Define Future Value. 3. Define Present Value. 4. What are annuities? 5. (calculating future value) You buy an 8 year, 7% CD for $1,000. In

Future Value of Uneven Cash Flows

One year ago, the Beauty Skins Bhd deposited $3,600 in an investment account for the purpose of buying new equipment four years from today. Today, it is adding another $5,000 to this account. It plans to make a final deposit of $7,500 to the account next year. How much will be available when it is ready to buy the equipment, ass

Portfolio Security & Bond Maturation

Part 1: (a) The LUFTUS corp offers a 6% bond with a current market price of $875.05 . The yield to maturity is 7.34% . The face value is $1,000. Interest is paid semiannually. How many years is it until this bond matures? (b) A corporate bond with a face value of $1,000 matures

The Basics of Financial Management

Q7. The zero coupon bonds of Markus Inc. have a market price of RM394.47, a face value of RM1,000, and a yield to maturity of 6.87%. When will this bond mature? (Answer in number of years.) Q8. Windmill Corp has a 15-year bond issue outstanding that pays a 9% coupon. The bond is currently priced at RM894.60 and has a par value