LTE LTE Assessment 1 -..gnment FIN201 referencing style. There is no word llmlt,
ID: 2655761 • Letter: L
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LTE LTE Assessment 1 -..gnment FIN201 referencing style. There is no word llmlt, but it is necessary that you provlde answers with explanations. Question 1: a) assume that you will deposit 4000 at the end of each of the next three years In a St. George bank account paying OD() In the account. How much wil you have In three years? In four years? Interest. You currently have b) You are looking into an investment that will pay you S1 2,0DO per year for the next 10 years. If you require a 1 5 what is the most you would pay for this Investment? return. c) 10D, and the bond matures in?years. If the bond A bond has an 8'?coupon, paid semi-annually. The face value is currently sells for $91.137, what is the yleld to matunty? What is the effe nnual yield? Question 2: We have two investment projects A&B.; Both projects cost $250, and we require a 1 5% return of the two investments. Year $100 $200 $100 $100 $100 $100 a) Based or the payback period rule, which project would you pick? Explain. b Based the NPV rule, which project would you pick? Explain. c Do a) and b give you the sare conclusion? If not why? Please elaborate. d) What other methods can you use to evaluate proposed ivestet? Please explai. Question 3 The ABC Company has a WACC of 20%. Its cost of debt is 12%, which is equal to the risk-free rate of interest. I ABC's debt to equity ratio is 2, what is the cost of equity capital? ABC's equity beta is 1.5 a) What are the M8M propositions and I please use graphs/charts and words to explain. b) Based o the M&M; proposition Il what is the beta of the ertire firrn? New Delhi Paris Lowest on 25,Jul 2018 Book nowExplanation / Answer
Q (a)
Q (b)
We use the Uniform-Series Present Worth factor (P/A factor) to calculate the P value for a uniform end of the period series of Annuity payments beginning at the end of period 1 and continuing for "n" periods.
The formula for calculating the value of P is given below:
Answer : Investment amount = $ 60,225
Q (c)
The Yield to Maturity (YTM) can also be calculated manually using the following formula:
Bond Price = (Coupon rate* Face Value) * ((1-(1/(1+Interest rate)^n))) / Interest Rate + (Maturity value* 1/(1+Interest Rate)^n)
The Yield to Maturity is the value of the Interest rate in the formula given above. The Trial and Error Method can be used to calculate the YTM.
A Value at the end of 3 years Value of $ 4,000 deposited at the end of each year for the next three years => FV of Ordinary Annuity PMT* (1+interest)^n-1) / Interest Given 1 PMT or Annual Payment $4000 2 "I" Interest Rate 8% 3 "n" Period 3 years FV of Ordinary Annuity 4000*((1+8%)^3-1)/8% => FV of Ordinary Annuity 4000*((1.08)^3-1) / 8% => FV of Ordinary Annuity 4000*(1.259712-1)/8% => FV of Ordinary Annuity 4000*0.259712/8% => FV of Ordinary Annuity 4000*3.2464 => FV of Ordinary Annuity $ 12,985.60 Value of $ 7,000 balance in the account at the end of 3 years at 8% p.a => FV = Amt (1+i)^n 1 Amount $ 7000 2 I or interest rate 8% 3 n or period 3 => FV 7000*(1+8%)^3 => FV 7000*(1.08)^3 -=> FV 7000*1.259712 => FV at the end of 3 years $ 8,817.98 Answer At the end of 3 years, we will have: $ 12,985.60+$8817.98 $21,803.58 B Value at the end of 4 years Value of $ 4,000 deposited at the end of each year for the next three years => FV of Ordinary Annuity PMT* (1+interest)^n-1) / Interest Given 1 PMT or Annual Payment $4000 2 "I" Interest Rate 8% 3 "n" Period 3 years FV of Ordinary Annuity 4000*((1+8%)^3-1)/8% => FV of Ordinary Annuity 4000*((1.08)^3-1) / 8% => FV of Ordinary Annuity 4000*(1.259712-1)/8% => FV of Ordinary Annuity 4000*0.259712/8% => FV of Ordinary Annuity 4000*3.2464 => FV of Ordinary Annuity $ 12,985.60 FV of $ 12,985.60 for 1 year (4 th year) FV= A(1+i)^n => 12,985.60* (1+8%)^1 => 12,985.60*1.08) => $ 14024.448 Value of 3 Annuities at the end of 4 th year Value of $ 7,000 balance in the account at the end of 4 years at 8% p.a => FV = Amt (1+i)^n 1 Amount $ 7000 2 I or interest rate 8% 3 n or period 4 => FV 7000*(1+8%)^4 => FV 7000*(1.08)^4 -=> FV 7000*1.36048896 => FV at the end of 3 years $ 9,523.42 Answer At the end of 4 years, we will have: $ 14,024.448+$ 9523.42 $23,547.87Related Questions
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