Demonstrate your understanding of financial concepts by completing the following
ID: 2736408 • Letter: D
Question
Demonstrate your understanding of financial concepts by completing the following problems. Where appropriate, show or explain your work.
Problem 1. Calculate the future value of $3,500, compounded annually for each of the following: •10 years at 7 percent. •15 years at 9 percent. •20 years at 5 percent.
Problem 2. Calculating Present Values: Calculate the present value for each of the following:
Present Value
Years
Interest Rate
Future Value
5
4%
$ 5,250.
8
7%
$30,550.
12
10%
$850,400.
20
15%
$525,125.
Problem 3. Calculating Interest Rates: Calculate the interest rate for each of the following:
Present Value
Years
Interest Rate
Future Value
$282.
2
$325.
$607.
6
$891.
$32,600.
12
$142,385.
$57,435.
22
$463,200.
Problem 4. Calculating the Number of Periods: Calculate the number of years in each of the following:
Present Value
Years
Interest Rate
Future Value
$765.
6%
$1,385.
$845.
9%
$4,752.
$17,200.
11%
$432,664.
$23,700.
14%
$182,529.
Problem 5. Present Value and Multiple Cash Flows: Refer to the cash flows listed for the Kelly Company investment projects in the table below. The discount rate is 6 percent. Calculate the present value of these cash flows. What is the present value at:
A. 12 percent?
B. 17 percent?
Year
Cash Flow
1
$750.
2
$840.
3
$1,230.
4
$1,470.
Problem 5. Refer to the cash flows listed for the Kelly Company investment projects in the table below. The discount rate is 6 percent. Calculate the present value of these cash flows. What is the present value at: •12 percent? •17 percent? Problem 5. Present Value and Multiple Cash Flows Year Cash Flow 1 $750. 2 $840. 3 $1,230. 4 $1,470.
Problem 6.Value the bond Midcorp has issued, with the following characteristics:
•Par: $1,000.
•Time to maturity: 28 years.
•Coupon rate: 7.50 percent.
•Semiannual payments.
Calculate the price of this bond if the YTM is each of the following:
•7.50 percent.
•9 percent.
•4 percent.
Problem 7. Calculate the bond yield in the following scenario: Two years ago, Walters Electronics Corporation issued 20-year bonds at a coupon rate of 6.75 percent. The bonds make semiannual payments, and currently sell for 106 percent of par value. Calculate the YTM.
Problem 8. Calculate the stock value in the following scenario: The next dividend payment by RST, Incorporated will be $3.45 per share. The dividends are projected to sustain a 6.50 percent growth rate into the future. If RST stock currently sells for $67 per share, what is the required return?
Problem 9. Calculate the stock value in the following scenario: Nickels Corporation will pay a $3.10 per share dividend next year. The company plans to increase its dividend by 4.25 percent per year, indefinitely. How much will you pay for the company's stock today if you require a 12 percent return on your investment?
Present Value
Years
Interest Rate
Future Value
5
4%
$ 5,250.
8
7%
$30,550.
12
10%
$850,400.
20
15%
$525,125.
Explanation / Answer
1.) Future Value of single payment = Principal Amount(1+r)t Where, r= rate of interest per period t= number of period Present Value Years Interest Rate Future Value 3500 10 7% 6885.03 3500 15 9% 12748.69 3500 20 5% 9286.54 2.) Present Value of single payment = Future Value / (1+r)t Present Value Years Interest Rate Future Value 4315.12 5 4% $ 5,250. 17780.38 8 7% $30,550. 270963.65 12 10% $850,400. 32085.28 20 15% $525,125. 3.) Use any above formula and value derived must be looked into annuity table to get interest rate Problem 3. Calculating Interest Rates: Calculate the interest rate for each of the following: Present Value Years Interest Rate Future Value $282. 2 7% $325. $607. 6 6.60% $891. $32,600. 12 13% $142,385. $57,435. 22 10% $463,200. 4.) Use any above formula and value derived must be looked into annuity table to get number of periods Problem 4. Calculating the Number of Periods: Calculate the number of years in each of the following: Present Value Years Interest Rate Future Value $765. 10 6% $1,385. $845. 20 9% $4,752. $17,200. 31 11% $432,664. $23,700. 15 14% $182,529. 5.) Year Cash Flow PVF @6% Present Value @6% PVF @12% Present Value @12% PVF @17% Present Value @17% 1 $750. 0.94 707.55 0.89 669.64 0.85 641.03 2 $840. 0.89 747.60 0.80 669.64 0.73 613.63 3 $1,230. 0.84 1032.73 0.71 875.49 0.62 767.98 4 $1,470. 0.79 1164.38 0.64 934.21 0.53 784.47 6.) Year Cash Flows Present Value Factor(Commulative and single) @7.5% Present Value 1-28 75 11.573 868.0 28 1000 0.132 132.0 Total 1000.0 Year Cash Flows Present Value Factor(Commulative and single) @9% Present Value 1-28 75 10.116 758.7 28 1000 0.090 89.5 Total 848.2 Year Cash Flows Present Value Factor(Commulative and single) @4% Present Value 1-28 75 16.663 1249.7 28 1000 0.333 333.5 Total 1583.2
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