of Baron, Inc. has total current assets of $1.200.000, total current liabilities
ID: 2795353 • Letter: O
Question
of Baron, Inc. has total current assets of $1.200.000, total current liabilities 5300,000: fixed assets of $800,000 and long-term debt of $600,000. Assuming that there are no other assets, how much is the firm's total equity A) $1.200,000 B) $800.000 C) $900,000 D) $2,000,000 o) 10) Edward Johnson decided to open up a Roth IRA. He will invest $1,800 per year for the next 35 years. Deposits to the Roth IRA will be made via will earn 8.75% over the life of the IRA. How much will he have at the A) 5363,000 B)250,321 C)S125,250 D) $414,405 a $iso payroll deduction at the end of each month. Assume that Edward You wish to purchase a condo at a cost of $175,000. You are able to make a down payment of $35,000 and will borrow $140,000 for 30 years at an interest rate of 7.25%. How much is your monthly mortgage payment? 11) A) $1,023 B) $955 C) $875 D) $1,092 E) $650 12) If you have S375000 in an account earning 9% annually, what constant amount could you withdraw each year and have nothing remaining at the end of 20 years? A) $7,500 B) $66,912 C) $18,750 D) $41,080 E) $5,575 13) What is the present value of an investment that pays $10,000 every year for the next five years and $15,000 every year for years six through ten? Assume an annual rate of interest for the investment of 9%. A) $135,173.50 C) $76,816.60 B) $97,250.08 D) $125,040.32 14) The rate of return on the S&P; 500 is 16.2%. Epsilon has a beta of 1.85. If the T-bond rate is 5.9%, what should investors expect as a rate of return on Epsilon's stock? (Hint: Use CAPM) A) 18.5% B) 16.2% C) 22.1% D) 25.0% 15) What is the expected return on an investment that has the following expected scenarios? A 10% probability of a booming economy with a $250 return; a 70% probability of a moderate economy with a $154 return; a 20% probability of a declining economy with a $50 return. A) $15.12 B) $142.80 C) $65.00 D) $154.00Explanation / Answer
9) Shareholder's Equity = Total Asset - Total Liability = (Current Asset + Fixed Asset) - (Current Liability + Long Term Debt) = (1200,000 + 800,000) - (500,000 + 600,000) = 900,000. Hence Correct answer is C
10) Use the formula P = PMT [((1 + r)n - 1) / r]
here, since the payments are monthly; PMT = 150, r = 8.75/12, n = 35*12
11) This is extremely easy if done on Excel. Use the function "=PMT(.604%,360,-140000)"
Here, .604 = 7.25/12. Since the given rate is 7.25% and the installments are monthly
PV of the loan is 140000, and
Nper = no of installments = 30 * 12, Since once again, the installments are monthly
The value of mortgate payment = $955. Answer B.
However, if you want to do the sum manually, use the formula: EMI = P×r×(1 + r)n/((1 + r)n - 1)
12) This sum again can be easily solved with the use of excel.
Use the command: "=PMT(9%,20,-375000)" to arrive at the answer of D) $41,080
13) This problem must be seggregared into 2 parts:
1st, the period of 1 to 5 years. Here, we 1st find the future value of all the installments with the help of the following command: =FV(9%,5,-10000) = 59,847
2nd, the perios of 6th to 10th year. Here to we find the Future value of all the installments, BUT, we consider the FV of the previous period, as the PV for this period. i.e, 59,847 is the new PV.
Hence, with the help of the command: =FV(9%,5,-15000,-59,847) = 181,852
Now, we club these 2 periods together to find the PV of the TOTAL investment. We use: =PV(9%,10,,-181852) = 76,816. Option C.
14) use the CAPM formula of Re = Rf + Beta(Rm-Rf)
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