Assignment
Students should be able to calculate time value of money problems including solving for; present value, future value, rate and payment, determine the value and yield of corporate bonds, and use the dividend discount model to calculate the value and expected return of a common stock.
Complete the following Questions and Problems from each chapter as indicated.
Show all work and analysis.
Format your assignment consistent with APA guidelines if submitting in Microsoft Word.
1. Calculating Present Values: For each of the following, compute the present value:
|
Present Value
|
Years
|
Interest Rate
|
Future Value
|
|
|
13
|
9%
|
$ 15,451
|
|
|
4
|
7
|
51,557
|
|
|
29
|
24
|
886,073
|
|
|
40
|
35
|
550,104
|
2. Calculating Interest Rates: Solve for the unknown interest rate in each of the following:
|
Present Value
|
Years
|
Interest Rate
|
Future Value
|
|
$ 181
|
4
|
|
$ 297
|
|
335
|
18
|
|
1,080
|
|
48.000
|
19
|
|
185,382
|
|
40,353
|
25
|
|
531,618
|
3. Present Value and Multiple Cash Flows: Investment X offers to pay you $4,700 per year for eight years, whereas Investment Y offers to pay you $6,700 per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 5 percent? If the discount rate is 15 percent?
4. Calculating Loan Payments: You want to buy a new sports coupe for $79,500, and the finance office at the dealership has quoted you an APR of 5.8 percent for a 60-month loan to buy the car. What will your monthly payments be? What is the effective annual rate on this loan?
5. Valuing Bonds: Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 23 years to maturity, and a coupon rate of 5.8 percent paid annually. If the yield to maturity is 4.7 percent, what is the current price of the bond?
6. Valuing Bonds: Union Local School District has a bond outstanding with a coupon rate of 3.7 percent paid semiannually and 16 years to maturity. The yield to maturity on this bond is 3.9 percent, and the bond has a par value of $5,000. What is the price of the bond?
7. Stock Values: The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.95 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. If investors require a return of 10.5 percent on The Jackson-Timberlake Wardrobe Co. stock, what is the current price? What will the price be in three years? In 15 years?
8. Stock Valuation: Suppose you know that a company's stock currently sells for $63 per share and the required return on the stock is 10.5 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?