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Questions and Answers of Finance

We return to Denise, our hopeful millionaire from Chapter 4 (Example 4.3) and this chapter (Example 5.2). In Chapter 4, Denise was putting away $5,000 per year at the end of each year at 6% interest,
Moulton Motors is advertising the following deal on a new Honda Civic: “Monthly Payments of $400.40 for the next 60 months and this beauty can be yours!” The sticker price of the car is $18,000.
Moulton Motors is advertising the following deal on a used Honda Accord: “Monthly Payments of $245.00 for the next 48 months and this beauty can be yours!” The sticker price of the car is
Given the information below, estimate the nominal rate with the approximation nominal interest rate equation and the true nominal interest rate equation.
Given the information below, estimate the real rate with the approximation nominal interest rate equation and the true nominal interest rate equation (Fisher effect).
Given the information below estimate the inflation rate with the approximation formula and the true inflation with the Fisher Effectformula.
From 1991 to 2000, the U.S. economy had an annual inflation rate of around 2.93%. The historical annual nominal risk-free rate for this same period was around 5.02%. What is the real interest rate
The Minister of Finance for the State of Tranquility has just estimated the expected inflation rate for the coming year at 6.75%. If the real rate for the coming year is 3%, what should the nominal
The Republic of New South Brazillia, a small developing island country in South Central America is experiencing a very high inflation rate at this time. The annual inflation rate is 40%. If the real
The Republic of Northern Lights, a small stable country in the North Atlantic, is experiencing a negative inflation (deflation) at this time. The annual inflation rate is -4%. If the nominal rate of
Is it possible to have promised negative nominal interest rates? Why?
Refer to Table 5.6 for the average interest rates for the 2000 to 2010 period and estimate the default premium using the average Treasury Bond rate and the AAA corporate bond rate.
Refer to Table 5.6 for the average interest rates for the 2000 to 2010 period and estimate the maturity premium using the average Treasury Bond rate and the Treasury Bill rate.
Michael is shopping for a special automobile. He finds the exact car he wants, a 1966 dark blue Pontiac GTO. This car is currently the property of a neighbor, so in order to buy the car for the
Tyler wants to buy a beach house as part of his investment portfolio. After searching the coast for a nice home, he finds a house with a great view and a hefty price of $4,500,000. Tyler will need to
1. Povero believes that interest rates are a major factor in the real estate market. What are the implications of rising, falling, and steady interest rates for future real estate prices?2. If the
The First Federal Bank has advertised one of its loan offerings as follows:“We will lend you $100,000 for up to 5 years at an APR of 9.5% (interest compounded monthly.)” If you borrow $100,000
If First Federal offers to structure the 9.5%, $100,000, 1 year loan on a monthly payment basis, calculate your monthly payment and the amount of interest paid at the end of the year. What is your
Patrick needs to borrow $70,000 to start a business expansion project. His bank agrees to lend him the money over a 5-year term at an APR of 9.25% and will accept either monthly or quarterly payments
You have just taken on a 30-year, 6%, $300,000 mortgage and would like to pay it off in 20 years. By how much will your monthly payment have to change to accomplish this objective?
You just turned 30 and decide that you would like to save up enough money so as to be able to withdraw $75,000 per year for 20 years when you retire at age 65, with the first withdrawal starting on
What is a bond? What determines the price of this financial asset?
What is the primary difference between an annual bond and a semiannual bond? What changes do you need to make in finding the price of a semiannual bond versus an annual bond?
When we talk about the yield of a bond, we usually mean the yield to maturity of the bond. Why?
Why are some bonds sold with a premium, some at par value, and some at a discount?
Price the bonds from the above table with annual couponpayments.
Price the bonds from the above table with semiannual couponpayments.
Price the bonds from the above table with quarterly couponpayments.
Price the bonds from the above table with monthly couponpayments.
What is the yield of the above bonds if interest (coupon) is paidannually?
What is the yield of the above bonds if interest (coupon) is paidsemiannually?
What is the yield of the above bonds if interest (coupon) is paidquarterly?
What is the yield of the above bonds if interest (coupon) is paidmonthly?
How long to maturity for the bonds listed below?
What are the coupon rates for the bonds listedbelow?
Moore Company is about to issue a bond with semi-annual coupon payments, a coupon rate of 8%, and par value of $1,000. The yield-to-maturity for this bond is 10%.a. What is the price of the bond if
Les Company is about to issue a bond with semiannual coupon payments, a coupon rate of 10%, and par value of $1,000. The yield-to-maturity for this bond is 8%.a. What is the price of the bond if the
Addison Company will issue a zero coupon bond this coming month. The projected yield for the bond is 7%. If the par value of the bond is $1,000, what is the price of the bond using a semiannual
Wesley Company will issue a zero-coupon bond this coming month. The projected yield for the bond is 5%. If the par value of the bond is $1,000, what is the price of the bond using a semiannual
What is the annual implied interest of a five-year zero-coupon bond (using the semiannual pricing convention) with a current yield of 12% and a par value of $1,000.00?
Corso Books has just sold a callable bond. The bond is a thirty year semi-annual bond with a coupon rate of 6%. Investors, however, can call the bond starting at the end of ten years. If the
McCarty Manufacturing Company makes baseball equipment. The company decides to issue a callable bond that it expects to sell for $840 per bond. If the bond is a twenty-year semiannual bond with a 6%
Your broker faxed you the following information on two semiannual coupon bonds that you are considering as a potential investment. Unfortunately, your fax machine is blurring some of the items and
What is the price in dollars of the February 2000 Treasury note if its par value is $100,000? Verify the current yield of thisnote.
What is the yield to maturity of the August 2005 Treasury bond? Compare the yield to maturity and the current yield. How do you explain thisrelationship?
What is the price of the August 2003 Treasury bond (assume a $100,000 par value) with the yield to maturity from the table? Verify the current yield. Why is the current yield higher than the yield
What is the yield to maturity of the February 1995 Treasury bond with the yield from the table? Verify the current yield. Why is the current yield higher than theyield-to-maturity?
What is the price for the March 30 Treasurybill?
What is the price for the April 30 Treasurybill?
What is the price for the June 30 Treasurybill?
Determine the bank discount rate of the August 30 Treasury bill if it is currently selling for $9,841.625. What is the bond equivalentyield?
What are the bond equivalent yields of the March 30, April 30, and June 30T-Bills?
For all questions, assume par value is $1,000 and semiannual bond interest payment.1. A company in a line of business similar to Bay Path’s recently issued at par noncallable bonds with a coupon
Last year, The Harvest Time Corporation sold $40,000,000 worth of 7.5% coupon, 15-year maturity, $1000 par value, AA-rated; non-callable bonds to finance its business expansion. Currently, investors
Joe Carter is looking to invest in a four-year bond that pays semi-annual coupons at a coupon rate of 5.6 percent and has a par value of $1,000. If these bonds have a market price of $$1035, what
Krypton Inc. wants to raise $3 million by issuing 10-year zero coupon bonds with a face value of $1,000. Their investment banker informs them that investors would use a 9.25% percent discount rate
Let’s say that you buy 100 of the 7411 bonds that were issued by Krypton Inc. as described in Problem 3 above for $404.85. At the end of the year, how much money will the bond be worth, and how
Calculate the price, and BEY of a treasury bill which matures in 181 days, has a face value of $10,000, and is currently being quoted at a bank discount yield of 2.32%.
What are three key features of common stock?
What are the differences between authorized, issued, and outstanding shares?
Anderson Motors, Inc. has just set the company dividend policy at $0.50 per year. The company plans on being in business forever. What is the price of this stock ifa. An investor wants a 5% return?b.
Diettreich Electronics wants its shareholders to earn a 15% return on their investment in the company. At what price would the stock need to be priced today if Diettreich Electronics had aa. $0.25
Singing Fish Fine Foods has a current annual cash dividend policy of $2.25. The price of the stock is set to yield a 12% return. What is the price of this stock if the dividend will be paida. For 10
Pfender Guitars has a current annual cash dividend policy of $4.00. The price of the stock is set to yield an 8% return. What is the price of this stock if the dividend will be paida. for 10 years
King Waterbeds has an annual cash dividend policy that raises the dividend each year by 4%. Last year’s dividend was $0.40 per share. What is the price of this stock if a. an investor wants a 5%
Seitz Glassware is trying to determine its growth rate for its an annual cash dividend. Last year’s dividend was $0.25 per share. The stock’s target return rate is 10%. What is the stock’s
Miles Hardware has an annual cash dividend policy that raises the dividend each year by 3%. Last year’s dividend was $1.00 per share. Investors want a 15% return on this stock. What is the
Sia Dance Studios has an annual cash dividend policy that raises the dividend each year by 2%. Last year’s dividend was $3.00 per share. The company will be in business for forty years with no
Fey Fashions expects the following dividend pattern over the next seven years:Then the company will have a constant dividend of $2.00 forever. What is the price of this stock today if an investor
Staton-Smith Software is a new up-start company and will not pay dividends for the first five years of operation. It will then institute an annual cash dividend policy of $2.50 with a constant growth
Fenway Athletic Club plans to offer its members preferred stock with a par value of $100 and a 6% annual dividend rate. If a member wants the following returns, what price should he or she willing
Yankee Athletic Club has preferred stock with a par value of $50 and an annual 6% cumulative dividend. Given the following market prices for the preferred stock, what is each investor seeking for
Villalpondo Winery wants to raise $10 million from the sale of preferred stock. If the winery wants to sell 1 million shares of preferred stock, what annual dividend will they have to promise if
Find the annual growth rate of the dividends for each of the firms listed in the tablebelow.
Using Yahoo! Finance (finance.yahoo.com/) and ticker symbol PEP, find PepsiCo’s historical dividend payment and current price. Historical dividends are available in the historical price section.
Using Yahoo! Finance (finance.yahoo.com/) and ticker symbol HPQ, find Hewlett-Packard’s recent dividend payments and current price. Historical dividends are available in the historical price
Using Yahoo! Finance, update the dividends for Coca-Cola for the last ten years. Find both the arithmetic growth rate and the geometric growth rate of the dividends.
Using Yahoo! Finance, update the dividends for Johnson & Johnson for the last ten years. Find both the arithmetic growth rate and the geometric growth rate of the dividends.
Using Yahoo! Finance, update the dividends of Wal-Mart for the last ten years. Find the arithmetic growth rate and the geometric growth rate of the dividends.
Using Yahoo! Finance, update the dividends of Intel for only the last six years. Find the arithmetic growth rate and the geometric growth rate of the dividends.
Using the answer to Problem 17 on the Coca-Cola growth rates and the current trading price, determine the current required rate of return for the company.
Using the answer to Problem 18 on the Johnson & Johnson growth rates and the current trading price, determine the current required rate of return for the company.
Using the answer to Problem 19 on the Wal-Mart growth rates and the current trading price, determine the current required rate of return for the company.
Using the answer to Problem 20 on Intel growth rates and the current trading price, determine the current required rate of return for the company.
Given the growth rates for Coca-Cola, Johnson & Johnson, Wal-Mart, and Intel from the dividend history in Problems 21 through 24, what price would you predict for each stock if they all had a
Peterson Packaging Incorporated does not currently pay dividends. The company will start with a $0.50 dividend at the end of year three and grow it by 10% for each of the next six years until it
1. Why do you think Lawrence specified to invest money in stocks rather than bonds or certificates of deposit?2. How will the trust obtain the cash to make the grants if the dividends do not amount
The Crescent Corporation just paid a dividend of $2.00 per share and is expected to continue paying the same amount each year for the next 4 years. If you have a required rate of return of 13%, plan
Using the historical dividend information provided below to calculate the constant growth rate, and a required rate of return of 18%, estimate the price of Nigel Enterprisesâ€™ commonstock.
The Wonder Products Company is expanding fast and therefore will not pay any dividends for the next 3 years. After that, starting at the end of year 4, it will pay a dividend of $0.75 per share to
The WedLink Corporation just paid a dividend of $1.25 to its common shareholders, and announced that it expects the dividends to grow by 25% per year for the next 3 years, then drop to a growth rate
(a) The ANZAC Corporation plans to be in business for 30 years. They announce that they will pay a dividend of $3.00 per share at the end of one year, and continue increasing the annual dividend by
What are the profits on the followinginvestments?
What are the profits on the followinginvestments?
What are the returns on the followinginvestments?
What are the returns on the followinginvestments?
Baker Baseball Cards Inc. originally purchased the rookie card of Hammerin’ Hank Aaron for $35.00. After holding the card for five years, Baker auctioned off the card for $180.00. What are the
Bohenick Classic Automobiles restores and rebuilds old classic cars. The company purchased and restored a classic 1957 Thunderbird convertible six years ago for $8,500. Today at auction, the car sold
Looking back at Problems 5 and 6, which investment had the higher holding period return? Which had the higher annual return?
WG Investors are looking at three different investment opportunities. Investment One is a five-year investment with a cost of $125 and a promised payout of $250 at maturity. Investment Two is a

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