1.Suppose you want to buy a house which is valued at $100,000. You decide to borrow the money from the bank at an interest rate of 12.5 percent and agree to make equal annual end of year payments over the next 5 years to fully repay the loan. Also assume you work as a financial manager at the bank and you want to prepare loan amortization schedule yourself.

So, prepare the loan amortization schedule showing separate columns for the Year, beginning-of-year principal, loan payment, interest amount, principal amount and end-of-year principal.

2.Simmers Inc., on January 1, 2019, on a meeting held by the company's boardof directors with the Finance department decides to raise long term funds for investment through issuing bonds. The financial managers decides to issue a 12% coupon interest rate, 10-year bond with a $7500 par value that pays interest annually. If the yield to maturity on the bond is 9% then find out the price of the bond.

Upon calculation of the price, please also specify what kind of a bond is this?

3.Briefly explain what you understand by a portfolio of assets and an efficient portfolio. Also explain in short 'diversification'. Is there any relationship between diversification and efficient portfolio? Please briefly explain.

4.Briefly explain what you understand by the Internal Rate of Return? How is it useful in making capital budgeting decisions? Please explain briefly.

5.Suppose you are a financial manager of a company and you want to determine the price of the stock. The most recent annual (2019) dividend payment of the company, was $8 per share. You expect that these dividends will grow at a 5% annual rate over the next fiveyears. At the end of the fifth year (i.e. the end of 2024) the dividend growth rate is expected to increase to 6.5% for the foreseeable future. If the firm's required return, r_s, is 10%, then find out the price of the stock today (i.e. at the end of 2019).

6.Hangers Corp. is in the process of choosing the better of two equal-risk, mutually exclusive capital expenditure projectsX and Y. The relevant cash flows for each project are shown in the following table. The firm's weighted average cost of capital is 11%.

Year

Expected Net Cash Flows

Year project X project Y

0 -$625000 -$600000

1 156250 250000

2 156250 100000

3 156250 200000

4 156250 100000

a) Calculate the Payback Period for both the projects.

b.Calculate the NPVand the Profitability Index for each of the projects. Please explain which project should be selected and why