Hello Raj:

Thank you for helping me with my Finance problem last week. I got an A on that assignment.

This week I have completed my assignment already. Hope that you can just review it to make sure that my answers are correct.

Spreading the Financial Statements & Calculating Ratios Lily Ta FIN / 370 February 28, 2016 John Rapa 5-1 FutureValue Compute the future value in year 9 of a $2,000 deposit in year 1 and another $1,500 deposit at the end of year 3 using a 10 percent Future Value= $2,000 * (1 + 0.10)^7 + $1,500 * (1+0.10)^5 =$3,897.42 +2,415.77 = $ 6,313.19 5-3 Future Value of an Annuity What is the future value of a $900 annuity payment over five years if interest rates are 8 percent? (LG5-2) FVA5= $900 * [(1+0.08)^5 -1]/0.08= $900 * 5.8666= $5279.94 5-5 Present Value Compute the present value of a $2,000 deposit in year 1 and another $1,500 deposit at the end of year 3 if interest rates are 10 per PV= $2,000/ (1 + 0.10)^1+$1,500/ (1+0.10)^3= $1818.18 + $1.126.97 = $2,945.15 5-7 Present Value of an Annuity What's the present value of a $900 annuity payment over five years if interest rates are 8 percent? (LG5-4) PVA5= $900 * {[1-1/(1+0.08)^5]/0.08}= $900 * 3.9927 = $3,593.43 5-12 Present Value of an Annuity Due If the present value of an ordinary, 6-year annuity is $8,500 and interest rates are 9.5 percent, what's the prese PVA6 Due= $8,500 * (1+0.095)= $9,307.50 5-15 Effective Annual Rate A loan is offered with monthly payments and a 10 percent APR. What's the loan's effective annual rate (EAR)? (LG5-7) EAR= (1+0.10/12)^12 - 1= 0.104713= 10.47% 5-39 Loan Payments You wish to buy a $25,000 car. The dealer offers you a 4-year loan with a 9 percent APR. What are the monthly payments? PMT48= $25,000 * {(0.09/12)/[1-1/(1+0.09/12)^48}= $25,000 * 0.0248851 = $622.13 References Cornett, M., Adair, T., Nofsinger, J. (2016). M: Finance (3rd ed.). Irwin Mcgraw-Hill. 5-15 Effective Annual Rate A loan is offered with monthly payments and a 10 percent APR. What's the loan's effective annual rate (EAR)? (LG5-7) EAR= (1+ 0.10/12)^12 - 1 = 0.1047 = 10.47% 0 percent interest rate. (LG5-1) 19 are 10 percent. (LG5-3) the present value of the same annuity due? (LG5- LG5-7) ents? 7-21 Compute Bond Price Compute the price of a 3.8 percent coupon bond with 15 years left to maturity and a market interest rate of 6.8 percent. (Assume interest payments are semiannual.) Is this a discount or premium bond? (LG7-4) Maturity 15 Coupon Rate 3.80% Yield to Maturity 6.80% Number of coupons 2 Per Value $ 1,000.00 Bond Value $720.63 The answer is lower than the 940, so it is not a premium bond. 7-27 Yield to Maturity A 5.65 percent coupon bond with 18 years left to maturity is offered for sale at $1,035.25. What yield to maturity is the bond offering? (Assume interest payments are semiannual.) (LG7-6) Maturity 18 Coupon Rate 5.65% Yield to Maturity 0 Number of coupons 2 Per Value $ 1,000.00 Bond Value Bond Price Computed Price Current Yield $ $ 1,035.25 323.52 $2,017.00 17.46% 8-19 Value a Constant Growth Stock Financial analysts forecast Safeco Corp.'s (SAF) growth rate for the future to be 8 percent. Safeco's recent dividend was $0.88. What is the value of Safeco stock when the required return is 12 percent? (LG8-5) growth = D0 = R= P0 = 8% 0.88 12% 23.76 8-21 Expected Return Ecolap Inc. (ECL) recently paid a $0.46 dividend. The dividend is expected to grow at a 14.5 percent rate. At a current stock price of $44.12, what is the return shareholders are expecting? (LG8-5) g= d0 = P0 = 14.50% 0.46 44.12 Return = 15.69% 9-33 Risk, Return, and Their Relationship Consider the following annual returns of Estee Lauder and Lowe's Companies: Compute each stock's average return, standard deviation, and coefficient of variation. Which stock appears better? Why? (LG9-3, LG9-4) Year Average return Standard deviation Coefficienct Estee Lauder's stock is better. Estee Lauder Lowe's 1 23.40% -6% 2 -26% 16.10% 3 17.60% 4.20% 4 49.90% 48% 5 -16.80% -19% 9.62% 31.00% 8.66% 25.51% 3.22 2.95 7-21 Compute Bond Price Compute the price of a 3.8 percent coupon bond with 15 years left to maturity and a market interest rate of 6.8 percent. (Assume interest payments are semiannual.) Is this a discount or premium bond? (LG7-4) Maturity 15 Coupon Rate 3.80% Yield to Maturity 6.80% Number of coupons 2 Per Value $ 1,000.00 Bond Value $720.63 The answer is lower than the 940, so it is not a premium bond. 7-27 Yield to Maturity A 5.65 percent coupon bond with 18 years left to maturity is offered for sale at $1,035.25. What yield to maturity is the bond offering? (Assume interest payments are semiannual.) (LG7-6) Maturity 18 Coupon Rate 5.65% Yield to Maturity 0 Number of coupons 2 Per Value $ 1,000.00 Bond Value Bond Price Computed Price Current Yield $ $ 1,035.25 323.52 $2,017.00 17.46% 8-19 Value a Constant Growth Stock Financial analysts forecast Safeco Corp.'s (SAF) growth rate for the future to be 8 percent. Safeco's recent dividend was $0.88. What is the value of Safeco stock when the required return is 12 percent? (LG8-5) growth = D0 = R= P0 = 8% 0.88 12% 23.76 8-21 Expected Return Ecolap Inc. (ECL) recently paid a $0.46 dividend. The dividend is expected to grow at a 14.5 percent rate. At a current stock price of $44.12, what is the return shareholders are expecting? (LG8-5) g= d0 = P0 = 14.50% 0.46 44.12 Return = 15.69% 9-33 Risk, Return, and Their Relationship Consider the following annual returns of Estee Lauder and Lowe's Companies: Compute each stock's average return, standard deviation, and coefficient of variation. Which stock appears better? Why? (LG9-3, LG9-4) Year Average return Standard deviation Coefficienct Estee Lauder's stock is better. Estee Lauder Lowe's 1 23.40% -6% 2 -26% 16.10% 3 17.60% 4.20% 4 49.90% 48% 5 -16.80% -19% 9.62% 31.00% 8.66% 25.51% 3.22 2.95