I need help! can you help.

1 Why is it necessary to know about time value of money concepts? Why can't you just make judgments about future cash flows based purely on the size of the cash flows? 2. (calculating future value) You buy an 7 year, 8% CD for $1,000. Interest is compounded annually. How much is it worth at maturity? 3. (calculating present value) What's the present value of $10,000 to be received in 5 years? (Your required rate of return is 8% a year.) 4. (calculating the rate of return) A friend promises to pay you $600 three years from now if you loan her $500 today. What interest rate is your friend offering you? 5. (calculating the future value of an annuity) If you invest $100 a year for 20 years at 5% annual interest, how much will you have at the end of the 20th year? 6. (calculating the present value of an annuity) How much would you be willing to pay today for an investment that pays $700 a year at the end of the next 5 years? (Your required rate of return is 8% a year.) 7. (Rate of return of an annuity) You would like to have $1,000,000 40 years from now, but the most you can afford to invest each year is $1,200. What annual rate of return will you have to earn to reach your goal? 8. (Monthly compounding) If you bought a $1,000 face value CD that matured in nine months, and which was advertised as paying 6% annual interest, compounded monthly, how much would you receive when you cashed in your CD at maturity? 9. (Annualizing a monthly rate) Your credit card statement says that you will be charged 1.02% interest a month on unpaid balances. What is the Effective Annual Rate (EAR) being charged? 10. (Monthly loan payment) Best Buy has a flat-screen HDTV on sale for $1,699. If you could borrow that amount from Carl's Credit Union at 6% for 1 year, what would be your monthly loan payments? 11. (PV of a perpetuity) If your required rate of return was 12% a year, how much would you pay today for $100 a month forever? (that is, the stream of $100 monthly payments goes on forever, continuing to be paid to your heirs after your death) 12. (PV of an uneven cash flow stream) what is the PV of the following project? (Assume r = 8%) Year Cash Flow 1 $1,000 2 $2,000 3 $3,000 4 $4,000 13. (FV of an uneven cash flow stream) what is the FV at the end of year 4 of the following project? (Assume r = 8%) Year Cash Flow 1 $1,000 2 $2,000 3 $3,000 4 $4,000 14. You have two stocks in your portfolio. $30,000 is invested in a stock with a beta of 0.6 and $50,000 is invested in a stock with a beta of 1.4. What is the beta of your portfolio? 15. If the risk-free rate is 1% and the expected rate of return on the stock market is 7%, what is the required rate of return on a stock with a beta of 1.3 according to the CAPM? Homework Assignment for Week 3: 2. What are \"Zero-coupon\" bonds? 3. Suppose you see the following bond price quote in the newspaper: McDonalds 5.7% 2039........122.733 What can you tell about this bond from reading the price quote? 4. (calculating the present value of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a yield to maturity (YTM) of 4.201%, what should be its price in the bond market (ie, PV)? 5. (calculating the current yield of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a market price of $1,223.92, what is its current yield? 6. (calculating the YTM of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a market price of $1,223.92, what is its yield to maturity (YTM)? 7. (calculating the YTC of a bond) Assume a callable corporate bond with a face value of $1,000, a coupon interest rate of 5.7%, a market price of $1,223.92, and a call premium of 6%. Assume also that the bond has 24 years to go until it matures, but it is callable after 14 years. What is the bond's yield to call (YTC)? 8. (calculating the present value of a bond with semi-annual coupon interest payments) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7%, paid semiannually, and has a yield to maturity (YTM) of 4.2%, what should be its price in the bond market (ie, PV)? 9. (calculating the YTM of a bond with semiannual interest payments) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7%, paid semiannually, and has a market price of $1,223.92, what is its yield to maturity (YTM)? 10. Define the following terms as they apply to interest rates: a. The real risk-free rate (r*) b. The nominal risk-free rate (Rrf) c. The inflation premium (IP) d. The default risk premium (DRP) e. The liquidity premium (LP) f. The maturity risk premium (MRP) 11. Assume the real risk-free rate is 1%. Assume also that inflation is expected to be 1% in the coming year (year 1), 2% in the next year after that (year 2), and 3% in the year after that (year 3). Assume also that the default risk premium, the liquidity premium, and the maturity risk premium are 0%. Given these conditions, what would be the yield on threeyear treasury bonds today? 12. Suppose the First Bank of St Louis was offering the following rates on certificates of deposit (CDs) this week: Maturity Rate 3 month 6 month 1 year 2 year 3 year 5 year 10 year 20 year 1.50% 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% 3.15% a. Plot the above data on a yield curve. Label the graph and the axes appropriately. b. Comment on the implications of this curve to you, as a potential investor in CDs. Homework Assignment for Week 3: 2. What are \"Zero-coupon\" bonds? 3. Suppose you see the following bond price quote in the newspaper: McDonalds 5.7% 2039........122.733 What can you tell about this bond from reading the price quote? 4. (calculating the present value of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a yield to maturity (YTM) of 4.201%, what should be its price in the bond market (ie, PV)? 5. (calculating the current yield of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a market price of $1,223.92, what is its current yield? 6. (calculating the YTM of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a market price of $1,223.92, what is its yield to maturity (YTM)? 7. (calculating the YTC of a bond) Assume a callable corporate bond with a face value of $1,000, a coupon interest rate of 5.7%, a market price of $1,223.92, and a call premium of 6%. Assume also that the bond has 24 years to go until it matures, but it is callable after 14 years. What is the bond's yield to call (YTC)? 8. (calculating the present value of a bond with semi-annual coupon interest payments) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7%, paid semiannually, and has a yield to maturity (YTM) of 4.2%, what should be its price in the bond market (ie, PV)? 9. (calculating the YTM of a bond with semiannual interest payments) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7%, paid semiannually, and has a market price of $1,223.92, what is its yield to maturity (YTM)? 10. Define the following terms as they apply to interest rates: a. The real risk-free rate (r*) b. The nominal risk-free rate (Rrf) c. The inflation premium (IP) d. The default risk premium (DRP) e. The liquidity premium (LP) f. The maturity risk premium (MRP) 11. Assume the real risk-free rate is 1%. Assume also that inflation is expected to be 1% in the coming year (year 1), 2% in the next year after that (year 2), and 3% in the year after that (year 3). Assume also that the default risk premium, the liquidity premium, and the maturity risk premium are 0%. Given these conditions, what would be the yield on threeyear treasury bonds today? 12. Suppose the First Bank of St Louis was offering the following rates on certificates of deposit (CDs) this week: Maturity Rate 3 month 6 month 1 year 2 year 3 year 5 year 10 year 20 year 1.50% 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% 3.15% a. Plot the above data on a yield curve. Label the graph and the axes appropriately. b. Comment on the implications of this curve to you, as a potential investor in CDs