the jones family was to purchase a home in 5 years. they expect the cost to be $250,000. they have the following sources of money:

- $100,000 in cash in a bank that pays 4% compounded monthly.

- an aunt who is willing to give you $100,000 a quarter for the 5 years starting today. the bank will pay you 3% on this money as well.

- the ability to take out a mortgage at 5% interest rate and make payments $500 a month for 10 years

- to make up any shortfall they can make semi annual payments into an index fund that will yield 7% over the next 5 years.

How much must they put away each quarter to realize their dream?

CORPORATE FINANCE TAKE-HOME EXAMINATION 2 Fall 2016 You must show all the work required to answer the question. Just giving the final answer will yield very little credit. 1. The probability distribution of the return on an investment in Omega Inc.'s common stock is as follows: Return -6% 0% 6% 12% 18% Probability .05 .20 .50 .20 .05 Graph the probability distribution. Calculate the expected return, and the standard deviation of the return. (Notice that to make the calculations manageable, we've made the unrealistic assumption that the probability distribution of returns is discrete.) 2. The Jones family wants to purchase a vacation home in 5 years. They expect the cost to $250,000.00. They have the following sources of money: $100,000.00 in cash in a bank account that pays 4% compounded monthly A kind and rich aunt who is willing to give you $1000.00 a quarter for the 5 years starting today. The bank will pay you 3% on this money also. The ability to take out a mortgage at 5% interest rate and make payments of $500.00 a month for 10 years. To make up any shortfall they can make semi-annual payments into and index fund that will yield 7% over the next 5 years. How much must they put away each quarter to realize their dream? 3. Use to following returns to calculate the correlation between returns of the Stock Y and NYSE. Also calculate the beta for Stock Y and graph the characteristic line. Once you have calculated the beta for Stock Y use the CAPM to determine the expected return on HP stock. Assume a risk free rate of 2% and a long run market return of 10%. Stock Y 3% 16.2 9.1 -6 -12.3 33.1 6.1 7.2 14.8 22.1 20 NYSE 4% 14.3 19 -14.7 -26.5 37.2 23.8 -7.2 6.6 20.5 30.6