Finance Assignment

Finance assignment
Name
Course
Instructor
Date
7.19-expected rate of return and current yield
7.197.24Selling price1371700Par value1,0001000Interest rate9.15%6Maturity year218Payments per year12
Bond price= Cash flow* 1-(1/1+ interest earned) n/ interest rate+ [Maturity value* 1(1+ interest rate) n],
To get the YTM-: $1371+ $91.50/ (1 + i) + $100/(1 + i)2++.(+ $100/(1+ i)20+ $1000/(1 +i)21
Alternatively: Yield to maturity YTM=Annual interest rate+ (F-P)/n/ (F+P)/ 2
= 9.15% *$1, 000 + (1000-1371/ 21)/ (1000+1371)/ 2= 6%
Current Yield= Annual interest/ bond price= 91.5/1371= 0.06674= 6.67%.
7.24- Yield to maturity
Yield to maturity YTM=Annual interest rate+ (F-P)/n/ (F+P)/ 2
= 3% * 1,000+[(1000-700)/ 16] / (1,000+7000)/ 2= 5.96 %
7.5. Yield to maturity
Par value is $ 1,000
Annual coupon rate 6%
YTM 8%
Selling price
YTM=Annual interest rate+ (F-P)/n/ (F+P)/ 2
Hence the price paid for the bond is 0.08= 60+ [1000- P]/ 10/ (1,000+P)/ 2= 8.66%
One-period return on investment ought to be
1000*0.06/ 1.08+1000/ 1.08= $ 981.50
8.7- preferred stock valuation
Pp= Dp/r
Pp = the preferred stock price,
Dp = the preferred dividend, and
r = the required return on the stock/ discount rate
Pp= $ 2.31/12%= $ 19.25.
8.11. Common stock valuation
P0= D0 (1+g)/ r-g= D1/ r-g
32.5=1/ (0.12-g), and g= 0.08923
Growth rate = 8.9%
8.30-Common stock stockholder expected return
P0= D0 (1+g)/ r-g= D1/ r-g
32.84=2.94/(r-9.5%) = 0.1845
Required rate of return= 18.45%
10.5- Payback period, NPV, PI and IRR calculation
Cash outlay- $80, 000
Free cash flows- $ 20,000
Required rate of return- 10 %
Payback period
Payback period= initial outlay/ annual cash flow= 80,000/ 20,000= 4 years
NPV
Since the regular cash are the same the cash inflow = $ 20,000* present value annuity factor= 20,000*4.3553= $ 87,106 and the NPV= $87, 106- 80,000= $ 7,106
PI
PI= Cash inflows/ initial outlay= 87,106/ 80,000= 1.089
IRR
At the IRR, cash outflows= cash inflows
IRR= 13%
10.8. NPV with varying required rates of return
Cash outlay- $5,000, 000
Free cash flows- $ 1,000,000 for 8 years
Required rate of return- 9,11,13 and 15%
NPV at 9%
NPV= Cash inflows - Cash outflows- ($ 1,000, 000* PVAF, 9%) cash inflows = 5.5348* 1,000
5534800- $ 5,000,000=...