Extra Ex For Mid Term

1.
What is the net present value of the following cash flow at a

discount rate of 10%?
Year 0 1 2 3 4 5
CF ($120,000) $150,000 $30,000 $75,000 $10,000 ($175,000)
What is the future value of the following cash flow at the end of five
years with the discount rate of 10%?
Year 0 1 2 3 4 5
CF $350,000 $220,000 $80,000 $50,000 $25,000
2. A equipment costs $650,000. You reckon that it will produce an inflow after
operating costs of $120,000 a year for 8 years. If the opportunity cost of capital is
12%, what is the net present value of equipment? What will the factory be worth
at the end of five years?
3. You decide to purchase a new home and need a $ 3,500,000 mortgage. You take
out a loan from the bank that has an interest rate of 9.5%. What is the yearly
payment to the bank to pay off the loan in twenty five years?
4. Roy Gross is considering an investment that pays 7.6 percent. How much will he
have to invest today so that the investment will be worth $25,000 in six years?
5. The state lottery advertises a jackpot prize of $295 million, paid in 15

installments over 15 years of $19.67 million per year, at the end of each year. If
interest rates are 7% what is the true value of the lottery prize?
6. Company wants to purchase equipment for $520,000. It will produce the
following net cash flows:
Year Net Cash Flows ($)
1 230,000
2 -60,000
3 280,000
4 210,000
Assume that the cost of capital is 10%. What is the net present value?
7. Mr. An is expected to retire in 20 years and he wishes accumulate $700,000 in

his retirement fund by that time. If the interest rate is 12% per year, how much
should Mr. An put into the retirement fund each year in order to achieve this goal?
8. Upon retirement, your goal is to spend 10 years traveling around the world. To
travel in style will require $450,000 per year at the end of each year. If you plan to
retire in 20 years, what are the equal monthly payments necessary to achieve this
goal? The funds in your retirement account will compound at 12% annually
9. Given a monthly rate of 1.5%, what is the Effective Annual Rate (EAR)? What is
the Annual Percentage Rate (APR)?
10. Company is planning to invest 9 billion VNĐ in a project today. The project is
expected to have a life of 4 years. The expected cash flows at the end of each of
the next 4 years are 3,280 million VNĐ ; 3,800 million VNĐ ; 3,800 million VNĐ and
3,900 million VNĐ. The annual interest rate is 12%. Should Xphone invest this
project?
Bonds
1. Rockwell Industries has a three-year bond outstanding that pays a 7.25
percent coupon and is currently priced at $913.88. What is the yield to
maturity of this bond? Assume annual coupon payments.
2. Aa corp. has a 10-year bond issue outstanding that pays a coupon rate of 7.5
percent. The bond is currently priced at $918.76 and has a face value of
$1,000. Interest is paid semiannually. What is the yield to maturity?
3. The investor bought the bonds at $930 last year, the face value is $1,000
with the coupon rate 10%. How much for the rate of return if the bond sells
at
a. $950
b. $980
4. Given a 4-year annual coupon bond with a face value of $1000, coupon
rate of 7.5% and a yield to maturity of 11%.
a. Calculate the Macaulay duration of this bond.
b. If yield to maturity decreases from 11% to 9.2%, calculate the price of
bond after yield to maturity changes.
5. The corp. is considering issuing bonds with bond’s face value is $1,000 and
a 8% per annum coupon. The interest is paid semi-annually and the first
interest payment will be made after six months. The bonds mature in ten
years.
a/ Determine the price for the bonds at issue, the required rate of return is
11% per annum?
b/ Suppose, two years later, you have just received your fourth payment of
$40 and are considering selling the bond in the market, and that the required
rate of return has increased to 13% per annum. If the bonds are being sold
on the market for $1,000. Should you hold or sell the bond?
6. Given a 8.5% coupon bond with a face value of $1000, 4 years to maturity.
a. Calculate the price of bond if yield to maturity changes (1) 6%; (2) 10%
and (3) 8.5%.
b. Give a conclusion about the relation between price of coupon bond and
yield to maturity.
7. A $1,000-face-value bond has a 7.5% coupon rate, its current price is $960,
and its price is expected to increase to $1,050 next year. Calculate the
current yield, the expected rate of capital gain, and the expected rate of
return?
Stock
1. The company has just paid a dividend of $12 per share and has announced that
it will increase the dividend by $3 per share for each of the next five years,
and then never pay another dividend. If you require a return of 12 percent on
the company’s stock, how much will you pay for a share today?
2. Lohn Corporation is expected to pay the following dividends over the next
four years: $10, $7, $6, and $2.75. Afterwards, the company pledges to
maintain a constant 5 percent growth rate in dividends forever. If the required
return on the stock is 13 percent, what is the current share price?
3. Suppose you are thinking of purchasing the stock of Moore Oil, Inc. You
expect it to pay a $2 dividend in one year, and you believe that you can sell
the stock for $14 at that time. If you require a return of 20% on investments of
this risk, what is the maximum you would be willing to pay?
4. A security analyst has forecast the dividends of Hodges Enterprises for the
next three years. His forecast is: D1 = $1.50; D2 = $1.75; D3 = $2.20. He has
also forecast a price in three years of $48.50. The rate of return for similar-risk
common stock is 14%. What is the value of Hodges common stock?
5. Valuing Preferred Stock Ayden, Inc., has an issue of preferred stock
outstanding that pays a $5.90 dividend every year, in perpetuity. If this issue
currently sells for $87 per share, what is the required return?
6. Valuing stock paid a $2.90 dividend last year, in perpetuity. The dividend
growth rate is 12%, the required rate return is 16%.
A. What is current price of stock
B. What is the price of stock in the end of year 4?
7. a. What is the present value of a security that pay you $1,200 next year, $
1,310 the year after, and $ 1,431 the year after that? ( the interest rate is 12%)
b. If the security sold for $3,600, is the yield to maturity greater or less
than 12%? Why?
8. Ann wants to purchase a stock that is selling for $42. The expected
dividend next year is $2.75 and analyst forecast the stock price one year from
today being $47. According to the capital asset pricing model the cost of
equity is 15%. Using the one-period valuation model. What should the stock
be selling for? Should you purchase it?
9. The analyst on CNBC predicts that the stock will be selling for $90 in one
year, div in year 1 is $2.5 and required rate is 12%. Should you buy this stock
if the current price is $95?

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1.

What is the net present value of the following cash flow at a

5. The state lottery advertises a jackpot prize of $295 million, paid in 15

Year Net Cash Flows ($)

7. Mr. An is expected to retire in 20 years and he wishes accumulate $700,000 in

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