FIN504 week 4 problems.xlsx - Asset A Total Value B C Total...

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AssetEnd of YearAmountRateValue of AssetA1500018%$4,237.2925000$7,834.4135000$10,883.19Total Value$22,954.89B1-infinity30015%$260.87C116%$0.002$0.003$0.004$0.00535000$16,663.96Total Value$16,663.96D1150012%$1,339.2921500$1,195.7931500$1,067.6741500$953.2851500$851.1468500$4,306.36Total Value$9,713.53E1200014%$1,754.3923000$2,308.4035000$3,374.8647000$4,144.5654000$2,077.4761000$455.59Total Value$14,115.27
VALUATION FOR ANNUAL BONDPar Value100010001000Coupon Int. Rate11%11%11%Annual Int. Payment110110110Required rate of return8%11%15%No. of years to maturity121212Bond value($1,226.08)($1,000.00)($783.18)8%11%15%B.C.D.The coupon rate remains the same regardless of changes in the marketinterest rates. As market interest rates rise, the par value of the bonddecreases. As market interest rates fall, the par value of the bond increases.This only matters if the investor plans to sell the bond on the secondarymarket. If the investor keeps the bond until maturity, he will be paid theoriginal par value.The two possible reasons for a change in required return are changes ineconomic conditions causing a shift in the cost of funds, or the firms risk haschanged.7%8%9%10%11%12%13%14%15%16%($1,400.00)($1,200.00)($1,000.00)($800.00)($600.00)($400.00)($200.00)$0.00($1,226.08)($1,000.00)($783.18)Bond ValuationRequired Return %Market Value of Bond
VALUATION FOR ANNUAL BONDPar Value1000100010001000100010001000Coupon Int. Rate12%12%12%12%12%12%12%Annual interest payment120120120120120120120

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