MBA 737 Hinson Assignment 2-1

# MBA 737 Hinson Assignment 2-1 - Value of the investment =...

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MBA 737 Weekly Graded Problems Assignment 2-1 Jamie Hinson 28-Sep-10 # 7 Imprudential, Inc., has an unfunded pension liability of \$900 million that must be paid i Present value = (\$211.87) In Millions # 9 Price =Annual Payments/Discount rate 2,500 (see formula for calculation) # 11 at 7% - Present value = CF/ (1+ i) + CF/ (1 + i) 2 + CF/ (1 + i) 3 + CF/ (1 + i) 4 = 850/1.08 + 740/1.082 + 1910/1.083 + 1310/1.084 = 787.04 + 634.43 + 1516.22 + 962.89 = \$3,900.58 at 12 % - years. To assess the value of the firm’s stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 7.5 percent, what is the pres

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Present value = CF/ (1+ i) + CF/ (1 + i) 2 + CF/ (1 + i) 3 + CF/ (1 + i) 4 = 850/1.12 + 740/1.122 + 1910/1.123 + 1310/1.124 = 758.93 + 589.92 + 1359.5 + 832.53 = \$3,540.88 at 17% - Present value = CF/ (1+ i) + CF/ (1 + i) 2 + CF/ (1 + i) 3 + CF/ (1 + i) 4 = 850/1.17 + 740/1.172 + 1910/1.173 + 1310/1.174 = 726.50 + 540.58 + 1192.55 + 699.08 = \$3,158.71 # 13 A = \$4,500, N = 15 years and I = 8%

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Unformatted text preview: Value of the investment = A*(PVIFA @ i%, N) = 4,500*([email protected]%, 15) = 4,500*8.5595 = \$38,517.75 N = 40 years Value of the investment = A*(PVIFA @ i%, N) = 4,500*([email protected]%, 40) = 4,500*11.9246 = \$53,660.70 N = 75 years Value of the investment = A*(PVIFA @ i%, N) = 4,500*([email protected]%, 75) = 4,500*12.4611 = \$53,660.70 N = Forever Value of investment = A/i = 4,500/0.08 = \$56,250 # 15 Effective rate is calculated by: EAR = (1 + APR/m) m - 1 When APR = 12% and quarterly compounded, EAR = (1 + 0.12/4) 4 – 1 EAR = (1.03)4 – 1 = 1.1255 – 1 = 0.1255 or 12.55% When APR = 9% and monthly compounded, EAR = (1 + 0.09/12) 12 – 1 EAR = (1.0075)12 – 1 = 1.0938 – 1 = 0.0938 or 9.38% When APR = 13% and daily compounded, EAR = (1 + 0.13/365)365 – 1 EAR = (1.000356)365 – 1 = 1.1388 – 1 = 0.1388 or 13.88% When APR = 11% and infinitely compounded, EAR = e0.11 – 1 EAR = 1.1163 – 1 = = 0.1163 or 11.63% in 20 sent value of this liability?...
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