Finance[1]

Finance[1] - 1 If you put \$1,000 in a savings account with...

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1. If you put \$1,000 in a savings account with a 5% nominal rate of interest compounded quarterly, what will the investment be worth in 6 years (round to the nearest dollar)? a. \$1,003 b. \$,1,132 c. \$ 1,228 d. \$ 1,347 Use the following formula: 1000*(1+(5/4)%) 24 = 1,347.35 You can also use the following formula in Excel: =FV((5/4)%,24,0,1000) 2. As market rates of interest rise, investors move their funds into bonds, thus increasing their price and lowering their yield. a . True b. False Bond price and yield are inversely related. Thus, higher the price, lower the yield. 3. You are considering an investment in First Allegiance Corp. The firm has a beta of 1.62. Currently, U.S. Treasury bills are yielding 6.75% and the expected return for the S & P 500 is 18.2%. What rate of return should you expect for your investment in First Allegiance? a. 10.9 b. 25.3 c. 16.8 d. 29.5 Risk Free Rate = 6.75% Risk Premium = 18.2 – 6.75% = 11.45% Beta = 1.62 Cost of Equity = 6.75 + 1.62*11.45 = 25.29% 4. Podunk Communications bonds mature in 6 1/2 years with a par value of \$1,000. They pay a coupon

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This note was uploaded on 02/20/2011 for the course BUSINESS mgt102 taught by Professor N/a during the Spring '11 term at Troy.

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Finance[1] - 1 If you put \$1,000 in a savings account with...

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