$12,088

Question 3
Bob Katz is purchasing a new Honda Pilot for $32,000.
He is financing $28,000 with
a six year, 4% loan with annual payments. Construct an amortization schedule, in the
2nd year row, corresponding to his second annual payment, what is the dollar
amount of the principal reduction?

Question 4
Sally Mander is planning on retiring in 20 years and she believes that she will live for
25 years after she retires.
Sally would like to set up a retirement plan that will pay
her $90,000 annually for 25 years.
Assuming 9% interest over the next 20 years that
she is working, and 6% interest after she retires, how much will Sally need to save
annually over the next 20 years?

Question 5
Regarding compound interest, daily compounding of your savings account will
always be worth more compared to annual compounding.

QUIZ-Bond and Stock Valuation
Question 1
Builtrite bonds have the following: 4 1/4% coupon, 14 years until maturity, $1000
par and are currently selling at $1032.
If you purchase this bond, what would be
your AYTM?

Question 2
Builtrite bonds have the following: 6 ½% coupon, 12 years until maturity, $1000 par
and are currently selling at $1064.
If you want to make an 6% return, what would
you be willing to pay for the bond?

Question 3
Builtrite sold 10 year, $1000 par value, zero coupon bonds yielding 4%. What did
they sell for?

Question 4
Builtrite preferred stock has a 5 1/2% coupon based on a par value of $50 a share.
Currently, investors require a 5% return.
What is the value of Builtrite’s preferred
stock?

Question 5
Given the following information, calculate the current value of the stock: current
dividend is $1.50, projected super normal growth for three years at 20%, growth
rate after year 3 should remain constant at 10% and you want to earn a 16% annual
return. What should you pay for the stock?

QUIZ-Risk and Return
Question 1
Questions 1-2 go with the following information:
Terry Dactel is considering the purchase of an asset having the following cash flows:
What is the asset’s expected return:

Question 2
What is the asset’s standard deviation?

Question 3
Polly Khan is trying to calculate the risk-free rate given the following information:
The current
market rate of interest is 8%.
Investor’s have been requiring a 10%
annual return on Builtrite’s stock which has a beta of 1.5.
What is the current risk-
free rate?

Question 4
Builtrite has calculated the average cash flow to be $12,000 with a standard
deviation of $4,500.
What is the probability of a cash flow being greater than
$9750?
(Assume a normal distribution.)

Question 5
The purpose of the CAPM is to try and equate a stock's required return to its
perceived level of risk.

QUIZ-Cost of Capital
Question 1
Builtrite Auto has preferred stock shares outstanding that pay an annual dividend of
$8 and are currently selling for $86 a share.
What is the after-tax cost of preferred
stock if the flotation cost for new shares is 5% and Builtrite is in the 34% marginal
tax bracket?

Question 2
Builtrite Furniture is considering sells bonds for a plant expansion. Currently,
Builtrite believes that it could sell 15 year maturity, $1000 par value, 5 3/4% coupon
bonds after flotation costs for $985.