Yield to Maturity of Bonds
The yield to maturity is the internal rate of return of the bond. In computing the
yield to maturity find the interest rate that makes the price paid for the bond equal to the
cash flows given by the bond. So, if the bond can be
Weighted Average Cost of Capital, Net Present Value and Internal Rate of Return
Weighted Average Cost of Capital is the average cost of all sources of capital for the
corporation. The average cost is often the hurdle rate in investment. It is the minimum
FINC 3105
Problems Capital Budgeting
1 Diogenes Corporation has the opportunity to produce and market new polygraphs. It
will take an investment of 10,000,000 drachma for the machinery, 120,000 drachma for
training, and 400,000 in working capital split ev
Problem 1.
Xenophobe Corp. developed a new system for controlling the borders to the country and
can now invest in deploying and operating the system. It can earn $3 Billion in income
before depreciation and taxes for each of the next seven years. The inv
Value of bonds
To find the value or price of a bond all the cash flows coming to the holder are
discounted at the market rate of interest. If the market rate today is 8% and you want to
value a $1000 par bond with a coupon rate of 5% and a maturity of 2 y
Time Value of Money Solutions to second set 2010
1. $502.40
2. $13,225.99 for 48 months, $15,525.21 60 months, and $10,966.64 36 months
3. Principal and Interest $728.91, insurance $50 and $58.33 in property taxes for a total
of $837.24 in payments for th
Time Value of Money Problems
1. $8899.96
2. Two years $3,125.00
Five years $6,103.51
3. $97,955.75 present value
4. $75,582.72 future value
5. Assuming 4% per annum interest rate $8,219.27
6. $14,859.00 Remember you have to divide the annual rate by 4 and
Time Value of Money
The basic building block of FINC 3105 and managerial finance in general is time
value of money. How much is a dollar paid to you today worth one year from today? Or
how much would you pay today for a dollar to be paid to you one year f
Time Value of Money Annuities
In finance cash flows may come in lump sums or in series of cash flows over
time. This is the same as receiving a series of lump sums over a period of time over the
same time period. In other words the value of receiving a se
1g.AninvestorwantstopurchaseanAjax8%couponAmericanbond,onewith
semi
annualinterestpayments,maturingin3years.Whatpriceshouldshe
pay for the
bondifthemarketrateofinterestforbondsofthisriskclassis
14%?
Solution:The value of the bond today is equal to the pre
1. Ajax issued a 6% coupon American bond, one with semiannual interest payments,
maturingin9years.WhatisthepriceofAjax'sbondifthemarketrateofinterestfor
bondsofthisriskclassis8%?
Solution:The value of the bond today is equal to the present value of all
Ratios and Ratio Analysis
Financial analysis often is viewed as some form of ratio analysis. Financial analysts often
use ratios to tell a company's story. Ratios are grouped into five generally acceptable
groups: Liquidity, financial leverage, turnover,
Financial Statements
Publicly traded companies file financial statements with the Securities Exchange
Commission. Companies must file annual and quarterly statements as well as press
releases of important events affecting the company. The annual reports,
Common Size Statements
Common size financial statements are often part of an analysis. A common size balance
sheet is easy to create. First, list the assets, liabilities, and capital as they appear on the
balance sheet. Second, place the dollar amounts by
PROBLEM
1. The prices of Orr, Inc. stock (y) over a period of 12 days, the number of shares (in 100s) of company's
stocks sold (x1), and the volume of exchange (in millions) on the New York Stock Exchange (x 2) are
shown below.
Day
1
2
3
4
5
6
7
8
9
10
11
PROBLEM
1. Assume you have noted the following prices for books and the number of pages that each book
contains.
Book
A
B
C
D
E
F
G
a.
b.
c.
Pages (x)
500
700
750
590
540
650
480
Price (y)
$7.00
7.50
9.00
6.50
7.50
7.00
4.50
Develop a least-squares estima
45. A group of 500 individuals were asked to cast their votes regarding a particular issue of the Equal
Rights Amendment. The following contingency table shows the results of the votes:
Sex
Favor
Undecided
Oppose
TOTAL
Female
Male
TOTAL
180
150
330
80
20
PROBLEM
1. The Department of Economic and Community Development (DECD) reported that in 2005 the
average number of new jobs created per county was 450. The department also provided the following
information regarding a sample of 5 counties in 2006.
County
PROBLEM
1. The Department of Economic and Community Development (DECD) reported that in 2005 the
average number of new jobs created per county was 450. The department also provided the following
information regarding a sample of 5 counties in 2006.
County
PROBLEM
1. A local university administers a comprehensive examination to the candidates for B.S. degrees in
Business Administration. Five examinations are selected at random and scored. The scores are shown
below.
Grades
94
72
93
54
77
Develop a 98% confi
PROBLEM
1. A population of 1,000 students spends an average of $10.50 a day on dinner. The standard deviation of
the expenditure is $3. A simple random sample of 64 students is taken.
a.
b.
c.
What are the expected value, standard deviation, and shape of
PROBLEM
1. The average price of cell phones manufactured by Ahmadi, Inc. is $98 with a standard deviation of
$12. Furthermore, it is known that the prices of the cell phones manufactured by Ahmadi are normally
distributed.
a. What percentage of cell phone
PROBLEM
1. Thirty-two percent of the students in a management class are graduate students. A random sample of 5
students is selected. Using the binomial probability function, determine the probability that the
sample contains exactly 2 graduate students?
PROBLEM
1. A college plans to interview 8 students for possible offer of graduate assistantships. The college has
three assistantships available. How many groups of three can the college select?
ANS:
56
PTS: 1
TOP: Probability Concepts
2. A student has to
PROBLEM
1. The closing stock price of Roth, Inc. for a sample of 10 trading days is shown below.
Day
1
2
3
4
5
6
7
8
9
10
Stock Price
84
87
84
88
85
90
91
83
82
86
For the above sample, compute the following measures.
a. The mean
b. The median
c. The mode
PROBLEM
1. Thirty students in the School of Business were asked what their majors were. The following represents
their responses (M = Management; A = Accounting; E = Economics; O = Others).
A
E
M
a.
b.
M
E
A
M
M
O
A
A
A
M
O
M
M
E
E
E
M
E
M
A
M
O
M
A
A
A
M
PROBLEM
1. After graduation ceremonies at a university, six graduates were asked whether they were in favor of
(identified by 1) or against (identified by 0) abortion. Some information about these graduates is
shown below.
Graduate
Marissa
Jason
Wendy
Edw
Capital Budgeting
Businesses are often careful when selecting the capital goods for future
production goods. The idea is to purchase goods that will increase shareholder wealth. To
further that goal the idea is to use a tool that by its terms selects proj