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Assignment: Module 4 Problems Content and Development 4.1 Points Possible Problem 1 Chapter 9 Problem 2 Chapter 9 Problem 5 Chapter 9 Problem 10...

Prob 10-1 Compute the annual interest payments and principal amount for a Treasury Inflation-Protected Security with a par value of $1,000 Answer in the green shaded cells below
and a 3 percent interest rate if inflation is 4 percent in year one, 5 percent in year two, and 6 percent in year three.


Year Inflation Par Value Annual Coupon Interest
1
2
3

Prob 10-2 Judy Johnson is choosing between investing in two Treasury securities that mature in five years and have par values of $1,000. One is
a Treasury note paying an annual coupon of 5.06 percent. The other is a TIPS which pays 3 percent interest annually.

a. If inflation remains constant at 2 percent annually over the next five years, what will be Judy’s annual interest income
from the TIPS bond? From the Treasury note?

Year Par Value "Treasury Note
Annual Coupon Interest" Inflation Par Value "TIPS
Annual Coupon Interest"
1
2
3
4
5
Totals $- $- $-


b. How much interest will Judy receive over the five years from the Treasury note? From the TIPS?

Interest received from Treasury Note
Interest received from TIPS

c. When each bond matures, what par value will Judy receive from the Treasury note? The TIPS?

Par value from Treasury note
Par value from TIPS

d. After five years, what is Judy’s total income (interest par) from each bond?


Total income from Treasury note
Total income from TIPS

Should she use this total as a way of deciding which bond to purchase?








Prob 10-26 Mercier Corporation’s stock is selling for $95. It has just paid a dividend of $5 a share. The expected growth rate in dividends is
8 percent.

a. What is the required rate of return on this stock?

Required rate of return

b. Using your answer to (a), suppose Mercier announces developments that should lead to dividend increases of 10 percent
annually. What will be the new value of Mercier’s stock?

New value of Mercier stock

c. Again using your answer to (a), suppose developments occur that leave investors expecting that dividends will not change
from their current levels in the foreseeable future. Now what will be the value of Mercier stock?

New value of Mercier stock

d. From your answers to (b) and (c), how important are investors’ expectations of future dividend growth to the current stock price?






AT&T Proprietary (Internal Use Only) Not for use or disclosure outside the AT&T companies except under written agreement Assignment: Module 4 Problems Points Possible Points Earned Comments Problem 1 Chapter 9 0.3 Problem 2 Chapter 9 0.3 Problem 5 Chapter 9 0.4 Problem 10 Chapter 9 0.4 Problem 20 Chapter 9 0.4 Problem 1 Chapter 10 0.4 Problem 2 Chapter 10 0.8 Problem 26 Chapter 10 0.5 Problem 10 Chapter 11 0.6 Points Possible Points Earned Comments Work Shown 0.5 Points Possible Points Earned Comments 0.2 Spelling is correct. 0.2 Total Points 50 0 Grade 0.0% Comments: Comments: Content and Development 4.1 Points Possible Readability and Style .5 Points Possible Mechanics .4 Points Possible Rules of grammar, usage and punctuation are followed.
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Prob 9-1 value if the investment is made for two years. FV one year FV two years Sum of FV's $- Prob 9-2 FV using simple interest FV using compound interest Prob 9-5 PV received one year from now PV received two years from now Prob 9-10 from now if the annual discount rate is 4 percent. PV one year from now PV two years from now Prob 9-20 and semiannual discounting occurs? PV w/ semi-annual discounting PV w/ monthly discounting Find the future value one year from now of a $7,000 investment at a 3 percent annual compound interest rate. Also calculate the future Answer in the green shaded cells below Find the future value of $10,000 invested now after five years if the annual interest rate is 8 percent. a. What would be the future value if the interest rate is a simple interest rate? b. What would be the future value if the interest rate is a compound interest rate? Find the present value of $7,000 to be received one year from now assuming a 3 percent annual discount interest rate. Also calculate the present value if the $7,000 is received after two years. Determine the present value now of an investment of $3,000 made one year from now and an additional $3,000 made two years Use a financial calculator or computer software program to answer the following questions. a. What is the present value of $359,000 that is to be received at the end of twenty-three years, the discount rate is 11 percent, b. How would your answer for (a) change if monthly discounting were used?
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