FINC 600 Week 1 Homework

FINC 600 Week 1 Homework

Problem 1-6

In most large corporations, ownership and management are separated. What are the main implications of this separation?

Problem 1-8

We can imagine the financial manager doing several things on behalf of the firm’s stockholders. For example, the manager might:                                                                                                                                                                           

a. Make shareholders as wealthy as possible by investing in real assets.

b. Modify the firm’s investment plan to help shareholders achieve a particular time pattern of consumption.

c. Choose high- or low-risk assets to match shareholders’ risk preferences.

d. Help balance shareholders’ checkbooks.

But in well-functioning capital markets, shareholders will vote for only one of these goals. Which one? Why?

Problem 2-9

A. The cost of an automobile is $10,000. If the interest rate is 5%, how much would you have to set aside now to provide this sum in five years?

B. You have to pay $12,000 a year in school fees at the end of each of the next six years. If the interest rate is 8%, how much do you set aside today to cover these bills?

C. You have invested $60,476 at 8%. After paying the above school fees, how much would you remain at the end of six years?

Problem 2-12

What is the PV of $100 received in:

A. Year 10 (at a discount rate of 1%)

B. Year 10 (at a discount rate of 13%)

C. Year 15 (at a discount rate of 25%)

D. Each of years 1 through 3 (at a discount rate of 12%)?

Problem 3-3

In February 2009 Treasury 6s of 2026 offered a semiannually compounded yield of 3.5985%. Recognizing that coupons are paid semiannually, calculate the bond's price.

Problem 3-4

Here are the prices of three bonds with 10-year maturities:

If coupons are paid annually, which bond offered the highest yield to maturity?

Which had the lowest?

Which bonds had the longest and shortest durations?

Instruction: