Mangeria Analysys

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busn602homeworktemplateweek3.xlsx
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Instructions

Instructions
NAME:
To complete the homework assignments in the templates provided:
1. The question is provided for each problem. You may need to refer to your textbook for additional information in a few cases.
2. You will enter the required information into the shaded cells.
3. The cells are coded:
a) T requires a text answer. Essay questions require references; use the textbook.
b) C requires a calculation, using Excel formulas or functions. You cannot perform the operation on a calculator and then type the answer in the cell. You will enter the calculation in the cell, and only the final answer will show in the cell. I will be able to review your calculation and correct, if necessary.
c) F requires a number only. In some problems, a “Step 1” is added to help you solve the problem.
d) Formula requires a written formula, not the numbers. For example, the rate of return = [(1 + nominal)/ (1+inflation)]-1, or D (debt) + E (equity) = V (value).
4. Name your assignment file as "LastnameFirstinitial-BUSN602-Week#", and submit by midnight ET, Day 7.

DQ8-2

Discussion Question 8-2
Describe how interest rates may adjust to an unanticipated increase in inflation.
Answer:
T

P8-1

Problem 8-1
Assume investors expect a 2.0 percent real rate of return over the next year. If inflation is expected to be 0.5 percent, what is the expected nominal interest rate for a one-year U.S. Treasury security?
Answer:
Enter the answers in blue shaded cells
Formula Calculation
Nominal interest rate r = T C

P8-2

Problem 8-2
A one-year U.S. Treasury security has a nominal interest rate of 2.25 percent. If the expected real rate of interest is 1.50 percent, what is the expected annual inflation rate?
Answer:
Enter the answers in blue shaded cells
Step 1:
Nominal interest rate F
Step 2:
Formula Calculation
Annual inflation rate T C

P8-7

Problem 8-7
Inflation is expected to be 3 percent over the next year. You desire an annual real rate of return of 2.5 percent on your investments.
a. What nominal rate of interest would have to be offered on a one-year Treasury security for you to consider making an investment?
b. A one-year corporate debt security is being offered at 2 percentage points over the one-year Treasury security rate that meets your requirement in (a). What would be the nominal interest rate on the corporate security?
Answers:
Enter the answers in blue shaded cells
Formula Calculation
a. Government debt rate T C
b. Corporate debt rate T C

P8-8

Problem 8-8
Find the nominal interest rate for a debt security given the following information: real rate = 2%, liquidity premium = 2%, default risk premium = 4%, maturity risk premium= 3%, and the inflation premium = 3%.
Answer:
Enter the answers in blue shaded cells
Formula Calculation
Nominal Interest Rate (r) T C

DQ9-2

Discussion Question 9-2
Briefly describe what is meant by the time value of money.
Answer:
Enter the answers in blue shaded cells
T

P9-3

Problem 9-3
Determine the future values (FVs) if $5,000 is invested in each of the following situations: a. 5 percent for ten years b. 7 percent for seven years c. 9 percent for four years
Answers:
Enter the answers in blue shaded cells
a. 5 percent for ten years C
b. 7 percent for seven years C
c. 9 percent for four years C

P9-17

Problem 9-17
Use Excel to answer the following questions:
a. What is the present value (PV) of $359,000 that is to be received at the end of 23 years if the discount rate is 11 percent? b. How would your answer change in Part (a) if the $359,000 is to be received at the end of 20 years?
Answers:
Enter the answers in blue shaded cells
a. PV C
b. PV C

P9-19

Problem 9-19
Use Excel to answer the following questions:
a. What would be the future value (FV) of $19,378 invested now if the money remains deposited for eight years, the annual interest rate is 18 percent, and interest on the investment is compounded semiannually? b. How would your answer for (a) change if quarterly compounding were used?
Answers:
Enter the answers in blue shaded cells
a. FV C
b. FV C