FINC600-Week1
Mermaid
finc600-week1.xlsInstructions
| 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. | ||
| b. | C requires a calculation. You cannot perform the operation on a calculator and then type the answer in the cell. You will enter the calculation in the cell, using Excel format/formula/function 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. | ||
| 4. | Name your assignment file as "lastnamefirstinitial-FINC600-Week#", and submit by midnight ET, Day 7. |
&C&16Instructions
&CPrinciples of Corporate Finance, Concise, 2nd Edition
P1-6
| Problem 1-6 |
| In most large corporations, ownership and management are separated. What are the main implications of this separation? |
| Answer: |
| T |
&LInstructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.
P1-8
| 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? |
| Answer: |
| WHY? |
&LInstructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.
P2-9
| 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? | ||
| Answers: | ||
| Calculation | ||
| A. | PV | C |
| B. | Annuity factor | C |
| Set aside amount | C | |
| C. | Remainder after 6 years | C |
&LInstructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.
&CPrinciples of Corporate Finance, Concise, 2nd Edition
P2-12
| 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%)? | ||
| Answers: | ||
| Calculation | ||
| A. | Year 10/1% | C |
| B. | Year 10/13% | C |
| C. | Year 15/25% | C |
| D. | Year 1 | C |
| Year 2 | C | |
| Year 3 | C | |
| Total | C |
&LInstructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.
&CPrinciples of Corporate Finance, Concise, 2nd Edition
P3-3
| 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. | ||
| Answer: | ||
| Enter the values in blue colored cells | ||
| Settlement Date | C | TIP: Use the Date function under Formulas to enter dates |
| Maturity Date | C | |
| Coupon Rate | F | TIP: See p. 47 for determining coupon rate |
| YTM | F | |
| Price | C | Use Excel's PRICE function to find the value of the bond |
&LInstructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.
&CPrinciples of Corporate Finance, Concise, 2nd Edition
P3-4
| Problem 3-4 | ||||
| Here are the prices of three bonds with 10-year maturities: | ||||
| Bond Coupon (%) | Price (%) | |||
| 2 | 81.62 | |||
| 4 | 98.39 | |||
| 8 | 133.42 | |||
| 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? | ||||
| Answer: | ||||
| Use Excel's YIELD function to find the YTM and the DURATION function of the bond under each of the above assumptions: | ||||
| Coupon Rate | 2% | 4% | 8% | |
| Price (%) | F | F | F | |
| Settlement Date | C | C | C | TIP: Use the Date function under Formulas to enter dates |
| Maturity Date | C | C | C | |
| YTM | C | C | C | |
| Duration | C | C | C | |
| Highest yield to maturity | T | |||
| Lowest yield to maturity | T | |||
| Longest duration | T | |||
| Shortest duration | T |
&LInstructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.
&CPrinciples of Corporate Finance, Concise, 2nd Edition
