| | Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in the course shell. This homework assignment is worth 100 points. |
| | Assume that you are nearing graduation and have applied for a job with a local bank. The bank’s evaluation process requires you to take an examination that covers several financial analysis techniques. Use the following information for Questions 1 through 2: |
| 1 | 1. What is the present value of the following uneven cash flow stream −$50, $100, $75, and $50 at the end of Years 0 through 3? The appropriate interest rate is 10%, compounded annually. |
| | The PV of uneven cash flow stream of ($50)at a 10% interest rate compounded annually at the end of Years 0 through 3 is $37.57 |
| | | | PV=FV/1+103 | | | 7.9200392834 | | | | | | | | 909.0909090909 |
| | | | | | | | | | | | | | | 19.9766666667 |
| | The PV of uneven cash flow stream of $100 at a 10% interest rate compounded annually at the end of Years 0 through 3 is $75.13 |
| | The PV of uneven cash flow stream of $75 a 10% interest rate compounded annually at the end of Years 0 through 3 is $56.35 |
| | The PV of uneven cash flow stream of $50 at a 10% interest rate compounded annually at the end of Years 0 through 3 is ($37.57) |
| 2 | 2. Suppose that on January 1 you deposit $100 in an account that pays a nominal (or quoted) interest rate of 11.33463%, with interest added (compounded) daily. How much will you have in your account on October 1, or 9 months later? |
| | Use the following information for Questions 3 and 4: A firm issues a 10-year, $1,000 par value bond with a 10% annual coupon and a required rate of return is 10%. |
| 3 | 3. What is the yield to maturity on a 10-year, 9% annual coupon, $1,000 par value bond that sells for $887.00? That sells for $1,134.20? What does a bond selling at a discount or at a premium tell you about the relationship between rd and the bond’s coupon rate? |
| 4 | 4. What are the total return, the current yield, and the capital gains yield for the discount bond in Question #3 at $887.00? At $1,134.20? (Assume the bond is held to maturity and the company does not default on the bond.) |