FINA 6305 Managerial Finance
Homework 2
Section 1: TVM basics:
1. Suppose a State of Texas bond will pay $2,000 ten years from now. If the going interest rate on these 10-year bonds is 0.5%, how much is the bond worth today?
1. Suppose you have $1,000 and plan to purchase a 10-year certificate of deposit (CD) that pays 1.0% annual interest, compounded annually . How much will you have when the CD matures?
1. Suppose you have $1,000 and plan to purchase a 10-year certificate of deposit (CD) that pays 1.0% annual interest, compounded quarterly . How much will you have when the CD matures?
(Hint: To incorporate the compounding effect, you need to convert the annual interest rate into the quarterly interest rate, and convert years into quarters to get correct answer).
1. Suppose you have $1,000 and plan to purchase a 10-year certificate of deposit (CD) that pays 1.0% annual interest, compounded monthly . How much will you have when the CD matures?
(Hint: To incorporate the compounding effect, you need to convert the annual interest rate into the monthly interest rate, and convert years into months to get correct answer).
1. Suppose you have $1,000 and plan to purchase a 10-year certificate of deposit (CD) that pays 1.0% annual interest, compounded daily . How much will you have when the CD matures?
(Hint: To incorporate the compounding effect, you need to convert the annual interest rate into the daily interest rate, and convert years into days to get correct answer).
1. Suppose the U.S. Treasury offers to sell you a bond for $900.00. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $1,000. What interest rate would you earn if you bought this bond at the offer price?
Section 2: TVM applications
1. Assume the couple John and Helen want to fund a college education for their son, William, age 2. William will attend college starting at age of 18. He needs $90,000 available at age 18 for his college expense. The couple feels they can make 6% after-tax return annually in a 529 education fund. How much do they need to deposit today to meet their goal?
2. Assume the couple John and Helen want to fund a college education for their son, William, age 2. William will attend 4 years of college starting at age of 18. He needs $60,000 available at age 18 for his college expense. Starting from now, the couple plans to invest $3000 to the 529 education fund at the end of each year. What rate of annual return do they need to achieve?
3. Construct an amortization schedule for a 15-year, $300,000 loan with a 4.2% interest rate compounded monthly. The loan will be paid back in 15 years making monthly payments. You need to calculate the principal payment and interest payment, respectively, of each month. Hint: Please refer to the excel file of “Loan Amortization “posted in Unit 4 “Lecture”. Specifically, you need to update the model from “yearly” payment to “monthly” mortgage payment. 15 years *12 = 180 months. Therefore, you should demonstrate 180 principal payments and interest payments for each month.
4. Construct an amortization schedule for a 30-year, $300,000 loan with a 6.7% interest rate compounded monthly. The loan will be paid back in 30 years making monthly payments. You need to calculate the principal payment and interest payment, respectively, of each month. Hint: Please refer to the excel file of “Loan Amortization “posted in Unit 4 “Lecture”. Specifically, you need to update the model from “yearly” payment to “monthly” mortgage payment. 30 years *12 = 360 payments. Therefore, you should demonstrate 360 principal payments and interest payments for each month.
Section 3: Bond Valuation
1. The Morrissey Company's bonds mature in 7 years, have a par value of $1,000, and make an annual coupon payment of $70. The market interest rate for the bonds is 8.5%. What is the bond's price?
2. Masson Inc. recently issued noncallable bonds that mature in 10 years. They have a par value of $1,000 and an annual coupon of 5.5%. If the current market interest rate is 7.0%, at what price should the bonds sell?
3. Ezzell Enterprises’ noncallable bonds currently sell for $1,165. They have a 15-year maturity, an annual coupon of $95, and a par value of $1,000. What is their yield to maturity?
4. Quigley Inc.'s bonds currently sell for $1,080 and have a par value of $1,000. They pay a $100 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,125. What is their yield to maturity (YTM)?
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HCS/475 v10
Problem Analysis Worksheet
HCS/475 v10
Page 2 of 2
Problem Analysis Worksheet
Review the Wk 5 Case Studies and select one scenario.
Complete the table below for the scenario selected by providing the following:
· Identify the problem.
· Analyze the problem.
· What is the issue?
· Who does it affect?
· What is the appropriate model to analyze the problem?
· What are the ethical considerations within the problem?
· Create two to three possible solutions to resolve the problem.
· Analyze the potential positive and negative effects.
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Identify the Problem. |
Analyze the Problem and Ethical Considerations. |
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Solution #1 |
Potential Positive Effects |
Potential Negative Effects |
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Solution #2 |
Potential Positive Effects |
Potential Negative Effects |
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Solution #3 |
Potential Positive Effects |
Potential Negative Effects |
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Submit your assignment.
Copyright© 2019 by University of Phoenix. All rights reserved.
Copyright© 2019 by University of Phoenix. All rights reserved.
Assignment Content
1.
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Review the Problem Analysis worksheet .
Select one of the solutions you proposed in the Problem Analysis worksheet.
Write a 350- to 700-word summary memo explaining why your solution will be effective in resolving the change/conflict, how you propose to implement the solution, and your role as a leader to manage conflict and create an effective work environment.
Include the following in your summary:
· Summarize the problem and the solution you propose to implement.
· Analyze why you think the solution will be effective.
· Analyze what needs to be considered when implementing the proposed solution.
· Analyze the leadership style that best fits in this situation.
· Analyze the leader’s role in managing the conflict.
· What is your role as a leader and how would you manage this conflict?
· Explain the leader’s role in creating an effective work group when implementing the proposed solution.
Include a references page with your summary.
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