Assignment 1 - Finance

The bank rate is the interest rate at which the Bank of Canada stands ready to lend reserves to chartered banks. The banker 's deposit rate is the interest rate that the Bank of Canada pays banks on their deposits at the Bank of Canada. Changes to these rates by the Bank of Canada typically spread to other interest rates and therefore will influence the amount of lending done by the banks.

a) In the first set of calculations, the staff used a discount rate of 20%, a five-year time horizon, and ignored taxes and terminal value. What is the relative attractiveness of these three alternatives?

a. Starting with $20,000, how much will you have in 20 years if you can earn 5% on your money?

What annual interest rate is needed to produce $200,000 after five years if only $100,000 is invested?

1. Visit the website of a large national bank, regional bank, or credit union, and use the information you find there to answer the questions below. EXAMPLE: Some large banks you might consider include Bank of America®, JPMorgan Chase®, Wells Fargo®, Citibank®, and U.S. Bank®.

price is $25 per share. The most recent dividend was $1 and the growth rate is 5%.

a. I = 4%, PV = $74,000, N = 20, FV = $162,143 b. FV = $2 million, N = 25, I = 8%, PMT = $27,357 c. PMT = $160,000, N = 20, I = 4%, PV = $2,174,452 d. FV = $3.5 million, N = 30, I = 7%, PMT = $37,052

2. If you had a payment that was due you in 5 years for $50,000 and you could earn a 5% rate of return, how much

A person deposited $500 in a savings account that pays 5% annual interest that is compounded yearly. At the end of 10 years, how much money will be in the savings account? (Bluman, A. G. 2005, page 230).

For this course project, I have chosen Cisco Systems, Inc. and tried to do the DuPont analysis for this company. Cisco Systems, Inc. designs, manufactures, and sells Internet Protocol (IP) based networking products and services related to the communications and information technology industry worldwide. Cisco also provides broad line of products for transporting data, voice, and video within buildings, across campuses, and around the world. Various products offered by Cisco are switching, NGN routing, collaboration portfolio integrating voice, video, data and mobile applications data center and other networking products. Cisco Systems has a market cap of $128.77 billion and is part of the technology sector and

a. 1/15 net 20 1% / 1-0.01% (99) = 0.0101 = 1.01% * 365/ 20-15= 73 = 0.737 = 73.7%

If you invest in the project after five years you will get $ 463,188.77 which is $ 13,188.77 more.

Second City Options (SCO) is a small firm that specializes in option trading. Employing 35 people, SCO is located on LaSalle Street in the Chicago financial district. It is a member firm of the Chicago Board Options Exchange (CBOE), where it trades options on stocks and stock indices. It is also a member firm of the Chicago Mercantile Exchange Group (CME Group), where it trades options on futures and the underlying futures contracts.

(5 points) In a world with no frictions (i.e., taxes, etc.), having debt is always better because it increases the value of the firm/projet.

(5 points) $100 invested for 10 years at 12% interest is worth more in FV terms than $200 invested for 10 years at 4% interest.