Financial Management Homework Set 1

This four-credit course is for students who major in finance. By the end of this course,

The lottery offers a wonderful opportunity to possibly win millions of dollars. While this might seems amazing, it might not be as wonderful as imagined. In fact, maybe even the opposite might true as stated by numerous studies and research done since the 1970s.

Moderate risk. Purchasing a bond means giving a loan to a company. “T-Bonds” are bonds issued by the U.S. Treasury and are safer than corporate bonds. (Loaning money to the government is safer than loaning money to a private business.)

An investment in a tax-exempt (municipal) bond with an interest rate of 8 percent is preferable to an investment in a taxable (corporate) bond with an interest rate of 10 percent.

b. If you inherited $100,000 today and invested all of it in a security that paid an 8% rate of return, how much would you have in 15 years?

b. What is the present value of this annuity if the opportunity cost rate is 10% annually? 10% compounded semiannually?

1. If Mrs. Beach wanted to invest a lump sum of money today to have $100,000 when she retired at 65 (she is 40 years old today) how much of a deposit would she have to make if the interest rate on the C.D. was 5%?

In question four, Janet was asked to solve a question that deals with annuity payments, specifically, ordinary annuities. It starts by asking of how much you will make if you add $2,000 every year and it is compounded by 10% interest every year. These, for the most part, are future value problems. The first one comes out to be a future value of $12,210.20, which does not satisfy the need for $20,000. The next part asks what the value would be if the interest was compounded semiannually. You have to do an equation in order to find out what the effective annual interest rate. Through this equation you come out with a value of 10.25% and after the calculator calculations you come out with a future value of $12,271.11, also not meeting the demand for that first year of college. The next part asks what payment will you need in order to get to that $20,000 number and the present value comes to be $3,275.95. Next, the case asks what original payment you would need in order

Assume I won 10 million dollars in a lottery that pays installments of 2 million dollars a year for five years or a lump sum of less than 10 million dollars. If I take the installments, my first installment would come the day I claimed my winnings at the state lottery office. If I take the lump sum, I would receive that payment the day I claimed my winnings at the state lottery office. Assume that the interest rate is 5% per year. Calculate what the lump sum should be so that it would exactly equal the stream of installments. You must show and explain your work to be given credit for this assignment

1. Assume that at retirement you have accumulated $825,000 in a variable annuity contract. The assumed investment return is 5.5% and your life expectancy is 18 years. What is the hypothetical constant benefit payment?

% i=8% 1 2 3 4 5 6 7 8 9 0.980 1.942 2.884 3.808 4.713 5.601 6.472 7.326 8.162 0.962 1.886 2.775 3.630 4.452 5.242 6.002 6.733 7.435 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 i=10% i=10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 4-21 PV of Your Bank Loan Cynthia Smart agrees to repay her PMT loan in 24 monthly PVImm.  {1 - (1  r)-n } r installments of $250 each. If the interest rate on the loan is $250 0.75% per month PVImm = {1 - (1 + 0.0075)-24 } 0.0075 (9% per annum), what is the present =$5,472.29 value of her loan payments?

Bonds usually come in a variety of forms with each having its own individual benefits, risks and tax considerations. Normally most bonds falls into four general categories: corporate, government, government agencies and municipal (Ameriprise, 2008). Meanwhile, government bonds are issued by the U.S. treasury and backed by the full-faith and credit of the U.S. Government where they will repay a specified amount of money, along with interest.

1. What must be invested today, to be worth $20,000 in 10 years, if it is compounded yearly at 8%?

Assume that the annual payments in the sixth year is equal to the rental payment in the fifth year ( 112.9 and 86.0) and the remainder of the lump sum values (54.6 and 17.8) is due in the seventh year. With a discount rate of 5.4%, the present values of the rental payments for the years 2006 and 2007 are as follows:

The main objective of doing this project is to develop students understanding about Malaysia Capital Market. Malaysia Capital Market involve of shares and investment. This project also study the relationship between expected return, standard deviation, coefficient of variation, covariance, correlation, beta and capital asset pricing model.