Week 2_Question and Problem Sets
Purpose of Assignment
Students should be able to calculate time value of money problems including solving for;
present value, future value, rate and payment, determine the value and yield of corporate
bonds, and use the dividend discount model to calculate the value and expected return of a
Resources: Tutorial help on Excel and Word functions can be found on the Microsoft®
Office website. There are also additional tutorials via the web that offer support for office
Complete the following Questions and Problems from each chapter as indicated.
Show all work and analysis.
Prepare in Microsoft Excel or Word.
Ch. 5: Questions 3 & 4 (Question and Problems section): Microsoft Excel templates
provided for Problems 3 and 4
3. Calculating Present Values For each of the following, compute the present value:
4. Calculating Interest Rates Solve for the unknown interest rate in each of the following:
Ch. 6: Questions 2 & 20 (Questions and Problems section)
2. Present Value and Multiple Cash Flows Investment X offers to pay you $4,700 per
year for eight years, whereas Investment Y offers to pay you $6,700 per year for five years.
Which of these cash flow streams has the higher present value if the discount rate is 5
percent? If the discount rate is 15 percent?
20. Calculating Loan Payments You want to buy a new sports coupe for $79,500, and
the finance office at the dealership has quoted you an APR of 5.8 percent for a 60-month
loan to buy the car. What will your monthly payments be? What is the effective annual rate
on this loan?
Ch. 7: Questions 3 &11 (Questions and Problems section)
3. Valuing Bonds Even though most corporate bonds in the United States make coupon
payments semiannually, bonds issued elsewhere often have annual coupon payments.
Suppose a German company issues a bond with a par value of €1,000, 23 years to maturity,
and a coupon rate of 5.8 percent paid annually. If the yield to maturity is 4.7 percent, what is
the current price of the bond?
11. Valuing Bonds Union Local School District has a bond outstanding with a coupon rate
of 3.7 percent paid semiannually and 16 years to maturity. The yield to maturity on this bond
is 3.9 percent, and the bond has a par value of $5,000. What is the price of the bond?
Ch. 8: Questions 1 & 6 (Questions and Problems section): Microsoft Excel template
provided for Problem 6
1. Stock Values The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.95 per
share on its stock. The dividends are expected to grow at a constant rate of 4 percent per
year indefinitely. If investors require a return of 10.5 percent on The Jackson-Timberlake
Wardrobe Co. stock, what is the current price? What will the price be in three years? In 15
6. Stock Valuation Suppose you know that a company's stock currently sells for $63 per
share and the required return on the stock is 10.5 percent. You also know that the total
return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's
the company's policy to always maintain a constant growth rate in its dividends, what is the
current dividend per share?
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