Ask Financial Accounting Expert

1. Annuity A makes annual year-end payments of $976.50 for each of the next 10 years, while investment B makes annual year-end payments of $600 per year forever. ?Show your work for the following two questions:

a. At what interest rate would you be indifferent between the two investments?

b. At interest rates above/below this break-even rate, which investment would you choose and why?

2. Rob and Laura wish to buy a new home. The price is $300,000 and they plan to put 25% down. New Rochelle Savings and Loan will lend them the remainder at 8% per annum, compounded semi-annually for a 25-year term. The monthly payments are to begin in one month.
a. How much will their monthly payments be?

b. Assuming they pay off the loan over the 25-year period as planned, what will be the total cost (principal + interest + down payment) of the house?

c. What will the outstanding balance of the loan be after 10 years, assuming they make the first 120 payments on time?

d. Suppose they want to pay off the loan in 15 years. How much extra must they pay each month to do so?

e. Show the first six months in the amortization table for the 25-year mortgage.

3. You are making plans for your retirement. You have just turned 30 and want to retire on your 65th birthday. At that time, you plan to move to the Caribbean, where you believe you can live comfortably on $200,000 per year. You also understand that inflation can impact your enjoyment of retirement so you would like the annual payments you receive to increase at a rate of 5% per annum. Your first payment of $200,000 will occur at age 66. You intend to live in the Caribbean until your 85th birthday, when you will receive your last installment from your retirement fund, move back to Canada, and freeload off your kids. You would also like to save enough money so that you can buy a new car when you are 35, and pay for a big retirement party when you are 65. You figure you will need to have $35,000 for the car and $10,000 for the party.

You estimate that you can earn an average return of 10% per annum on any money you invest over the next 60 years. You have just begun working and plan on saving $11,000 per year until you are 35 years old. You will make your first deposit one year from now. To ensure that you are able to achieve your objectives, you must first answer the following questions:

a. How much will you have to accumulate before you retire?

b. How much will you have to save yearly, from your 36th to your 65th birthday, in order to accumulate the amount from part (a) and also pay for your retirement party?

4. A bond is currently selling at 0.85 on its par value of $1,000. This bond has a maturity of 10 years and a coupon rate of 8%, payable semi-annually. If the inflation rate is 5%, what is the real yield on this bond?

5. The bonds of Microhard, Inc. carry a 12% annual coupon, have a $1,000 face value, and mature in 4 years. Bonds of equivalent risk yield 10%. Microhard is having cash flow problems and has asked its bondholders to accept the following deal:

The firm would like to make the next three coupon payments at half the scheduled amount, and make the final coupon payment be $300. If this plan is implemented and investors still demand a 10% return, what will happen to the market price of the bond?

6. J&J Enterprises wants to issue eighty 15-year, $1,000 zero-coupon bonds. If each bond is priced to yield 9%, how much will J&J receive (ignoring issuance costs) when the bonds are first sold?

7. McGonigal's Meats, Inc. currently pays no dividends. The firm plans to begin paying dividends in 3 years (at the end of t3). The first dividend at that time will be $1 and dividends are expected to grow at 5% per annum thereafter.

Given shareholders demand a 12% return on their investments, what is the price of the stock today (t0)?

8. Suppose that sales and profits of Oly Enterprises are growing at a rate of 30% per year. At the end of 4 years (t4) the growth rate will drop to a steady 5%. Oly recently paid a dividend of $1 per share. If the required return is 20%, what is the value of one Oly share today (t0)? ?(Assume dividends grow at the same rate as earnings after year 4.)

9. Bradley Broadcasting expects to pay dividends of $1.12, $1.25, and $1.40 in one, two, and three years, respectively. After that, dividends are expected to grow at a constant rate of 5% forever (so, t4 to ∞). Stocks of similar risk yield 12%.

a. What should the price of Bradley Broadcasting stock be today?

b. What is growth rate of the Bradley Broadcasting dividend during year 2?

c. How much is Bradley's stock price expected to increase during the first year?

d. What is the expected capital gains yield on Bradley Broadcasting stock during year 8?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M91423385
  • Price:- $45

Priced at Now at $45, Verified Solution

Have any Question?


Related Questions in Financial Accounting

Case study - the athletes storerequiredonce you have read

Case Study - The Athletes Store Required: Once you have read through the assignment complete the following tasks in order and produce the following reports Part 1 i. Enter the business information including name, address ...

Scenario assume that a manufacturing company usually pays a

Scenario: Assume that a manufacturing company usually pays a waste company (by the pound to haul away manufacturing waste. Recently, a landfill gas company offered to buy a small portion of the waste for cash, saving the ...

Lease classification considering firm guidance issues

Lease Classification, Considering Firm Guidance (Issues Memo) Facts: Tech Startup Inc. ("Lessee") is entering into a contract with Developer Inc. ("Landlord") to rent Landlord's newly constructed office building located ...

A review of the ledger of oriole company at december 31

A review of the ledger of Oriole Company at December 31, 2017, produces these data pertaining to the preparation of annual adjusting entries. 1. Prepaid Insurance $19,404. The company has separate insurance policies on i ...

Chelsea is expected to pay an annual dividend of 126 a

Chelsea is expected to pay an annual dividend of $1.26 a share next year. The market price of the stock is $24.09 and the growth 2.6 percent. What is the cost of equity?

Sweet treats common stock is currently priced at 3672 a

Sweet treats common stock is currently priced at $36.72 a share. The company just paid $2.18 per share as its annual dividend. The dividends have been increasing by 2,2 percent annually and are expected to continue doing ...

Highway express has paid annual dividends of 132 133 138

Highway Express has paid annual dividends of $1.32, $1.33, $1.38, $1.40, and $1.42 over the past five years, respectively. What is the average divided growth rate?

An investment offers 6800 per year with the first payment

An investment offers $6,800 per year, with the first payment occurring one year from now. The required return is 7 percent. a. What would the value be today if the payments occurred for 20 years?  b. What would the value ...

Oil services corp reports the following eps data in its

Oil Services Corp. reports the following EPS data in its 2017 annual report (in million except per share data). Net income $1,827 Earnings per share: Basic $1.56 Diluted $1.54 Weighted average shares outstanding: Basic 1 ...

At the start of 2013 shasta corporation has 15000

At the start of 2013, Shasta Corporation has 15,000 outstanding shares of preferred stock, each with a $60 par value and a cumulative 7% annual dividend. The company also has 28,000 shares of common stock outstanding wit ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As