Annuity/Retirement A. If you deposited the following amount per month (letters in your last name X $80) from your paycheck from the time you graduate from school until you retire (at age 75) and your employer contributed an extra 6%, how much wealth would you have accumulated? (Be sure to include your age when you graduate). The annual interest rate you will earn should be = letters in your first name X 1.10%. B. Based on your final answers to A above, what would your retirement income be once you retired if you a. earned 5.5% and only lived off the earnings (did not draw down the principle-every month you took out the interest and left the initial amount to earn the same amount of interest-think simple interest) b. earned 5.5% and created an annuity to last until you were 90 years old (this means that by age 90 your balance should be equal to zero). Loan Amortization Problem Type your full name in the following order First Middle Last Number of letters in full name = Now assume that your annual salary = number of letters in your full name x $45,000 and that the bank you want to borrow from, has determined that it will lend you, loan amount= your annual salary x 2.5 interest rate = number of letters in your full name x 0.9% Assume that you will borrow for 15 years and you will make monthly payments at the end of each month. A) Calculate your monthly payment (Type your calculator inputs, i.e. N=, PV= and so on) B) Calculate the total interest amount you will pay over the life of the loan Bonds A. From the list of following bonds identify the bond that is least sensitive to interest rate and the bond that is the most sensitive to interest changes. Justify your selections. Bond Maturity (years YTM (%) Coupon Rate (%) A 15 8 7.1 B 15 6 7.4 C 15 8 7.5 D 30 6 7.1 E 30 6 7.0 B. A bond that was issued 5 years ago had an original time to maturity of 30 years, a YTM of 7.5%, a coupon rate of 8.2% and made semi-annual coupon payments. Today interest rates on similar bonds have dropped 0.25%. Calculate the new bond price. Show all your calculator inputs and adjustments made. Stocks A. Identify all the following stocks as overpriced, underpriced or fairly valued. For all calculations assume a market risk premium of 5.3% and a risk free rate of 3%. Show also your calculations. Stock E(Ri) (%) βi Stock classification (over, under or fairly valued) A 22.15 5 B 12.08 -1.7 C 11.20 1 D 9.36 1.2 B. Calculate the price of a stock that will pay its first dividend of $1.25 one year from now and your required rate of return for this stock is 12%. Dividends are expected to grow at 20% for the first 15 years and their growth rate will drop to a steady 3% every year thereafter.