Chapter : Time Value of Money
Reference Equations 2.1, 2.2, 2.3
Compute the present value of the following sums:
a. 2000 to be received in five years, expected interest rate of 6%.
b. 1000 to be received in 10 years, expected interest rate of 6%.
Compute the future value of the following sums:
c. 2000 today, valued five years in the future at a rate of 6%.
d. 1000 today, valued ten years in the future at a rate of 6%.
Chaper, Equation 5.1
Compute the value of the following bonds:
a. A 3% coupon bond with 1000 face value and a 20 year maturity with Yield to Maturity of 5%.
b. A 12% coupon bond with a 1000 face value and a 20 year maturity with Yield to Maturity of 10%
3. Compute the value of XYZ corporation if the quarterly dividend paid yesterday was $0.20 and the annual growth rate is a constant 12%. XYZ Corp reports a cost of equity of 22%.
Reference Chapter, Equation 5.2, 5.3, 5.4 and 5.5.
4. Compute the required return of ABC Corp. ABC trades on the New York exchange at a price of $22.00 per share, and pays a dividend of $1.00 per year. The capital gains growth rate is estimated to be 3%.
Reference Chapter 5, Equation 5.2.
5. Compute the expected eps (earnings per share) and standard deviation of eps for ABC corp, given the scenario analysis shown below.
Reference Chapter 6, Equations 6.2 and 6.3
| eps |
Probability |
| $1.00 |
10% |
| $1.20 |
25% |
| $1.50 |
25% |
| $1.60 |
40% |
6. Compute the correlation coefficient between ABC corps returns (given above) and XYZ corp, given the below information on XYZ corp's eps.
Reference Chapter 6, Equations 6.2 through 6.5
| eps |
Probability |
| $0.50 |
10% |
| $0.70 |
25% |
| $0.90 |
25% |
| $1.00 |
40% |
7. Given the rate on a 10 year T-bill of 2.0% and an average return on the S&P 500 stock index over a 10 year period of 5%, compute the cost of equity for the following cases:
Reference Chapter 7 (all)
a. XYZ corp with a reported beta of .3
b. ABC corp with a reported beta of -.3
c. In a portfolio equally weighted between XYZ and ABC corp, what is the expected return of the portfolio?
Attachment:- ProblemSet.rar