FINANCIAL MANAGEMENT ASSIGNMENT
Question 1
Much to your surprise, you were selected to appear on the TV show, "The Price is Right." As a result of your prowess in identifying how many rolls of toilet paper an average American family keeps on hand, you win the opportunity to choose one of the following: $2,000 today, $10,000 in 10 years, or $31,000 in 29 years. Assuming you can earn 12% on your money, which should you choose?
Question 2
What is the future value of $500 a year for 9 years compounded annually at 10%? What is the future value of $900 for nine years compounded annually at 10%?
Question 3
To buy a new house, you must borrow $150,000. To do this, you take out a $150,000, 20-year, 10% mortgage. Your mortgage payments, which are made at the end of each year (one payment each year), include both principle and 10% interest on the declining balance. What amount will your annual payment be?
Question 4
Alex Karez has taken out a loan of $180,000 with an annual rate of 10% compounded monthly to pay off hospital bills from his wife's illness. If the most Alex can afford to pay is $3,500 a month, how long will it take to pay off the loan? How long will it take to pay off the loan if he can pay $4,000 each month? Use five decimal places for the monthly percentage rate in your calculations. If Alex can pay $3,500 a month, how many years will it take to pay off the loan?
Question 5
How much do you have to deposit today so that, beginning 11 years from now, you can withdraw $9,000 a year for the next 8 years (periods 11 through 18) plus an additional amount of $18,000 in the last year (period 18)? Assume an interest rate of 6%.
Question 6
On December 5, 2007, the common stock of Google, Inc. (GOOG) was trading at $698.51. One year later, the shares sold for $301.99. Google has never paid a common stock dividend. What rate of return would you have earned on your investment had you purchased the shares on December 5, 2007? The rate of return you would have earned is what percent?
Question 7
Caswell Enterprises had the following end-of-year stock prices over the last five years and paid no dividends.
|
Time
|
Caswell
|
|
1
|
$12
|
|
2
|
9
|
|
3
|
7
|
|
4
|
6
|
|
5
|
8
|
o Calculate the average rate of return for each year from the above information.
o What is the arithmetic average rate of return earned by investing in Caswell's stock over this period?
o What is the geometric average rate of return earned by investing in Caswell's stock over this period?
o Considering the beginning and ending stock prices for the five-year period are the same, which type of average rate of return best describes the annual rate of return earned over the period (arithmetic or geometric)?
o The annual rate of return at the end of year 3 is what percent?
Question 8
The common stock of Plaxo Enterprises had a market price of $9.45 on the day you purchased it just 1 year ago. During the past year, the stock paid a dividend of $1.43 and closed at a price of $11.66. What rate of return did you earn on your investment in Plaxo's stock? The rate of return you earned on Plaxo's stock is what percent?
Question 9
Syntex is considering an investment in one of two stocks. Given the information that follows, which investment is better based on the risk (the standard deviation) and return? Given the information in the table, what percent is the rate of return for Stock B?
|
Common Stock A
|
Common Stock B
|
|
Probability
|
Return
|
Probability
|
Return
|
|
0.20
|
10%
|
0.10
|
-7%
|
|
0.60
|
16%
|
0.40
|
5%
|
|
0.20
|
21%
|
0.40
|
13%
|
|
|
|
0.10
|
20%
|