Question 1:
1. Calculate the future value of $5,000 invested today for 6 years if your investment pays 4% compounded annually
2. Calculate the present value of $3,000 received 8 years from today if your investment pays 6% compounded semi- annually.
3. Calculate the future value of an annuity stream that pays $2,000 every year for 5 years on the last day of each year if your investment pays 10% compounded semi annually?
4. Calculate the present value of an annuity stream that pays $50,000 every year for 5 years on the last day of each year if your investment pays 12% compounded quarterly?
Question 2:
Assume a two-stock portfolio with $40,000 invested in AramexCompany and $60,000 invested in DHL Company.
|
|
|
Estimated Return
|
|
Economy
|
Probability
|
Aramex(ri)
|
DHL(ri)
|
Portfolio(ri)
|
|
Strong
|
0.30
|
15%
|
25%
|
12%
|
|
Normal
|
0.50
|
10%
|
13%
|
10%
|
|
Weak
|
0.20
|
-8%
|
-15%
|
-7%
|
|
Total
|
1.00
|
|
|
|
- Calculate the expected rate of return for each stock separately.
- Calculate the expected rate of return for the portfolio.
- Calculate the standard deviation (s) of returns for each stock separately.
- Calculate the standard deviation (s) of returns for the portfolio.
- Was investing in the previous portfolio helpful to decrease the risk of investing in each stock separately? Explain.
Question 3:
- Gucci Corporation has issued bonds that have a 7% coupon rate, payable annually. The bonds mature in 8 years, have a par value of $1,000 and a yield to maturity of 10%.Calculate the price of the bonds.
- A stock you are evaluating is expected to pay a constant dividend of $12 each year into the future. The expected rate of return on the stock is 15%. Calculate the current market value of this stock.