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
|
|
|
|
1. Calculate the expected rate of return for each stock separately.
2. Calculate the expected rate of return for the portfolio.
3. Calculate the standard deviation (s) of returns for each stock separately.
4. Calculate the standard deviation (s) of returns for the portfolio.
5. Was investing in the previous portfolio helpful to decrease the risk of investing in each stock separately? Explain.
Question 3:
1. 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.
2. 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.