Finance Answers

(4 points) A 13-year 3.4% bond with a face value of $180,000 is issued on November 21, 2020. It can be redeemed (at the discretion of the issuer) on any coupon date in 2028, 2029, 2030 or on maturity on November 21, 2033.

a) Find how much an investor should pay for the bond on the date it is issued in order to have a minimum yield of 3%

9. You form a portfolio by combining shares of stocks for two different companies. The companies have different expected returns, and different risks. Which statement is true for all of the possible portfolios that contain shares in both companies? (NOTE: Choices below might be incorrect because they always are false, whereas others might be incorrect because they are sometimes true and sometimes false. Only the correct choice is always true.)?
a. The return for the portfolio is less than the return of the highest return stock.
b. The risk for the portfolio lies between the risks of the component stocks.
c. The risk for the portfolio is less than the risk of the least risky stock.
d. a and b
e. a and c

12. Which of the following firms has the smallest beta?
a. Abercrombie & Fitch (Apparel)
b. Vale (commodity/mining)
c. Wal-Mart (discount retail store)
d. Pfizer (Pharmaceutical)
e. Apple (Tech)

13. Which one of the following activities in Pepsi would increase its beta?
a. To reduce cost Pepsi will terminate contract with BottlerLeb and to produce plastic bottles in-house
b. Enter into a joint venture with a labor company to provide workers when needed
c. Contract with a labeling company to add colors and labels on produced bottles and cans
d. Contract with Allo Taxi to transport their products to retailers
e. None of the above

ABC Pvt. Ltd. is considering two mutually exclusive capital investments. The project’s expected net cash flows are as follows:
Expected Cash Flows
Year Project A Project B
0 -375 -575
1 -300 190
2 -200 190
3 -100 190
4 600 190
5 600 190
6 926 190
7 -200 0
If you were told that each project’s cost of capital was 12%, which project should be selected using the NPV criteria? What is each project’s IRR? What is the regular payback period for these two projects? What is the profitability index for each project if the cost of capital is 12%?

Assume that your father is now 50 years old and plans to retire after 10 years from now. He is expected to live for another 25 years after retirement. He wants a fixed retirement income of Rs. 5,00,000 per annum. His retirement income will begin the day he retires, 10 years from today, and then he will get 24 additional payments annually. Your father has current savings of Rs. 10,00,000 and he expects to earn a return on his savings @ 10% p.a., annually compounding. How much (to the nearest of rupee) must your father save during each of next 10 years to meet his retirement goal?

Mr. Rahul has been saving Rs.9,500 at the beginning of every quarter for 25 years at an

average return of 14% p.a. compounded quarterly. He has to set apart Rs.15,00,000 for

his daughter’s marriage and Rs.10,00,000 for his son’s marriage from accumulated sum

after 25 years. He is saving separately for their education and he wishes to withdraw a

certain amount for the next 25 years on the remaining sum. The money accumulated will

be invested at a rate of 8% p.a. How much can he withdraw at the beginning of every

year?