Finance Answers

Questions: 2 442

Answers by our Experts: 2 245

Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!

Search & Filtering

A) A firm has issued three bonds at different points of time with total values of Rs.5 crore,

Rs.10 crore, and Rs.10 crore with different coupon rates of 8%, 10% and 12% respectively. It

calculated the average cost of debt as 10.4% (shown below) and used it in the computation of

WACC. Was the firm right in using such a method? Comment.

[(5÷25)*8%]+[(10÷25)*10%]+[(10÷25)*12%] = 10.4%

b) A financial analyst opined that a firm must never borrow because borrowing can never be

beneficial to shareholders. Fixed charges of intertest would deplete the cashflows to

shareholders, and thus, they would always be poorer, when compared to shareholders of

unlevered firm, by the amount of interest paid. Do you agree with the statement? Explain

your contentions.


QUESTION

(a). Suppose I want to be able to withdraw K5,000 at the end of five years and withdraw K6,000 at the end of six years , leaving a zero balance in the account after the last withdrawal. If I can earn 5% on my balances, how much must I deposit today to satisfy my withdrawal needs? 


(b). Big Joe Company has a perpetual preferred stock issue that pays a 15% dividend. The par value of each   share is K85. The stocks are currently trading for K90. The going rate of interest in the market is 12%. Which of the following statements is true for this stock? Show calculations.

 

1. The market rate is less than the stock’s expected rate of return and it should be purchased. 

2. The market rate is less than the stock’s expected rate of return and it should not be purchased.                                


QUESTION

 (a). ABC's stock has a 50% chance of producing a 35% return, a 30% chance of producing a 10% return, and a 20% chance of producing a 28% return. What is ABC's expected return and standard deviation?


(b). XYZ's stock had a required return of 11.50% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Now suppose there is a shift in investor risk aversion, and the market risk premium increases by 2%. The risk-free rate and XYZ's beta remain unchanged. What is XYZ's new required return? (Hint: First calculate the beta, then find the required return.)


(c).Consider the following information and then calculate the required rate of return for the Scientific Investment Fund, which holds 4 stocks. The market's required rate of return is 15.0%, the risk-free rate is 7.0%, and the Fund's assets are as follows:


Stock Investment Beta

A K200,000 1.5

B 300,000 0.50

C 500,000 1.25

D 1,000,000 0.75


QUESTION

(a). Suppose that Beet Root Company has a 10 year preferred stock issue that pays a 15% dividend. The par value of each share is K80. The stocks are currently trading for K85. The going rate of interest in the market is 12%. What is the price of these shares?


(b). ABC Company is experiencing a period of rapid growth. Earnings and dividends

are expected to grow at a rate of 18 percent during each of the next two years, 15

percent in the third year, and at a constant rate of 6 percent annually thereafter.

ABC’s last dividend, which has just been paid, was K1.15. If the required rate of

return on the stock is 12 percent, what is the price of the stock today?


(c). What is the expected price of XYZ’s stock today if XYZ company’s dividend in a year’s time is expected to be K6.00 per share and grow at 12 percent for another 4 years, then 6 percent thereafter? XYZ shareholders require a return of 10 percent on the stock.  


QUESTION 1

(a). Five years ago, XYZ Company issued 10,000 (Ten Thousand) 20-year, K1,000 par value bonds at par. At that time the market rate for such bonds was at 8%. The coupon is paid annually. Today the actual market value of all the bonds together is K11,942,450. What is the yield to maturity of these bonds today?


 (b). What should be the price of a K1,000 par value, 10% annual coupon rate (coupon interest paid semi-annually) bond with 8 years remaining to maturity, assuming a discount rate of 12%?


(c). You have just discovered a K1,000 par value corporate bond with a maturity of 10 years. The bond’s yield to maturity is 9% and the bond is currently selling for K743.29. What is the bond’s annual coupon rate (the bond pays coupon payments annually)?


QUESTION 1

(a). Suppose you make an investment of K1,000. This first year the investment returns 12%, the second year it returns 6%, and the third year it returns 8%.  How much would this investment be worth, assuming no withdrawals are made?


(b). Congratulations! You have just won a small lottery. It will pay you either 5 annual payments of K15,000 each (with the first payment to be received one year from today), or a single lump sum to be received today. If you can invest at a 6% annual rate of interest, what is the least you should accept as the lump sum payout amount?


(c). Suppose an annuity costs K40,000 and produces cash flows of K10,000 over each of the following eight years. What is the rate of return on the annuity?


(d). How long does it take for your money to grow to ten times its original value if the interest rate is 5% per year?



What is the impact of factors affecting loanable fund?


In a brief paragraph or even bulleted ideas design/create a federal budget. 

1. Using the expenditures from the pie chart in the lecture prioritize your spending. Your fictional government has 100 dollars divide your 100 dollars among the expenditures listed on that pie chart (10 expenditures): military, medicare/medicaid, unemployment, housing community development, education, energy & envirnoment, international affairs, transporation, veterns benefits, national parks & historical sites. 

So for each expenditure tell me how much of your 100 dollars is going to each of the 10 outlays. 

2. The second half of this assignment is to tell me how you got your 100 dollars. Based on the five income groups: bottom 20%, lower middle 20%, middle 20%, upper middle 20%, top 20%. How much of does each of the 5 income groups contribute to the 100 dollars. 

 


Mpho has recently inherited a trust fund that offers two alternatives: she can take a R1 million pay-out now or receive an annual payment of R145 000 at the end of each year for 10 years. If she invests the money, she can receive 7% interest, compounded annually. Evaluate every option and advise her on which is the better option to take.




Your friend Fred is looking to buy a car and has a deposit of R50 000. The interest rate on offer is a fixed interest rate for 60 months of 7,5% per annum, compounded monthly. The car costs R300 000. What will the monthly repayment be?




Siya and Rachel want to ensure that they are able to fund their two children’s tertiary studies and have asked you to assist them in determining how much they need to save monthly to have R2 million in 18 years from now. They believe they can get an annual interest rate of 5%, compounded monthly. How much should they contribute to the fund monthly?


Dave and Sandra pool their individual savings of R2 000 each per month and deposit this into a money market account earning 5% interest per annum, compounded annually. What will the balance of the account be at the end of five years?