Financial Math Answers

One share of Mang tubig prepared stocks pays an annual dividend of php 1.60 today Mang tubig closed at php 25.40 with a net change of PHP 0.50 what was the stocks yield at yesterday's closing price?

Ryza borrows P 150,000. At what rate compounded bi – monthly will her interest be if she agrees to pay P10,000 more at the end of 2 years?

How much Ione invest if she wants to have P19,640.62 at the end of 2.75 years at a bank that offers 11(1/4)% simple interest

A couple buys a $150,000 home, with a down payment of 22%.The couple finances it for 15 years at an annual rate of 3%. What is the monthly payment

A debt of 40 000 is to amortized with 8 000 being paid at the end of each quarter .The interest rate is 16% compounded quarterly.Construct an amortization schedule

Suppose current dividends on a stock are Php10 per shares which remain the same forever at 6.3% growth rate. If the required return rate is 8%, what is the price of the stock?

Question three (9 marks)

ABC Company is being formed to make a 1 year investment in producing and marketing presidential campaign badges. The firm requires an investment of Sh 10,000,000 of which Sh 7,500,000 will be obtained by selling debt with a 10% interest rate and the other Sh 2,500,000 will be raised by selling common shares. All cash distribution to debt holders and shareholders will be made at the end of the one year. After this year is over the value of the firm will depend primarily on which candidates make it through the primary elections. The estimated probability of distribution of the firm is:

Probability Value `000'

0.7 20,000

0.2 5,000

0.1 0

Consider the shareholders value under the three states of nature and under the expected value.

Question two (8 marks)

The risk free rate is 10% and the expected return on the market portfolio is 15%. The expected returns for 4 securities are listed below together with their expected betas

SECURITY EXPECTED RETURN EXPECTED BETA

A 17.0% 1.3

B 14.5% 0.8

C 15.5% 1.1

D 18.0% 1.7

REQUIRED:

a. On the basis of these expectations, which securities are overvalued? Which are undervalued?

b. If the risk-free rate were to rise to 12% and the expected return on the market portfolio rose to 16%, which securities would be overvalued? which would be under-valued? (Assume the expected returns and the betas remain the same).

If the rate is at 1.25% effective, how long will Php 5,000 become Php 5,500?

Using the formula A = P(1 + r)n  where A is the future value of the investment, P is the principal, r is the fixed annual interest rate, and n is the number of years, how many years will it take an investment to double if the interest rate per annum is 20%?

Solution: