Financial Math Answers

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:

j2= 12% calculate to j4

Refer to this information. Calculate the future value of a 4 year investment of R13270 at an interest rate of 6.09% per annum compounded quarterly. 

If the interest rate changes at the end of the second year from 6.09$ per annum compounded quarterly to 7.54% per annum compounded quarterly, the accumulated value of the original investment of R13270 at the end of 4 years will be.. 

The Employee's Union charges 10% interest for short-term loans. If I borrow P20,000 and must pay an amount of P2,000 monthly, what is the length of my loan?

𝒀 = 𝑪 + 𝑰𝟎 + 𝑮𝟎

𝑪 = 𝑪𝟎 + 𝒃𝒀𝒅

𝑻 = 𝑻𝟎 + 𝒕𝒀

Determine and comment on the effect of changes in 𝑮𝟎 on 𝒀*, 𝑪*, and 𝑻*.

Jenny is planning to deposit 17,000.00 pesos Quezon Metropolitan Bank is offering 7.5% compounded semi-annually for 5 years while Quezon Premier Bank is offering 7% compounded monthly for 5 years. Wich bank should she deposit her money? Justify you answer by computing and comparing the maturity value for each bank.