FIN 534 – Homework Set #2

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FIN 534 – Homework Set #2

Directions: Answer the
following questions on a separate
document. Explain how you reached
the answer
or show your work if a mathematical calculation is needed, or
both. Submit
your assignment
using the
assignment link in the
course shell. This homework assignment
is worth
100 points.

Use the following
information for Questions 1 and
2:

Assume that you
are nearing
graduation and have applied for
a job
with a
local bank.
The bank’s
evaluation process requires you
to take
an examination
that covers
several financial analysis techniques. The first section of the
test asks
you to
address these discounted cash flow
analysis problems:

1. What
is the
present value of the following
uneven cash flow stream −$50,
$100, $75,
and $50
at the

end of Years 0
through 3? The appropriate interest
rate is
10%, compounded
annually.

2. Suppose that on January
1 you
deposit $100 in an account
that pays
a nominal
(or quoted)
interest rate of 11.33463%, with interest
added (compounded)
daily. How much will you
have in
your account
on October 1, or
9 months
later?

Use the following
information for Questions 3 and
4:

A firm issues
a 10-year,
$1,000 par value bond with
a 10%
annual coupon and a required
rate of
return is

10%.

3. What
is the
yield to
maturity on a 10-year, 9%
annual coupon, $1,000 par value
bond that
sells for

$887.00? That sells
for $1,134.20?
What does
a bond
selling at a discount or
at a
premium tell you

about the relationship between rd and the
bond’s coupon rate?

4. What are the total
return, the current yield, and
the capital
gains yield
for the
discount bond in Question #8 at
$887.00? At $1,134.20? (Assume the
bond is
held to
maturity and the company does
not default on the
bond.)

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University. All Rights Reserved. This document contains Strayer University
Confidential and Proprietary information and may not be copied, further
distributed, or otherwise disclosed in whole or in part, without the expressed
written permission of

Strayer University.

FIN 534 Homework Set #2 1156 (5-19-2015)

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