1. If you deposit $10,00 today in a bank account paying 10.38%, how much will you have in a year?

If you need $12,00 in a year, how much do you have to deposit today.? 2. An art collector has the opportunity to invest in paintings; the investment requires an outlay of $2 million. He is certain that he will be able to sell the paintings for $2.18 million in one year. He also has the opportunity to invest in certificates of deposit (CDs) which pay 10% per year. Which of the two do you think he should go in for? 3. You have just won a $20,000 lottery that offers a choice as to the mode of payment. Which one will you choose? Market interest stands at 18.25% a. $5000 every year for 4 years b. $8,000 now, and $3000 yearly for the next 3years c. $5,000 now, $10,000 in a year and the rest the 2nd year 4. What is the minimum interest rate that can quadruple your investment of $15,000 if you can only wait 8 years to realize your dream of owning a jaguar X-type. 5. Compute the present and future values of the following ordinary annuities: Payment Years Interest rate a. $678.09 7 13% b. 7,968.26 13 6 c. 20,322.93 23 4 d. 69,712.54 4 31 6. A bank pays interest compounded monthly; the EAR is 8%, what is the quoted rate? 7. An investment will increase in value by 270% over the next 17 years, what is the annual interest rate when compounded quarterly provides this return? 8. What is the intrinsic value of a bond that offers a 12% coupon in a market with an interest rate of 14%? The bond matures in 5years and has a face value of $1000. Should this bond be traded at a discount, premium or at par? 9. If the real rate is 4% and the inflation rate is 10%, what is the nominal interest rate? 10. State the decision rules governing NPV analysis, IRR and the Profitability Index

State of economy Boom Bust

Prob of state .6 .4

Stock A .07 .13

Stock B .15 .03

11. Compute the portfolio return and standard deviation on an equally weighted portfolio of these two stocks? 12. A stock has a beta of 1.5, the expected return on the market is 14% and the risk-free rate is 5%. What must the expected return on the stock be? 13. Determine the viability or otherwise of a project with an initial outlay of $30,000 and the following cash inflows: $12,000; $3,000; $4,000; $5,000; $3,500; $10,000 for years 1-6 respectively. Cost of capital is 18%. (Determine viability under NPV, IRR, and Profitability Index)