Lahore School of Economics

Financial Management I
Review of FM I Assignment Solution

Q1) 0 1 2 3

PV = $2,000 FV = ?

n=3 I = 4% FV = $2,249.73

Q2) 0 100

PV = ? FV = $1,000,000

n = 100 I = 5% PV = $7,604.5

Q3) 0 10

Sales = $100 m FV = ?

n = 10 I = 8% FV = $215.89 m

Q4) 0 10

PV = $585.43 FV = $1,000

n = 10 I = 5.5%

Q5) 0 1 2 ……………………………… 47

1,825 1,825 . . . . . . . . 1,825

FV = ?

n = 47 PMT = $1,825 I = 8% FV = $826,542.78

Q6) 0 1 2 ……………………………… 10

100 100 . . . . . . . . . . 100

PV = ?

n = 10 I = 8% PMT = $100 PV = $671.09

Q7) 0 1 2 ……………………………… 10

PMT PMT . . . . . . . . .PMT

PV = $100,000

I = 7% n = 10 PV = $100,000 PMT = $14,237.75

Q8) N = 10  2 = 20; I = YTM = 8.16%/2 = 4.08%; PMT = 0.09/2  1,000 = 45; FV = 1000; PV = VB = $1,056.68.

Q9) N = 7; PV = VB = -$975; PMT = 90; FV = 1000; YTM = I = 9.51%.

Q10) a) rs = rRF + (rM – rRF)b

= 7% + (12% – 7%)1.2
= 13%.

D1 $2.12
Pˆ0   
rs  g 0.13  0.06
b) $30.285

c) P1 = P0(1 + g) = 30.285(1 + 0.06) = $32.102

d) Dividend yield = D1/P0 = 2.12/30.285 = 0.07 = 7%

Capital Gains Yield = (P1 – P0)/P0 = (32.012 – 30.285)/30.285 = 0.06 = 6%

Total Expected Return = 7% + 6% = 13%

D p $ 10
V p= = =$ 125.
Q11) r p 0 . 08

Q12) WACC = wdrd(1 – T) + wcrs

= 0.4(0.09)(0.6) + 0.6(0.13)
= 0.0216 + 0.078 = 9.96%.