Lahore School of Economics

Financial Management II
Review of FM I
Assignment 1 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%.

b) $30.285

Dp $ 10
V p= = =$ 125.
Q11) rp 0 . 08

Q12) WACC = wd rd(1 – T) + wp rp + ws rs = 0.35(6.5%)(1 – 0.4) + (0.1)(6%) + (0.55)(11.25%) = 8.15%.