Finance 211

February 21, 2023

Homework-Chapter 7- 3,6,11,20,24,26

3) Part A

65-45=20

N=20

I=6%

PMT=2000

PV=0

FV= $73,571.18

Part B

N= 20

I=6%

PMT=0

PV= 2,000

FV=$6,414.27

6)Part A

N=10

I=6%

PV=93,000

FV=0

PMT=? 12,636

Answer= No, can only withdraw 12,636

Part B

N=10

I=9%

PV=93,000

FV=0

PMT=? 14,491

Yes, she can withdraw 14,000 at a 9% yield

11)Part A

N=5

I=8%

PV=20

PMT=0

FV=? 29.39

Part B

N=5

I=16%

PV=20

PMT=0

FV=? 42.01

20)Part A

N=10

I=8%

PV? 67,100.81

PMT=10,000

FV=0

Part B

N=5

I=8%

PMT=0

PV=? 45,667.68

FV= 67,100.81

24) Part A

N=4

I=10%

PV=? 110,945.29

PMT=3,000

FV=0

N=4
I=10%

PV=? 107,506.32

PMT=0

FV= 157,400

26) Part A

325,000-100,000=225,000

65 to 80=16 years

N=16

I=10%

PV=? -586,778.15

PMT=75,000

FV=0

Part B

N=15

I=? 6.60%

PV= 225,000

PMT=0

FV=-586,778.15

Chapter 8-2,5,8,9,10

2)Part A

1/3=0.3333

1/3*7%+1/3*12%+1/3*20%

2.3331+3.9996+6.666=12.9987

=13%

Part B

.50*7%+.25*12%+.25*20

3.5+3+5=11.5%

5)X

(10%+20%+30%+20%+10%) =0.9/5=0.18%

10 -8 64
 20 2 4
30 12 144
20 2 4
10 -8 64
280/4=
70
Square
root of
70 is
8.367%

Part Y

16%+18%+15%+20%+21%=0.18

16 -2 4
18 0 0
15 -3 9
20 2 4
21 3 9
26/4=6.5
Square root
for 6.5 is
2.550%

Therefore y (2.550) is the less risker compared to x (8.367%)

8)Risk Premium= (rm-rf) *Beta

RP= (10%-5%) *0.8

=0.04%

Stock A Risk Premium=4%

RP= (10%-5%) *1.4

=0.07

Stock B Risk Premium= 7%

9)Rp=(rm-rf) *B
5.6%= (8.1%-2.3%) * B

5.6%= (5.8%) * B

5.6%/5.8%=0.96%

10)Requirement return=Risk free return + Beta * (Market return -Risk free return)

=2.0+1.3*(8.1%-2.0%)

=2.0+7.93

=9.93

Therefore, since the expected value was 11.2, but the required rate of return is 9.93 it a good
investment. The investment is under-valued.