# Fin 571 Week 2 Problem Sets

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Date Submitted: 01/27/2013 08:19 PM

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Week 2: Problem Sets

Solution:

Cash flow= \$1000 x 7.4/100 = \$74

PV = (1/r)x(1- 1/(1+r)^N) = 6.45

PV = \$74x6.45= 474.90

Cash flow= \$1000

PV factor = 1/(1+r)^N = .42241

PV = \$1000x.42241= 422.41

FV= 474.90+422.41 = \$897.31

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Solution:

P0 =D1/(r-g) = \$5.6/(.10-.06)= \$140

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Solution:

Required Return= D/P= \$3.38/\$45.25 = .0747= 7.47%

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Solution:

P =D/r = \$1/.03= \$33.33

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Solution:

a.

Bond 1. n = 1 x 2 = 2 r = 8% / 2 = 4% PV = ? PMT = 9.125% x 1,000 / 2 = \$45.625 FV = \$1,000

PV = -\$1,010.61

Bond 2. n = 7 x 2 = 14 r = 8% / 2 = 4% PV = ? PMT = 9.125% x 1,000 / 2 = \$45.625 FV = \$1,000

PV = -\$1,059.42

Bond 3. n = 15 x 2 = 30 r = 8% / 2 = 4% PV = ? PMT = 9.125% x 1,000 / 2 = \$45.625 FV = \$1,000

PV = -\$1,097.27

b.

Bond 1. n = 1 x 2 = 2 r = 7% / 2 = 3.5% PV = ? PMT = 9.125% x 1,000 / 2 = \$45.625 FV = \$1,000

PV = -\$1,020.18

Bond 2. n = 7 x 2 = 14 r = 7% / 2 = 3.5% PV = ? PMT = 9.125% x 1,000 / 2 = \$45.625 FV = \$1,000

PV = -\$1,116.03

Bond 3. n = 15 x 2 = 30 r = 7% / 2 = 3.5% PV = ? PMT = 9.125% x 1,000 / 2 = \$45.625 FV = \$1,000

PV = -\$1,195.42

c.

Bond 1. n = 1 x 2 = 2 r = 9% / 2 = 4.5% PV = ? PMT = 9.125% x 1,000 / 2 = \$45.625 FV = \$1,000

PV = -\$1,001.17

Bond 2. n = 7 x 2 = 14 r = 9% / 2 = 4.5% PV = ? PMT = 9.125% x 1,000 / 2 = \$45.625 FV = \$1,000

PV = -\$1,006.39

Bond 3. n = 15 x 2 = 30 r = 9% / 2 = 4.5% PV = ? PMT = 9.125% x 1,000 / 2 = \$45.625 FV = \$1,000

PV = -\$1,010.18