Chapter 4
29.Annuity Present Values What is the value today of a 15-year annuity that pays $500 a year?The annuity’s first payment occurs at the end of year 6. The annual interest rate is 12 percentfor years 1 through 5, and 15 percent thereafter. (Ross, Stephen A.. Corporate Finance, 8th Edition. Irwin/McGraw-Hill, 112006. 4.8).

33.Growing Annuity Southern California Publishing Company is trying to decide whether to revise its popular textbook, Financial Psychoanalysis Made Simple. The company has estimated that the revision will cost $50,000. Cash flows from increased sales will be $12,000the first year. These cash flows will increase by 6 percent per year. The book will go out of print five years from now. Assume that the initial cost is paid now and revenues are received at the end of each year. If the company requires an 11 percent return for such an investment, should it undertake the revision? (Ross, Stephen A.. Corporate Finance, 8th Edition. Irwin/McGraw-Hill, 112006. 4.8).

37Calculating Annuity Present Values You want to borrow $45,000 from your local bank tobuy a new sailboat. You can afford to make monthly payments of $950, but no more. Assumingmonthly compounding, what is the highest APR you can afford on a 60-month loan? (Ross, Stephen A.. Corporate Finance, 8th Edition. Irwin/McGraw-Hill, 112006. 4.8).

41.EAR versus APR You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 30-year mortgage for 80 percent of the $1,600,000 purchase price. The monthly payment on this loan will be $10,000. What is the APR on this loan? The EAR? (Ross, Stephen A.. Corporate Finance, 8th Edition. Irwin/McGraw-Hill, 112006. 4.8).

Chapter 5
11.Bond Yields Stealers Wheel Software has 8.4 percent coupon bonds on the market with nine years to maturity. The bonds make semiannual payments and currently sell for 104 percent of par. What is the current yield on the bonds? The YTM? The effective annual yield? (Ross, Stephen...

...Chapter4
15. For discrete compounding, to find the EAR, we use the equation:
EAR = [1 + (APR / m)]m – 1
= .0719, or 7.19%
EAR = [1 + (.07 / 4)]4 – 1
EAR = [1 + (.16 / 12)]12 – 1
= .1723, or 17.23%
= .1163, or 11.63%
EAR = [1 + (.11 / 365)]365 – 1
To find the EAR with continuous compounding, we use the equation:
EAR = er – 1
EAR = e.12 – 1 = .1275, or 12.75%
23.
Although the stock and bond accounts have different interest rates, we can draw one time line, but we
need to remember to apply different interest rates. The time line is:
0
1
Stock
Bond
$800
$350
360
361
...
660
…
$800
$350
$800
$350
$800
$350
$800
$350
C
C
C
We need to find the annuity payment in retirement. Our retirement savings ends at the same time the
retirement withdrawals begin, so the PV of the retirement withdrawals will be the FV of the
retirement savings. So, we find the FV of the stock account and the FV of the bond account and add
the two FVs.
Stock account: FVA = $800[{[1 + (.11/12) ] 360 – 1} / (.11/12)] = $2,243,615.79
Bond account: FVA = $350[{[1 + (.06/12) ] 360 – 1} / (.06/12)] = $351,580.26
So, the total amount saved at retirement is:
$2,243,615.79 + 351,580.26 = $2,595,196.05
Solving for the withdrawal amount in retirement using the PVA equation gives us:
PVA = $2,595,196.05 = C[1 – {1 / [1 + (.08/12)]300} / (.08/12)]
C = $2,595,196.06 / 129.5645 = $20,030.14...

...Chapter4
1.
If you invest $1000 today at an interest rate of 10% per year, how much will you have 20 years from now,
assuming no withdrawals in the interim?
SOLUTION:
n
PV
FV
PMT
Result
20
2.
i
10
1000
?
0
FV =6,727.50
a.
If you invest $100 every year for the next 20 years, starting one year from today and you earn interest
of 10% per year, how much will you have at the end of the 20 years?
b. How much must you invest each year if you want to have $50,000 at the end of the 20 years?
SOLUTION:
n
PV
FV
PMT
Result
a. 20
10
0
?
100
FV = 5,727.50
b. 20
3.
a.
b.
c.
d.
e.
i
10
0
50,000
?
PMT = 872.98
What is the present value of the following cash flows at an interest rate of 10% per year?
$100 received five years from now.
$100 received 60 years from now.
$100 received each year beginning one year from now and ending 10 years from now.
$100 received each year for 10 years beginning now.
$100 each year beginning one year from now and continuing forever.
SOLUTION:
n
i
PV
FV
PMT
Result
a. 5
10
?
100
0
PV = $62.09
b. 60
10
?
100
0
PV = $.3284
c. 10
10
?
0
100 ordinary
PV = $614.46
d. 10
10
?
0
100 immediate
PV = $675.90
e. Perpetuity
10
?
0
100 ordinary
See below
e. PV = $100 = $1,000
.10
Instructor’s Manual...

...Introduction
In this report, I will analyze the financial performance of SDB by comparing it with its industry peers. SDB’s asset quality, earnings capability and capital adequacy are the three aspects I will pay attention to when evaluate its financial performance. Then I will discuss whether it is appropriate for Newbridge to pay 1.6 times book value for 18% shares in SDB. And what is appropriate range for the price Newbridge can offer. The objective of this report it to assist Newbridge to make right decisions on whether to invest SDB or not and if invest what is appropriate price to pay for each share.
Part 1 SDB’ financial performance
In order to analyze the financial performance of SDB, there are three aspects we should consider. And they are asset quality, earnings capability and capital adequacy of SDB. I will exam its asset quality first.
Asset quality
First of all, the asset quality of SDB seems in a big problem. There are two important asset quality measures that managers and analysts should pay attention to, they are NPL ratio (NPL/Gross loan) and NPL coverage ratio (LLR/NPL). Here, NPL means nonperforming loan, it is a sum of borrowed money upon which the debtor has not made his or her scheduled payments for at least 90 days. Based on the data from Exhibit 10 (Jin, Xuan, & Bai, 2009), NPL ratio for SDB is 11.6% in 2002 and the average NPL ratio is 7.3% for other joint-stock banks in china. Higher NPL ratio indicates SDB got a worse...

...Chapter4
Exchange Rate Determination
Lecture Outline
Measuring Exchange Rate Movements
Exchange Rate Equilibrium
Demand for a Currency
Supply of a Currency for Sale
Equilibrium
Factors that Influence Exchange Rates
Relative Inflation Rates
Relative Interest Rates
Relative Income Levels
Government Controls
Expectations
Interaction of Factors
Speculating on Anticipated Exchange Rates
Chapter Theme
This chapter provides an overview of the foreign exchange market. It is designed to illustrate (1) why
a market exists, and (2) why exchange rates change over time.
Topics to Stimulate Class Discussion
1. Why are MNCs affected by exchange rate movements?
2. Why did exchange rates change recently?
3. Show the class a current exchange rate table from a periodical—identify spot and forward
quotations. Then show the class an exchange rate table from a date a month ago, or three months
ago. The comparison of tables will illustrate how exchange rates change, and how forward rates
of the earlier date will differ from the spot rate of the future date for a given currency.
4. Make up several scenarios and ask the class how each scenario would, other things equal, affect
the demand for a currency, the supply of a currency for sale, and the equilibrium exchange rate.
Then integrate several scenarios together to illustrate that in reality other things are not held
constant, which makes...

...floating regimes, economic growth has also been significantly lower (see Petreski 2009, and Rodriguez 2009 for a review).
Question 2:
Many East Asian countries has adopted an exchange rate policy comely referred to as a “managed float”. Most of the countries including China, Vietnam, Cambodia, Singapore, Malaysia, Thailand and Indonesia allow their currency to float and to adjust in the value of Forex markets so that the fluctuation in the currency do not affect other economic policy goals (such as inflation limits or money supply constraints). According to the International Monetary Fund following four categories of exchange rate policies are adopted by most of the South East Asian countries.
1) Pegged
2) Crawling Peg
3) Managed Float
4) Free Float
Vietnam is officially maintaining a crawling peg policy which allows its currency to adjust in value with respect to an undisclosed bundle of currencies within a specified range each day. This policy allows the currency to appreciate or depreciate in value gradually over time according to market forces. According to the research for four years from 2005 to 2009, East Asian exchange rates appear to support the supposition that some nations are engaged in competitive exchange rates management. Hong Kong dollar and the Macau pataca are pegged throughout the time and expected to remain pegged against US dollar in the future as well. The Malaysian Ringgit and the Singaporean dollar appreciated until the...

...assets, it must raise money to pay for them. Financing decisions are concerned with the ways in which firms obtain and manage long-term financing to acquire and support their productive assets. There are two basic sources of funds: debt and equity. Every firm has some equity because equity represents ownership in the firm. It consists of capital contributions by the owners plus cash flows that have been reinvested in the firm. In addition, most firms borrow from a bank or issue some type of long-term debt to finance productive assets.
After the productive assets have been purchased and the business is operating, the firm will try to produce products at the lowest possible cost while maintaining quality. This means buying raw materials at the lowest possible cost, holding production and labor costs down, keeping management and administrative costs to a minimum, and seeing that shipping and delivery costs are competitive. In addition, the firm must manage its day-to-day finances so that it will have sufficient cash on hand to pay salaries, purchase supplies, maintain inventories, pay taxes, and cover the myriad of other expenses necessary to run a business. The management of current assets, such as money owed by customers who purchase on credit, inventory, and current liabilities, such as money owed to suppliers, is calledworking capital management.1
A firm generates cash flows by selling the goods and services it produces. A firm is successful...

...investment banks operate under the supervision of regulatory bodies, like the Securities and Exchange Commission, FINRA, and the U.S. Treasury, there are typically fewer restrictions when it comes to maintaining capital ratios or introducing new products.Insurance CompaniesInsurance companies pool risk by collecting premiums from a large group of people who want to protect themselves and/or their loved ones against a particular loss, such as a fire, car accident, illness, lawsuit, disability or death. Insurance helps individuals and companies manage risk and preserve wealth. By insuring a large number of people, insurance companies can operate profitably and at the same time pay for claims that may arise. Insurance companies use statistical analysis to project what their actual losses will be within a given class. They know that not all insured individuals will suffer losses at the same time or at all. BrokeragesA brokerage acts as an intermediary between buyers and sellers to facilitate securities transactions. Brokerage companies are compensated via commission after the transaction has been successfully completed. For example, when a trade order for a stock is carried out, an individual often pays a transaction fee for the brokerage company's efforts to execute the trade.A brokerage can be either full service or discount. A full service brokerage provides investment advice, portfolio management and trade execution. In exchange for this high level of...

...2. You have just won 10 million in the state lottery which promises to pay you 1 million (tax free) every year for the next ten years. Have you really won 10 million No, because the present discounted value of these payments is necessarily less than 10 million as long as the interest rate is greater than zero. 3. If the interest rate is 10, what is the present value of a security that pays you 1,100 next year, 1,210 the year after, and 1,331 the year after that PV FV1/(1i) FV2/(1i)2 FV3/(1i)3 PV 1,100/1.1 1,210/1.12 1,331/1.13 3,000 5. Write down the formula that is used to calculate the yield to maturity on a twenty-year 10 coupon bond with 1,000 face value that sells for 2,000. The present value is the purchase price of 2,000. The future value is the face value of 1,000. The annual coupon payment is 10 of the face-value, or 100. The bond term is 20 years. The present value formula for a coupon bond is PV C/(1i) C/(1i)2 C/(1i)n F/(1i)n Plugging in the above information gives 2,000 100/(1i) 100/(1i)2 100/(1i)20 1000/(1i)20 Using a financial calculator, you could find the yield to maturity as i 3. Please note that on an exam or quiz, I will only ask you for the formula, not the solution. 6. What it the yield to maturity on a 1,000 face-value discount bond maturing in one year that sells for 800 PV FV/(1i) ( PV 800 (current price), FV 1,000 (future payment) 800 1000/(1i) ( 1 i 1000/800 1.25 ( i 25 8. To pay for college, you have just...