DA226o: Financial Analytics Assignment 1

11 September 2023

1. Investment and financing decisions Which of the following are real

assets, and which are financial?
(a) A share of stock
(b) A trademark
(c) A factory
(d) An experienced and hardworking sales force
(e) A corporate bond
2. Investment and financing decisions Explain the differences between:
(a) Real and financial assets
(b) Capital budgeting and financing decisions
(c) Closely held and public corporations
(d) Limited and unlimited liability
3. In most large corporations, ownership and management are separated.
What are the main implications of this separation?
4. Future values: At an interest rate of 12%, the six-year discount factor is
0.507. How many dollars is $0.507 worth in six years if invested at 12%?
5. Present values A project produces a cash flow of $432 in year 1, $137
in year 2, and $797 in year 3. If the cost of capital is 15%, what is the
project’s P V ?
6. Growing Perpetuity A common stock will pay a cash dividend of $4
next year. After that, the dividends are expected to increase indefinitely
at 4% per year. If the discount rate is 14%, what is the P V of the stream
of dividend payments?
7. Annuities Kangaroo Autos is offering free credit on a new $10000 car.
You pay $1000 down and then $300 a month for the next 30 months.
Turtle Motors next door does not offer free credit but will give you $1000
off the list price. If the rate of interest is 10% a year (about 0.83% a
month), which company is offering the better deal?

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 8. Continuous compounding How much will you have at the end of 20
years if you invest $100 today at 15% annually compounded? How much
will you have if you invest at 15% continuously compounded?
9. Prices and yields The following statement is true. Explain why.
If a bond’s coupon rate is higher than its yield to maturity, then the bond
will sell for more than the face value.
10. Prices and yields In March 2013, 8.3%- 2026 GSecs offered a semian-
nually compounded yield of 7.38%. Recognizing that coupons are paid
semiannually, calculate the security’s price.

11. Prices and yields Here are the prices of three bonds with 10 year ma-
turities:
Bond Coupon(%) Price
2 81.62
4 98.39
8 133.42
If coupons are paid annually, which bond offers the highest yield to matu-
rity? Which had the lowest? Which bonds had the longest and shortest
duration?