Principle of Finance Essay - 2986 Words

1 PART A MULTIPLE CHOICE: ANSWER ALL QUESTIONS Answer all questions. Write in your answer book the number of the question and ONE letter. Question 1 Consider a bond with a 10% coupon and with yield to maturity = 8%. If the bond’s yield to maturity remains constant, then in 1 year the bond’s price will be: a. Higher b. Lower c. Unchanged d. Cannot answer based on given information Question 2 The yield to maturity on a bond is: a. Below the coupon rate when the bond sells at a discount, and above the coupon rate when the bond sells at a premium. b. The discount rate that will set the present value of the payments equal to the bond price. c. The current yield plus the average annual capital gain rate. d. Based on the†¦show more content†¦_______________________________________________ Forecast Return Standard Deviation Beta _______________________________________________ Stock X 14.0% 36% 0.8 Stock Y 17.0% 25% 1.5 Market index 14.0% 15% 1.0 Risk-free rate 5.0% Given the information presented above, identify and justify which stock would be more appropriate for an investor who wants to (i) add this stock to a well-diversified equity portfolio (ii) hold this stock as a single-stock portfolio. [18 MARKS] (b) After retirement, you expect to live for 25 years. You would like to have $75,000 income each year. How much should you have saved in the retirement to receive this income, if the interest is 9% per year (assume that the payments start on the day of retirement)? [7 MARKS] Question 12 (a) Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 45%. The following are well-diversified portfolios: Portfolio Beta on F1 Beta on F2 Expected Return A 1.5 2.0 31% B 2.2 -0.2 27% 5 Find the expected risk premia for each of the risk factors in the economy. What is the expected return-beta relationship in this economy? [15 MARKS] (b) Mr. Hopper is expected to retire in 25 years and he wishes to accumulate $750,000 in his retirement fund by that time. If the interest rate is 10% perShow MoreRelatedPrinciples of Finance943 Words   |  4 PagesFINANCE 3110 (CRN 83872) Principles of Finance Fall 2014 Principles of Finance FINANCE 3110 (CRN 83872) - Fall 2014 School of Business, Middle Georgia State College Tuesday, 5:30 PM-8:00 PM, PSC 248 INSTRUCTOR Dr. Shawn Saeyeul Park Middle Georgia State College School of Business Email: shawn.park@mga.edu Office: PSC 364 (Phone: 478-471-2886) Office Hours: M,W 10:00 – 11:30 AM; T,Th 10:00 – 11:15 AM; 1:30 – 2:45 PM WRC: M,W 6:45 – 7:45 PM or by appointments Course Website: D2L COURSE DESCRIPTIONRead MorePrinciple of Finance4845 Words   |  20 PagesPrinciples of Managerial Finance The Prentice Hall Series in Finance Adelman/Marks Entrepreneurial Finance Andersen Global Derivatives: A Strategic Risk Management Perspective Bekaert/Hodrick International Financial Management Berk/DeMarzo Corporate Finance* Berk/DeMarzo Corporate Finance: The Core* Berk/DeMarzo/Harford Fundamentals of Corporate Finance* Boakes Reading and Understanding the Financial Times Brooks Financial Management: Core Concepts* Copeland/Weston/Shastri Read MoreThe Principles Of Public Finance828 Words   |  4 Pagesof fraudulent transaction to the entity that is least prepared to support the EMV technology (How EMV, 2016). 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Greed into thinking that the property boom would continue in perpetuity so that the borrowers could cash out more from their current property market valuation, with this cash out in terms of personal loan they could fund or finance their lifestyle be it buying a new property for investment purposes, to flip or for rental. For the luxury in life they choose to enjoy now, spending future money. As the economy slowed, jobs are being taken away from corp oration in America to other