# Week 2 Questions and Answers

Calculate the missing Time Value of Money variable for each of the following sets of data: Ch 5-1 Compute Future Value Ch 5-2 Compute Future Value Ch 5-3 Compute Present Value Ch 5-4 Compute Present Value Ch 5-5 Compute Interest Rate Ch 5-6 Compute Interest Rate Ch 5-7 Compute # of Periods Ch 5-8 Compute # of Periods Present Value and Multiple Cash Flows [LO1] Investment X offers to pay you \$6,200 per year for eight years, whereas Investment Y offers to pay you \$8,500 per year for five years. Ch 6-1 a Which investment has the higher present value if the discount rate is 5 percent? Ch 6-1 b Which investment has the higher present value if the discount rate is 15 percent? Calculating Loan Payments [LO2, 4] You want to buy a new SUV for \$35,750, and the finance office at the dealership has quoted you an APR of 4.5 percent for a 60-month loan to buy the car. Ch 6-2 a What will your monthly payments be? Ch 6-2 b What is the effective annual rate on this loan? Valuing Bonds [LO2] Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of 1,000, 20 years to maturity, and a coupon rate of 4.4 percent paid annually. Ch 7-1  If the yield to maturity is 5.1 percent, what is the current price of the bond? Coupon Rates [LO2] A Corporation has bonds on the market with 14 years to maturity, a YTM of 4.8 percent, a par value of \$1,000, and a current price of \$982. The bonds make semiannual payments. Ch 7-2 What must the coupon rate be on these bonds? Stock Values [LO1] A firm just paid a dividend of \$2.25 per share on its stock. The dividends are expected to grow at a constant rate of 4.0 percent per year indefinitely. Investors require a return of 11.25 percent on stock. Ch 8-1 a What is the current price? Ch 8-1 b What will the price be in three years? Stock Valuation and PE [LO2] A company has earnings of \$3.25 per share. The benchmark PE for the company is 12. Ch 8-2 a What stock price would you consider appropriate? Ch 8-2 b What is the appropriate price if the benchmark PE is 18?

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