Abstract
1) TIME VALUE OF MONEY
a) You have taken out a car loan that you will repay over five years in equal annual payments. Calculate the amount of your annual payments.
b) Calculate how much you still owe on your car loan after you have made four annual payments.
c) You have saved a large sum for your retirement. Calculate your age when your retirement account will be empty.
d) Explain the meaning of the Time Value of Money. Include a discussion of the three reasons discussed in class about why you would rather receive €100 today instead of waiting one year.
2) BONDS
a) A company has issued ten year, $1000 bonds that make annual coupon payments. Calculate the coupon rate on these bonds.
b) Five years later the market interest have changed. Calculate the premium or discount on this bond.
c) Recalculate your answer to b) above if these bonds paid interest semi-annually.
d) Discuss why bonds sometimes sell at a premium or at a discount from their face value.
3) STOCKS
a) Calculate the value of stock A.
b) Calculate the price of stock B.
c) Calculate the growth rate of stock B.
d) Discuss the role of investment banks, the primary and secondary markets, and initial public offerings in helping companies raise money.
4) NET PRESENT VALUE
a) Calculate the Discounted Payback of this project.
b) Calculate the Net Present Value of this project. Should you continue with this project?
c) Explain why IRR cannot be used to value this project.
d) Explain the rules of NPV that were discussed in class. Give examples of each.
