BUS 401 Week 2

BUS 401 Week Two Quiz

Assignments

Alternative Investments. Complete the Mini Case from the end of Chapter 8 and submit to instructor. In Parts a, c, and d, clearly label the calculation of the required formulas and solve using Excel. Use formulas to calculate the ratios and format the cells to insert a comma if there is more than three numbers. Round dollar amounts to the penny and percentages to two decimal places as percentages. In Parts b and c, justify your answer in a crisp statement not to exceed 50 words each.

Chapter 8 Mini-Case

Problem 5-6

Problem 6-3

Problem 7-10

Problem 8-16

Discussion Questions

Annuity and Capital Asset Pricing Model. Complete Study Problem 5-6 from the end of Chapter 5 and Study Problem 6-3 from the end of Chapter 6 and post your answers to the discussion board. Remember to complete all parts of the problems and report the results of your analysis. In problem 6-3, be sure to include your answer to Part b: Why is it a fair rate?

5-6 (Present value of an annuity) What is the present value of the following annuities?

a.$2,500 a year for 10 years discounted back to the present at 7 percent

b.$70 a year for 3 years discounted back to the present at 3 percent

c.$280 a year for 7 years discounted back to the present at 6 percent

d.$500 a year for 10 years discounted back to the present at 10 percent

6-3 (Required rate of return using CAPM)

a.Compute a fair rate of return for Intel common stock, which has a 1.2 beta. The risk-free rate is 6 percent, and the market portfolio (New York Stock Exchange stocks) has an expected return of 16 percent.

b.Why is the rate you computed a fair rate?

Bonds and Common Stocks. Complete Study Problem 7-10 from the end of Chapter 7 and Study Problem 8-16 from the end of Chapter 8 and post your answers to the discussion board. Remember to complete all parts of the problems and report the results of your analysis. Since the values will be less than $10,000, show the values rounded to the penny. Show all percentages to two decimal places as percentages. Do not forget to show the necessary steps and explain how your attained that outcome.

7-10 (Bond valuation) National Steel 15-year, $1,000 par value bonds pay 8 percent interest annually. The market price of the bonds is $1,085, and your required rate of return is 10 percent.

a.Compute the bonds expected rate of return.

b.Determine the value of the bond to you, given your required rate of return.

c.Should you purchase the bond?

8-16 (Common stock valuation) The common stock of NCP paid $1.32 in dividends last year. Dividends are expected to grow at an 8 percent annual rate for an indefinite number of years.

a.If NCPs current market price is $23.50 per share, what is the stocks expected rate of return?

b.If your required rate of return is 10.5 percent, what is the value of the stock for you?

c.Should you make the investment?