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Annuity with changing interest rates
You are chairperson of the investment fund for the Continental Soccer League. You are asked to set up a fund of semiannual payments to be compounded semiannually to accumulate a sum of $270,000 after 15 years at an 14 percent annual rate (30 payments). The first payment into the fund is to take place six months from today, and the last payment is to take place at the end of the 15th year. UseAppendix A and Appendix C.
(a) Determine how much the semiannual payment should be. (Round "FV Factor" to 3 decimal places and final answer to the nearest dollar amount. Omit the "$" sign in your response.)
Semi-annual payment $
On the day after the sixth payment is made (the beginning of the fourth year) the interest rate goes up to a 16 percent annual rate, and you can earn a 16 percent annual rate on funds that have been accumulated as well as all future payments into the fund. Interest is to be compounded semiannually on all funds.
(b) Determine how much the revised semiannual payments should be after this rate change (there are 24 payments and compounding dates). The next payment will be in the middle of the fourth year.(Round "FV Factor" to 3 decimal places, intermediate and final answer to the nearest dollar amount. Omit the "$" sign in your response.)
Revised semi-annual payments $
Suppose Acap Corporation will pay a dividend of $2.75 per share at the end of this year and $3.09 per share next year. You expect Acap's stock price to be $53.54 in two years. Assume that Acap's equity cost of capital is 10.5%. What price would you b..
What is the free cash flow for this industry for 2015? Calculate it two ways -from an operating and from a financing perspective. Then explain in words how the company is generating/using cash from an operating perspective and explain using the finan..
Consider an option that expires in 72 days. The bid and ask discounts on the T-bill are 7.44 and 7.20, respectively. Find the appropriate risk-free rate. please show all work
A bond with 20 years until maturity has a coupon rate of 7.4 percent and a yield to maturity of 7.5 percent. What is the price of the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your resp..
Regarding income taxes, which do you think is more important (and why)-- the average tax rate that a firm pays or the marginal tax rate the firm is paying?
Essary Enterprises has bonds on the market making annual payments, with seven years to maturity, a par value of $1,000, and selling for $950. At this price, the bonds yield 6 percent. What must the coupon rate be on the bonds?
It is estimated that you will pay about $61,250 into the social security system (FICA) over your 35-year work span. For simplicity, assume this is an annuity of $1,750 per year, starting a year from today with your 31th birthday and continuing throug..
On your 30th birthday, you decide to open an individual retirement account (IRA) and deposit $500. You continue to make monthly deposit of $500 each until your 45th birthday (your last deposit of $500 will be made on your 45th birthday). How much tot..
Dexter Corp. will pay a dividend of $1.44 next year. The company has stated that it will maintain a constant growth rate of 5.4% a year, forever. A. If you want a return of 13%, how much should you pay for the stock? B. What is the expected capital g..
A European option gives its owner the right to exchange two shares of Stock R for a share of Stock S at the end of 9 months. The value of this option is $8.96. The continuously compounded risk-free interest rate is 9%.
A stock is trading at $90 per share. The stock is expected to have a year-end dividend of $2 per share (D1 = $2), and it is expected to grow at some constant rate g throughout time. The stock's required rate of return is 16% (assume the market is in ..
O’Connell & Co. expects its EBIT to be $74,000 every year forever. The firm can borrow at 7 percent. O’Connell currently has no debt, and its cost of equity is 12 percent. If the tax rate is 35 percent, what is the value of the firm?
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