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1. This problem shares much with the loan problem discussed recently in class. Suppose you would like to retire with 10 million dollars in savings. To make things simple, let’s assume you invest uniform monthly payments for a fixed number of years and that you receive a fixed annual percent yield. Let interest be compounded monthly. Solve this problem using z-transform techniques; I’m not interested in whether you can look up formulas on the internet! Using rates rounded to the nearest (non-zero) half percent (e.g., 3 and 4.5 percent are fine, 3.25 percent and 0 percent are not), choose three realistic annual percent yield (interest rates): a low rate ilow, an average rate iave, and a high rate ihigh. Justify your choices. Next, consider 3 investment time intervals: Dshort = 16 years, Dave = 32 years, and Dlong = 48 years. The number of retirement payments L is clearly going to be 12 times the duration in years (L = 12D). Let n = 0 correspond to the first investment contribution, let n = 12D − 1 be the last investment contribution, and let n = 12D be the time when the retirement account is to have the desired 10 million dollars in savings.)
2. Reconsider Problem 1 Use 4%, 8%, and 12% interest rates, respectively. Suppose you decide to invest for retirement over 48 years in the following way: you invest C dollars monthly for the first 8 years, 2C monthly for the next eight years, 3C monthly for the next eight years, and continue this pattern until the last eight years when you are investing 6C dollars monthly. This is somewhat realistic in that most people have more disposable income as they progress in their careers. For each of the three interest rates considered in Problem 1, determine the base payment Ci to achieve a 10 million dollar retirement. How much is invested in principle? What lessons do you learn here?
A bond issued by the Harris Corporation has a coupon rate of 7 1/2 percent. It matures in 2035. If you require an 8 percent rate of return for a bond of this type, what is the maximum price you are willing to pay? What is the percent change in price ..
HOw does the addition of financial distress and agency costs change the MM (with corporate taxes) model and the Miller model? (Express your answer in both equation and graphical forms, and also discuss the results.
A company has a cost of goods of 60% of the selling price of its products. It has $200,000 in fixed overhead for administrative expenses, rent and salaries. In addition, it spends 18% of every sales dollar on marketing. What is the company’s break-ev..
Colorado Airlines is operating at full capacity on its Denver to New York route, offering three flights each day on this route, using Boeing 737’s, each with a capacity of 120 passengers. To ascertain the least expensive way to increase passenger cap..
Other things held constant, which of the following events would be most likely to encourage a firm to increase the amount of debt in its capital structure? Its sales are projected to become less stable in the future. Management believes that the firm..
Parcel Corporation Company plans $10 dividend next year (100% of earnings). Instead, company plows back 30% of earnings (i. e plowback ratio Is 30% and payout ratio is 1-30% = 70% and dividend payment is $7 = 70%* 10) at firm's current return on equi..
A. An investor buys $1m face value of a new 91-day US T-Bill at a discount of 6.29%. What is the purchase price? B. The investor sells the bill 31 days later when discount rates have risen to 6.35%. What are the sale proceeds? C. What is the holding ..
Hollywood Studios has a WACC of 8.65%. The company's cost of equity is 11% and its cost of debt is 6%. The tax rate is 35%. What is Hollywood Studios' target debt-to- equity ratio?
You have the following information. In 10 years and in 15 years you will send your two nephews to attend school. The tuition now is $10,000 but will grow at 7% per annum. You will retire in 40 years and be in retirement 35 years. You will need $60,00..
Prepare a 10- to 12-slide presentation using modality. What reports or information will show the donors if not-for-profit entity is financially healthy?
A wholesaler ordered 14 bolts of drapery fabric at $5.50 per yard. Each bolt had 60 yards. The order qualified for a quantity discount of 2%. A vendor who normally sells with a 3% cash discount is asked to sell with an 8% discount. What will be the ..
Assume the interest is determined only at the end of each year.
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