Question: You plan to buy some property in

> A 14-year, $1,000 par value Fingen bond pays 9 percent interest annually. The market price of the bond is $1,100, and the market’s required yield to maturity on a comparable-risk bond is 10 percent. a. Compute the bond’s yield to maturity. b. Determine t

> Hoyden Company’s bonds mature in 15 years and pay 8 percent interest annually. If you purchase the bonds for $1,175, what is their yield to maturity?

> Five years ago XYZ International issued some 30-year zero-coupon bonds that were priced with a market’s required yield to maturity of 8 percent. What did these bonds sell for when they were issued? Now that five years have passed and the market’s require

> Doisneau 20-year bonds have a 10 percent annual coupon interest, make interest payments on a semiannual basis, and have a $1,000 par value. If the bonds are trading with a 12 percent market’s required yield to maturity, are these premium or discount bond

> The Bensington Glass Company entered into a loan agreement with the firm’s bank to finance the firm’s working capital. The loan called for a floating interest rate that was 30 basis points (.30 percent) over an index b

> The common stock of the Brangus Cattle Company had the following end-of-year stock prices over the last five years and paid no cash dividends: a. Calculate the annual rate of return for each year from this information. b. What is the arithmetic average

> Marsh Inc. had the following end-of-year stock prices over the last five years and paid no cash dividends: a. Calculate the annual rates of return for each year from this information. b. What is the arithmetic average rate of return earned by investing

> Syntex, Inc., is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on risk (as measured by the standard deviation) and return? Common Stock A Common Stock B Probability Retur

> Captain’s Cereal is considering introducing a variation of its current breakfast cereal, Crunch Stuff. This new cereal will be similar to the old, with the exception that it will contain sugar-coated marshmallows shaped in the form of stars. The new cere

> The Dunder Muffin Company is considering purchasing a new commercial oven that costs $350,000. This new oven will produce cash inflows of $125,000 at the end of Years 1 through 10. In addition to the cash inflows, at the end of Year 5 there will be a net

> B. J. Gautney Enterprises is evaluating a security. One-year Treasury bills are currently paying 2.9 percent. Calculate the following investment’s expected return and its standard deviation. Should Gautney invest in this security?

> From the following price data, compute the annual rates of return for Asman and Salinas. How would you interpret the relationship between the annual rates of return of these companies? Time Asman Salinas 1 $10 $30 2 12 28 3 11 32 13 35 44

> Blaxo Balloons manufactures and distributes birthday balloons. At the beginning of the year, Blaxo’s common stock was selling for $20, but by year end, it was only $18. If the firm paid a total cash dividend of $2 during the year, what rate of return wou

> The common stock of Placo Enterprises had a market price of $12 on the day you purchased it just one year ago. During the past year, the stock paid a $1 dividend and closed at a price of $14. What rate of return did you earn on your investment in Placo’s

> The S&P 500 Index represents a portfolio comprised of 500 large publicly traded companies. On December 24, 2007, the index had a value of 1,410, and on December 23, 2008, the index was approximately 890. If the average dividend paid on the stocks in the

> Use the following end-of-year price data to answer the following questions for the Harris and Pinwheel companies. a. Compute the annual rates of return for each time period and for both firms. b. Calculate both the arithmetic and the geometric mean rat

> On December 24, 2007, the common stock of Google Inc. (GOOG) was trading for $700.73. One year later the shares sold for only $298.02. Google has never paid a common stock dividend. What rate of return would you have earned on your investment had you pur

> You plan to retire in 10 years and buy a house in Oviedo, Florida. The house you are looking at currently costs $100,000 and is expected to increase in value each year at a rate of 5 percent. Assuming you can earn 10 percent annually on your investments

> To pay for your education, you’ve taken out $25,000 in student loans. If you make monthly payments over 15 years at 7 percent compounded monthly, how much are your monthly student loan payments?

> Emily Morrison purchased a new house for $150,000. She paid $30,000 up front and agreed to pay the rest over the next 25 years in 25 equal annual payments that include both principal and 10 percent compound interest on the unpaid balance. What will these

> Aero Manufacturing Company is working on a new version of its tried-and-true wind-powered water pump. For 15 years, the firm had manufactured replacement parts for older-style windmills used on farms and ranches throughout the U.S. Southwest. However, th

> You have an opportunity to make an investment that will pay $100 at the end of the first year, $400 at the end of the second year, $400 at the end of the third year, $400 at the end of the fourth year, and $300 at the end of the fifth year. a. Find the p

> You are given three investment alternatives to analyze. The cash flows from these three investments are as follows: What is the present value of each of these three investments if the appropriate discount rate is 10 percent? End of Year A B C 1 $2,

> Your firm has taken cost-saving measures that will provide a benefit of $10,000 in the first year. These cost savings will decrease each year at a rate of 3 percent forever. If the appropriate interest rate is 6 percent, what is the present value of thes

> As a result of winning the Gates Energy Innovation Award, you have been awarded a growing perpetuity. The first payment will occur in a year and will be for $20,000. You will continue receiving annual monetary awards forever, with each award increasing b

> A perpetuity pays $50,000 at the end of Year 1 and then grows at a rate of 6 percent per year indefinitely. What is the present value if the rate of interest used to discount the cash flows is 10 percent?

> A perpetuity pays $1,000 at the end of Year 1, and the annual cash flows grow at a rate of 4 percent per year indefinitely. What is the present value if the appropriate discount rate is 8 percent? If the appropriate discount rate is 6 percent?

> At a discount rate of 8.5 percent, find the present value of a perpetual payment of $1,000 per year. If the discount rate is cut in half (4.25 percent), what is the value of the perpetuity?

> Selma and Patty Bouvier, twins who work at the Springfield DMV, have decided to save for retirement, which is 35 years away. They will both receive an 8 percent annual return on their investment over the next 35 years. Selma invests $2,000 at the end of

> Let’s say you deposited $160,000 in a 529 plan (a tax-advantaged college savings plan), hoping to have $420,000 available 12 years later when your first child starts college. However, you didn’t invest very well, and two years later the account’s balance

> Calvin Johnson has a $5,000 debt balance on his Visa card that charges 12.9 percent APR compounded monthly. Let’s assume Calvin’s only needed to make a minimum monthly payment of 3 percent of his debt balance, which is $150. How many months (round up) wi

> Apple’s (AAPL) iPad jump-started the touchscreen computer market, driving it to levels few analysts had ever dreamed possible. Moreover, the popularity of the iPad pushed Apple’s competitors to offer similar touchscreen computers. Hewlett Packard (HPE) o

> Five years ago you took out a $300,000, 25-year mortgage with an annual interest rate of 7 percent and monthly payments of $2,120.34. What is the outstanding balance on your current loan if you just made the 60th payment?

> Ford Motor Company’s current incentives include a choice between 4.9 percent APR financing for 60 months and $1,000 cash back on a Mustang. Let’s assume Suzie Student wants to buy the premium Mustang convertible, which costs $25,000, and she has no down

> Professor Finance is thinking about trading cars. She estimates she will still have to borrow $25,000 to pay for her new car. How large will Prof. Finance’s monthly car loan payment be if she can get a five-year (60 equal monthly payments) car loan from

> Imagine that Homer Simpson actually invested the $100,000 he earned providing Mr. Burns entertainment five years ago at 7.5 percent annual interest and that he starts investing an additional $1,500 a year today and at the beginning of each year for 20 ye

> Lisa Simpson wants to have $1,000,000 in 45 years by making equal annual end-of-the year deposits in a tax-deferred account paying 8.75 percent annually. What must Lisa’s annual deposit be?

> Over the past few years, Microsoft founder Bill Gates’s net worth has fluctuated between $20 and $130 billion. In early 2006, it was about $26 billion—after he reduced his stake in Microsoft from 21 percent to around 14 percent by moving billions into hi

> You take out a 25-year mortgage for $300,000 to buy a new house. What will your monthly payments be if the interest rate on your mortgage is 8 percent? Use a spreadsheet to calculate your answer. Now calculate the portions of the 48th monthly payment tha

> Determine the present value of an ordinary annuity of $1,000 per year for 10 years, assuming it earns 10 percent. Assume that the first cash flow from the annuity comes at the end of Year 8 and the final payment at the end of Year 17. That is, no payment

> Determine the present value of an annuity due of $1,000 per year for 10 years discounted back to the present at an annual rate of 10 percent. What would be the present value of this annuity due if it was discounted at an annual rate of 15 percent?

> You are graduating from college at the end of this semester, and after reading the Finance for Life box in this chapter, you have decided to invest $5,000 at the end of each year into a Roth IRA for the next 45 years. If you earn 8 percent compounded ann

> The Louisiana Land and Cattle Company (LL&CC) is one of the largest cattle buyers in the country. It has buyers at all the major cattle auctions throughout the U.S. Southeast who buy on the company’s behalf and then have the cattle shipped to Sulpher Spr

> Find the future value at the end of Year 10 of an annuity that pays $1,000 per year for 10 years compounded annually at 10 percent. What would be the future value of this annuity if it was compounded annually at 15 percent?

> You’ve just taken on a $150,000, 20-year mortgage with a quoted interest rate of 6 percent calling for payments semiannually. How much of your first year’s loan payments (the initial two payments, with the first coming after six months have passed and th

> To buy a new house, you must borrow $150,000. To do this, you take out a $150,000, 30-year, 10 percent mortgage. Your mortgage payments, which are made at the end of each year (one payment each year), include both principal and 10 percent interest on the

> You plan to buy property in Florida five years from today. To do this, you estimate that you will need $30,000 at that time for the purchase. You would like to accumulate these funds by making equal annual deposits in your savings account, which pays 10

> You would like to have $75,000 in 15 years. To accumulate this amount, you plan to deposit an equal sum in the bank each year that will earn 8 percent interest compounded annually. Your first payment will be made at the end of the year. a. How much must

> You’ve just bought a new flat-screen TV for $3,000, and the store you bought it from offers to let you finance the entire purchase at an annual rate of 14 percent compounded monthly. If you take the financing and make monthly payments of $100, how long w

> 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 presen

> You’ve been offered a loan of $30,000, which you will have to repay in five equal annual payments of $10,000, with the first payment to be received one year from now. What interest rate will you be paying if you take that loan?

> On December 31, Beth Klemkosky bought a yacht for $50,000. She paid $10,000 down and agreed to pay the balance in 10 equal annual installments that include both principal and 10 percent interest on the declining balance. How big will the annual payments

> The Minot Kit Aircraft Company of Minot, North Dakota, uses a plasma cutter to fabricate metal aircraft parts for its plane kits. The company currently is using a used cutter it purchased four years ago. The cutter has a remaining $80,000 book value that

> Your folks would like some advice from you. An insurance agent just called and offered them the opportunity to purchase an annuity for $21,074.25 that will pay them $3,000 per year for 20 years. They don’t have the slightest idea what return they would b

> What is the present value of a 10-year annuity that pays $1,000 annually, given a 10 percent discount rate?

> Alex Karev has taken out a $200,000 loan with an annual rate of 8 percent compounded monthly to pay off hospital bills from his wife Izzy’s illness. If the most Alex can afford to pay is $1,500 per month, how long will it take for him to pay off the loan

> How long will it take to pay off a loan of $50,000 at an annual rate of 10 percent compounded monthly if you make monthly payments of $600?

> The Knutson Corporation needs to save $15 million to retire a $15 million mortgage that matures in 10 years. To retire this mortgage, the company plans to put a fixed amount into an account at the end of each year for 10 years. The Knutson Corporation ex

> Suppose that you are in the fall of your senior year and are faced with the choice of either getting a job when you graduate or going to law school. Of course, your choice is not purely financial. However, to make an informed decision you would like to k

> What is the future value of each of the following streams of payments? a. $500 a year for 10 years compounded annually at 5 percent b. $100 a year for 5 years compounded annually at 10 percent c. $35 a year for 7 years compounded annually at 7 percent d.

> Having just inherited a large sum of money, you are trying to determine how much you should save for retirement and how much you can spend now. For retirement, you will deposit today (January 1, 2016) a lump sum in a bank account paying 10 percent compou

> Milhouse, 22, is about to begin his career as a rocket scientist for a NASA contractor. Being a rocket scientist, Milhouse knows that he should begin saving for retirement immediately. Part of his inspiration came from reading an article on Social Securi

> Baryla Inc. manufactures high-quality decorator lamps in a plant located in eastern Tennessee. Last year the firm had sales of $100 million and a gross profit margin of 40 percent. a. How much inventory can Baryla hold and maintain an inventory turnover

> Madrano’s Wholesale Fruit Company, located in McAllen, Texas, is considering the purchase of a new fleet of trucks to be used in the delivery of fruits and vegetables grown in the Rio Grande Valley of Texas. If the company goes through with the purchase,

> In 2016, the Allen Corporation had sales of $65 million, total assets of $42 million, and total liabilities of $20 million. The interest rate on the company’s debt is 6 percent, and its tax rate is 35 percent. The operating profit margin is 12 percent.

> The Karson Transport Company currently has net operating income of $500,000 and pays interest expense of $200,000. The company plans to borrow $1 million on which the firm will pay 10 percent interest. The borrowed money will be used to finance an invest

> The liabilities and stockholders’ equity for Campbell Industries are as follows: a. What fraction of the firm’s assets does the firm finance using debt (liabilities)? b. If Campbell were to purchase a new warehouse f

> The King Carpet Company has $3,000,000 in cash and a total of $12,000,000 in current assets. The firm’s current liabilities equal $6,000,000, so the firm’s current ratio equals 2. The company’s managers want to reduce the firm’s cash holdings down to $1,

> Apex Fabricating, Inc., manufactures fenders and other after-market body panels for older automobiles. At the close of last year, the firm had $10,381,800 in current assets and $4,152,720 in current liabilities. The company’s managers want to increase it

> The S&H Construction Company expects its sales next year to total $15,000,000. In addition, the firm pays taxes at 35 percent and will owe $300,000 in interest expense. Based on last year’s operations, the firm’s management predicts that its cost of go

> Use the common-size financial statements prepared for Study Problem 4–1 to respond to your boss’s request that you write up your assessment of the firm’s financial condition. Specifically, write up a brief narrative that responds to the following: a. How

> Last year the Rondoelea Products Company had $140 million in annual sales and a net profit margin of 10 percent. In addition, Rondoelea’s average tax rate was 30 percent. If Rondoelea had $40 million of debt outstanding with an average interest rate of 1

> Bryley, Inc., had a net profit margin of 5 percent last year and an equity multiplier of 3.0. If its total assets are $100 million and its sales are $150 million, what is the firm’s return on equity?

> Dearborn Supplies has total sales of $200 million, assets of $100 million, a return on equity of 30 percent, and a net profit margin of 7.5 percent. What is the firm’s debt ratio?

> Bangers, Inc., is a start-up manufacturer of Australian-style frozen veggie pies located in San Antonio, Texas. The company is five years old and recently installed the manufacturing capacity to quadruple its unit sales. To jump start the demand for its

> Triangular Chemicals has total assets of $100 million, a return on equity of 40 percent, a net profit margin of 5 percent, and an equity multiplier of 2.5. How much are the firm’s sales?

> Garwryk, Inc., which is financed with debt and equity, presently has a debt ratio of 80 percent. What is the firm’s equity multiplier? If the firm increased its use of debt financing, would this increase or decrease its equity multiplier? Explain.

> In early 2016, typical terms on a payday loan involved a $15 charge for a two-week payday loan of $100. Assuming there are 26 fourteen-day periods in a year, what is the effective annual rate on such a loan?

> Payday loans issued by banks are often referred to as direct deposit advances. In 2016, the average charge was $10 for a $100 direct deposit advance, and it was due in 10 days. What is the effective annual rate on this type of loan?

> Based on effective interest rates, would you prefer to deposit your money in Springfield National Bank, which pays 8.0 percent interest compounded annually or in Burns National Bank, which pays 7.8 percent interest compounded monthly?

> Your grandmother asks for your help in choosing a certificate of deposit (CD) from a bank with a one year maturity and a fixed interest rate. The first certificate of deposit, CD #1, pays 4.95 percent APR compounded daily, and the second certificate of d

> You have a choice of borrowing money from a finance company at 24 percent compounded monthly or from a bank at 26 percent compounded annually. Which alternative is the more attractive?

> The National Semiconductor Corporation (NSM) develops and manufactures semiconductors for electronic systems. The firm’s products are used in a variety of applications, including LED lighting, high-speed communications, renewable energy

> In 20 years, you would like to have $250,000 to buy a vacation home. If you have only $30,000, at what rate must it be compounded annually for it to grow to $250,000 in 20 years? Use a spreadsheet to calculate your answer.

> If you invest $900 in a bank where it will earn 8 percent compounded annually, how much will it be worth at the end of seven years? Use a spreadsheet to calculate your answer.

> After you reported your findings to Carlyle Chemicals’ management (see Study Problem 12–28), the CFO suggested that the company could purchase raw materials in advance for future delivery. This would involve paying for the raw materials today and taking

> A financial planner just offered you a new investment product that would require an initial investment on your part of $35,000 and that would be worth $250,000 in 25 years. What annual rate of interest would you earn if you invested in this product?

> In March 1963, Ironman was introduced in issue 39 of the comic book Tales of Suspense. The original price for that issue was 12 cents. By March 2016, 53 years later, the value of this comic book, given the condition it’s in, had risen to $10,000. What an

> The last two years of financial statements for Pamplin, Inc., are as follows: a. Compute the following ratios for both 2015 and 2016. b. Compare Pamplin’s financial ratios to the industry norms listed above, and assess each of the

> Much to your surprise, you were selected to appear on the TV show The Price Is Right. As a result of your prowess in identifying how many rolls of toilet paper a typical American family keeps on hand, you win the opportunity to choose one of the followin

> You are offered $100,000 today or $300,000 in 13 years. Assuming that you can earn 11 percent on your money, which should you choose?

> You’ve run out of money for college, and your college roommate has an idea for you. He offers to lend you $15,000, for which you will repay him $37,313 at the end of five years. If you took this loan, what interest rate would you be paying on it?

> Carson Electronics’ management has long viewed BGT Electronics as an industry leader and uses this firm as a model firm for analyzing its own performance. The balance sheets and income statements for the two firms are as follows: a.

> Approximately how many years would it take for an investment to grow by sevenfold if it was invested at 10 percent compounded semiannually?

> Approximately how many years would it take for an investment to grow fourfold if it was invested at 16 percent compounded semiannually?

> An insurance agent just offered you a new insurance product that will provide you with $2,376.50 in 10 years from now if you invest $700 today. What annual rate of interest would you earn if you invested in this product?

> Carlyle Chemicals is evaluating a new chemical compound used in the manufacture of a wide range of consumer products. The firm is concerned that inflation in the cost of raw materials will have an adverse effect on the project cash flows. Specifically, t

> If you were offered $1,079.50 in 10 years from now in return for an investment of $500 currently, what annual rate of interest would you earn if you took the offer?

> Springfield Learning sold zero-coupon bonds (bonds that don’t pay any interest—instead, the bondholder gets just one payment, coming when the bond matures, from the issuer) and received $900 for each bond that will pay $20,000 when it matures in 30 years

> Seven years ago Lance Murdock purchased a wooden statue of a Conquistador for $7,600 to put in his home office. Lance recently married, and his home office was converted to a sewing room. His new wife, who has far better taste than Lance, thought the Con