Strategic Finance

Running head: STRATEGIC FINANCE
Strategic Finance
Name of the Student:
Name of the University:
Author’s Note:

STRATEGIC FINANCE1
Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................3
Question 3........................................................................................................................................4
Question 4........................................................................................................................................6
Question 5........................................................................................................................................7
Question 6........................................................................................................................................8
Bibliography....................................................................................................................................9

STRATEGIC FINANCE2
Question 1
a) The present value of the annuity could be well calculated with the help of discounting the
annuity amount, which would be required for a sum of 15 year with the help of 10% interest rate
as follows:
Annuity Amount $30,000
Interest Rate 10%
Time Period (In
Years) 15
Present Value
($228,182
.39)
The formula that will be applied for computing the same would be as:
Present Value: (Annuity Amount/(1+Interest Rate)^Time Period)
b) If the phase or the time-period for retirement changes from 15-year of time to 30-years of time
then the present value would be as follows:
Annuity Amount $30,000
Interest Rate 10%
Time Period (In
Years) 30
Present Value
($282,807
.43)
c) If there are factors that needs to be included in the annuity amount that would be required the
annuity amount that would be required needs to incorporated with the same. If the inflation rate
is expected to be 4% then in each of the year the annuity amount would be multiplied by 4% in
order to get the real worth of $30,000 in the retirement phase.
Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15
Annuity Amount 30000 31200 32448 33746 35096 36500 37960 39478 41057 42699 44407 46184 48031 49952 51950
Interest Rate 10%
Time Period (In Years) 15
Present Value $284,434.22

STRATEGIC FINANCE3
Question 2
a) The price of the bond could be calculated with the help of the given face value of $1000,
coupon rate of 7% amounting to a $70 worth of coupon, with a 6% rate as the YTM and 10 year
as the maturity. Now the coupon amount in the period of 1-9 years would be discounted with the
help of the given interest rate, the final terminal value would be discounted with the help of the
coupon, and principal value 10-years back to get the PV of bond.
Price of Bond
Face Value $1,000
Coupon Rate 7%
Yield to
Maturity 6%
Maturity 10
Price
($1,073
.60)
b) Price Evaluation of Bond before the first coupon will be $1073.60
Maturity
Face
Value
Coupon
Amt. YTM Price
10 1000 70 6%
($1,073.
60)
9 1000 70 6%
($1,068.
02)
8 1000 70 6%
($1,062.
10)
7 1000 70 6%
($1,055.
82)
6 1000 70 6%
($1,049.
17)
5 1000 70 6%
($1,042.
12)
4 1000 70 6%
($1,034.
65)
3 1000 70 6%
($1,026.
73)
2 1000 70 6%
($1,018.
33)
1 1000 70 6%
($1,009.
43)
0 1000 70 6%
($1,000.
00)