Finance Problem Set

This document presents a series of solved problems in finance. The problems cover various topics, including bond valuation (calculating present value, yield to maturity, and future value), stock valuation (using dividend discount models), and determining required returns on equity. Each problem provides a detailed solution with explanations and calculations, demonstrating the application of relevant financial formulas and concepts. The solutions are presented in a tabular format for clarity. The website offering these solutions aims to assist students by providing access to solved assignments and past papers to aid in their understanding of financial concepts and improve their performance in finance courses.

Solution-1
6%
Explanation:
Current Price of bond:
nper= 10, FV = $1000, PMT = 6% of Face Value = $60 , Rate=0.08
PV =PV(Rate,nper,PMT,[fv])
PV=PV(0.08,10,60,1000)= - $865.80
Step 2:
FV = 865.80, PV = -1000, nper = 20, PMT = 60
So,
RATE = RATE ( nper, PMT, pv,[fv])
Rate =RATE (20,60,-1000,865.80)=5.62%
or 6%
Solution-2
The bond will no longer sell at a premium but will instead trade at a discount.
Solution-3
$80.63
Calculation:
PV = FV / (1 + YTM)n
PV = $100 / (1 + 4.4%)5
PV = $80.63

Solution-4
P = (FV*365)/(365+((Yield*90)/100))
P =($400,000*365)/(365+((2.7*90)/100))
P = $397,355
Solution-5
PV of the Bond = PV of Coupon Payment + PV of Maturity Value
PV of the Bond = ($100,000*4.75%*(1-(1+0.0257)-10)/0.0257)+($100,000*(1+0.0257)-10)
PV of the Bond = $119,011
Solution-6
Required return on equity is usually less than that for debt for any given firm.
Solution-7
$16.50
Solution-8
$2.99
Calculation:

Price of stock today= D1/ r = D0*(1+g)/r =0.52*1.15 /0.20 =$2.99
Solution-9
7.50%
Calculation:
P0 = D1 (re-g)=re-g=(D1/P0) = .10 -g =.25 =g = .075 or 7.5%
Solution-10
Time Period Dividend Present Value
1 2*(1.25)1 = $2.50 $2.50 / 1.126 = $2.22
2 2*(1.25)2 = $3.13 $3.13 / (1.126)2 = $2.46
3 2*(1.25)3 = $3.19 $3.19/(1.126)3= $2.74
4 2*(1.25)4 = $4.88 $4.88/(1.126)4 = $3.04
5 2*(1.25)4*1.023 = $5.00 $5.00/((0.126- 0.023)*(1.126)4) = $30.17
Current Value of Share $40.63