Managerial finance (Coursework Sample)

Managerial Finance
Student’s name:
Institutional affiliation:
Question one.
Call price = face value + interest * extra payment
Interest income= call price –face value
=$1,080-$1,000
=$80
After the 5 years, Annie will have a stock price of 30*50 shares
$1,500
Her total income will from the stock will be the stock price minus the initial value per share
1,500-1000
=$500
The result show at the end of the financial year call price will be less than the stock price.
Annie’s decision should be convert the bonds to the common stock
Question B
When the required return = 6%,
The bond value will be the present value interest factor of annuity(25yrs) * the present value interest factor(25yrs)
Income*PVIFA+ PVIF (10%, 25years)
(80*12.7838) + (1000*0.233)
$ 1,255.6
When the required return is =8%.
Income*PVIFA +PVIF (10%, 25years)
1068*80 +1000*0.146
$ 1,000
When the required return is 10%
The bonds value = Income*PVIFA +PVIF (10%, 25years)
(80*9.077) + 00.092*1000)
$818.16
Feeding the results to the
6%8%10%1255.641000818.21200 rate 900 rate 700 rate
Question C
Assuming an annual interest, the bonds value will be PVIFA+M * PVIF
(40*25.73) + (1000*0.228)
$ 1257.2
(40*21.48) + (1000*0.141)
$ 1000.28
(40*18.26) + (1000*0.087)
$817.24
Question D
Determining the fisher effect on the RRR, as the correlation between RRR is not given
From the fisher effect, nominal rate=real rate + expected inflation.
Interested rate = 8%
Real interest rate = 8-5
3
Inflation adjusted rate is
R= 1- (1+0.06) + (1+0.03)
= 9.18%
80(1+0.918)*25
0.0918
718.90-97.89+112.28
$732.29
Question E
For the given 8%,
PVIFA+M+PVIF
80*10.675+1000+0.146
$ 1000
For 8.75
80(1+0.0875)25 -1 * (1+1.0875)*25 + 1000 (1+ .0.0875)*25
0.0875
$ 921.21
Question F
25-3 =22 years.
80*11.06+1000*0.226
$1110.878
M -1,000
Gain
1110.88-1000
$110.88
Question G
When 25-10 =15years
$80*9.108+1000*0.362
$1090.64
Gain
$1090.64-$1000
$ 90.64
Question H
Applying trial and err...