ASSIGNMENT COVER SHEET
STUDENT DETAILS
Student name: Nguyen Truong Bao Ngoc Student ID number: 22003024
UNIT AND TUTORIAL DETAILS
Unit name: Corporate Financial Management Unit number: FIN202
Tutorial/Lecture: Class day and time: 12:00 P.M. Mondays
Lecturer or Tutor name: Dr. Vu Viet Quang
ASSIGNMENT DETAILS
Title: 48-Hour Take-home Exercises Session 2
Length: 12 pages Due date: 15/01/2024 Date submitted: 15/01/2024
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Nguyen Truong Bao Ngoc_22003024
Answer Sheet
Name: Nguyễn Trương Bảo Ngọc
Student's ID: 22003024
A. 5.9
a) $530
c) $471.6981
B. 5.10
b) $1,552.9241
c) $279.1974
C. 5.11
a) 14.8698%
D. 5.12
a) 7%
b) 7%
E. 5.13
a) 10.2448 years
b) 7.2725 years
F. 5.14
a) $6,374.9698
c) $2,000
G. 5.16
● 7% - $1,428.5714
● 14% - $714.2857
H. 5.17 - 9%
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I. 5.18
a) Stream A is $1,251.2479 - Stream B is $1,300.3165
b) Stream A and Stream B are $1,600
J. 5.19
a) $423,504.4811
b) $681,537.6297
c) $46,393.4231 (retire at 65) - $84,550.8046 (retire at 70)
K. 5.21
a) PV3 > PV2 > PV1 ($68.2497 > $66.724 > $61) ⇒ The third award option
c) PV1 > PV2 > PV3 ($61 > $60.9677 > $56.5051) ⇒ The first award option
L. 5.23
a) $881.1708
b) $895.4238
c) $903.0556
d) $908.3483
M. 6.2 - 2.25%
N. 6.3
● 2-year securities: 6%
● 3-year securities: 6.3333%
O. 6.4 - 1.5%
P. 6.5 - 0.2%
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Explanations
A. 5.9
a)
Present value (PV) Interest rate (r)
Future value (FV) Time (T)
𝑇 1
⇒ 𝐹𝑉 = 𝑃𝑉 × (1 + 𝑟) = $500 × (1 + 6%) = $530
The future value is $530
c)
Present value (PV) Interest rate (r)
Future value (FV) Time (T)
𝐹𝑉 $500
⇒ 𝑃𝑉 = 𝑇 = 1 = $471. 6981
(1+𝑟) (1+6%)
The present value is $471.6981
B. 5.10
b)
Present value (PV) Interest rate (r)
Future value (FV) Time (T)
𝑇 10
⇒ 𝐹𝑉 = 𝑃𝑉 × (1 + 𝑟) = $500 × (1 + 12%) = $1, 552. 9241
The future value is $1,552.9241
c)
Present value (PV) Interest rate (r)
Future value (FV) Time (T)
𝐹𝑉 $500
⇒ 𝑃𝑉 = 𝑇 = 10 = $279. 1974
(1+𝑟) (1+6%)
The present value is $279.1974
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C. 5.11
a)
Present value (PV) Interest rate (r)
Future value (FV) Time (T)
The growth rate of Shalit Corporation from 2009 to 2014 is:
𝑇
⇒ 𝐹𝑉 = 𝑃𝑉 × (1 + 𝑟)
5
⇔ $12, 000, 000 = $6, 000, 000 × (1 + 𝑟)
5
⇔ (1 + 𝑟) = 2
⇔ 𝑟 ≈ 0. 148698 or 14. 8698%
The growth rate of Shalit Corporation from 2009 to 2014 is 14.8698%
D. 5.12
Present value (PV) Interest rate (r)
Future value (FV) Time (T)
a)
𝑇
⇒ 𝐹𝑉 = 𝑃𝑉 × (1 + 𝑟)
1
⇔ $749 = $700 × (1 + 𝑟)
1
⇔ (1 + 𝑟) = 1. 07
⇔ 𝑟 = 0. 07 or 7%
The interest rate for the borrowed money is 7%
b)
𝑇
⇒ 𝐹𝑉 = 𝑃𝑉 × (1 + 𝑟)
1
⇔ $749 = $700 × (1 + 𝑟)
1
⇔ (1 + 𝑟) = 1. 07
⇔ 𝑟 = 0. 07 or 7%
The interest rate for the money is 7%
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E. 5.13
a)
Present value (PV) Interest rate (r)
Future value (FV) Time (T)
𝑇
⇒ 𝐹𝑉 = 𝑃𝑉 × (1 + 𝑟)
𝑇
⇔ $400 = $200 × (1 + 7%)
𝑇
⇔ (1 + 7%) = 2
⇔ 𝑇 ≈ 10. 2448 ⇒ It takes about 10.2448 years to double the original value of $200.
b)
Present value (PV) Interest rate (r)
Future value (FV) Time (T)
𝑇
⇒ 𝐹𝑉 = 𝑃𝑉 × (1 + 𝑟)
𝑇
⇔ $400 = $200 × (1 + 10%)
𝑇
⇔ (1 + 10%) = 2
⇔ 𝑇 ≈ 7. 2725 ⇒ It takes about 7.2725 years to double the original value of $200.
F. 5.14
a)
Periodic payments (PMT) Interest rate (r)
Future value (FV) Time (T)
𝑇
(1+𝑟) − 1
⇒ 𝐹𝑉 = 𝑃𝑀𝑇 ×
𝑟
10
(1+10%) − 1
⇔ 𝐹𝑉 = $400 ×
10%
⇔ 𝐹𝑉 = $6, 374. 9698
The future value is $6,374.9698
c)
Periodic payments (PMT) Interest rate (r)
Future value (FV) Time (T)
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⇒ 𝐹𝑉 = 𝑃𝑀𝑇 × 5
⇔ 𝐹𝑉 = $400 × 5
⇔ 𝐹𝑉 = $2, 000
The future value is $2,000
G. 5.16
Periodic payments (PMT) Present value (PV) Interest rate (r)
● If the interest rate is 7% (𝑟1 = 7%)
𝑃𝑀𝑇
𝑃𝑉 =
𝑟1
$100
⇔ 𝑃𝑉 =
7%
⇔ 𝑃𝑉 = $1, 428. 5714
The present value if the interest rate is 7% is $1,428.5714
● If the interest rate is 7% (𝑟2 = 14%)
𝑃𝑀𝑇
𝑃𝑉 =
𝑟2
$100
⇔ 𝑃𝑉 =
14%
⇔ 𝑃𝑉 = $714. 2857
The present value if the interest rate is 14% is $714.2857
H. 5.17
Periodic payments (PMT) Interest rate (r)
Present value (PV) Time (T)
−𝑇
1 − (1+𝑟)
⇒ 𝑃𝑉 = 𝑃𝑀𝑇 ×
𝑟
−30
1 − (1+𝑟)
⇔ $85, 000 = $8, 273. 59 ×
𝑟
⇔ 𝑟 = 9%
The interest rate for the borrowed money is 9%
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I. 5.18
Periodic payments (PMT) Interest rate (r)
Present value (PV) Time (T)
a) Discount rate is 8%
● Stream A
$100 $400 $400 $400 $300
⇒ 𝑃𝑉𝐴 = 0 + 1 + 2 + 3 + 4 + 5
(1+8%) (1+8%) (1+8%) (1+8%) (1+8%)
⇒ 𝑃𝑉𝐴 = $1, 251. 2479 ⇒ The present value of Stream A is $1,251.2479
● Stream B
$300 $400 $400 $400 $100
⇒ 𝑃𝑉𝐵 = 0 + 1 + 2 + 3 + 4 + 5
(1+8%) (1+8%) (1+8%) (1+8%) (1+8%)
⇒ 𝑃𝑉𝐵 = $1, 300. 3165 ⇒ The present value of Stream B is $1,300.3165
b) Discount rate is 0%
● Stream A
⇒ 𝑃𝑉𝐴 = 0 + $100 + $400 + 400$ + $400 + $300
⇒ 𝑃𝑉𝐴 = $1, 600
● Stream B
⇒ 𝑃𝑉𝐵 = 0 + $300 + $400 + 400$ + $400 + $100
⇒ 𝑃𝑉𝐵 = $1, 600
⇒ The present values of both streams are $1,600
J. 5.19
Periodic payments (PMT) Time (T) Interest rate (r)
Present value (PV) Future value (FV)
a) Time (𝑇1) = 65 − 40 = 25
𝑇
(1+𝑟) − 1
⇒ 𝐹𝑉 = 𝑃𝑀𝑇 ×
𝑟
25
(1+9%) − 1
⇔ 𝐹𝑉 = $5, 000 ×
9%
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⇔ 𝐹𝑉 = $423, 504. 4811
If my client follows the advice, she will have $423,504.4811 at the age of 65.
b) Time (𝑇2) = 70 − 40 = 30
𝑇
(1+𝑟) 2 − 1
⇒ 𝐹𝑉 = 𝑃𝑀𝑇 ×
𝑟
30
(1+9%) − 1
⇔ 𝐹𝑉 = $5, 000 ×
9%
⇔ 𝐹𝑉 = $681, 537. 6297
If my client follows the advice, she will have $681,537.6297 at the age of 70.
c)
● If she expects to live for 20 years when she retires at 65, the total amount of money
that she had at that time is $423,504.4811:
−𝑇3
1 − (1+𝑟)
⇒ 𝑃𝑉 = 𝑃𝑀𝑇 ×
𝑟
−20
1 − (1+9%)
⇔ $423, 504. 4811 = 𝑃𝑀𝑇 ×
9%
⇔ 𝑃𝑀𝑇 = $46, 393. 4231
⇒ If she retires at 65, she will be able to withdraw $46,393.4231 at the end of each
year after retirement.
● If she expects to live for 15 years when she retires at 70, the total amount of money
that she had at that time is $681,537.6297:
−𝑇4
1 − (1+𝑟)
⇒ 𝑃𝑉 = 𝑃𝑀𝑇 ×
𝑟
−15
1 − (1+9%)
⇔ $681, 537. 6297 = 𝑃𝑀𝑇 ×
9%
⇔ 𝑃𝑀𝑇 = $84, 550. 8046
⇒ If she retires at 70, she will be able to withdraw $84,550.8046 at the end of each
year after retirement.
K. 5.21
Periodic payments (PMT) Interest rate (r)
Present value (PV) Time (T)
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a) The discount rate for the three award options should be 7%. All the amount of money will be
presented in millions of dollars ('000,000)
● First award (lump sum): ⇒ 𝑃𝑉1 = $61
● Second award (10 end-of-year payments of $9.5 million):
−𝑇2
1 − (1+𝑟)
⇒ 𝑃𝑉2 = 𝑃𝑀𝑇2 ×
𝑟
−10
1 − (1+7%)
⇔ 𝑃𝑉2 = $9. 5 ×
7%
⇔ 𝑃𝑉2 = $66. 724
● Third award (30 end-of-year payments of $5.5 million):
−𝑇3
1 − (1+𝑟)
⇒ 𝑃𝑉3 = 𝑃𝑀𝑇3 ×
𝑟
−30
1 − (1+7%)
⇔ 𝑃𝑉3 = $5. 5 ×
7%
⇔ 𝑃𝑉3 = $68. 2497
⇒ PV3 > PV2 > PV1 ($68.2497 > $66.724 > $61), Crissie should choose the third award
option (30 end-of-year payments of $5.5 million)
c) The discount rate for the three award options should be 9%. All the amount of money will be
presented in millions of dollars ('000,000)
● First award (lump sum): ⇒ 𝑃𝑉1 = $61
● Second award (10 end-of-year payments of $9.5 million):
−𝑇2
1 − (1+𝑟)
⇒ 𝑃𝑉2 = 𝑃𝑀𝑇2 ×
𝑟
−10
1 − (1+9%)
⇔ 𝑃𝑉2 = $9. 5 ×
9%
⇔ 𝑃𝑉2 = $60. 9677
● Third award (30 end-of-year payments of $5.5 million):
−𝑇3
1 − (1+𝑟)
⇒ 𝑃𝑉3 = 𝑃𝑀𝑇3 ×
𝑟
−30
1 − (1+9%)
⇔ 𝑃𝑉3 = $5. 5 ×
9%
⇔ 𝑃𝑉3 = $56. 5051
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⇒ PV1 > PV2 > PV3 ($61 > $60.9677 > $56.5051), Crissie should choose the first award
option.
L. 5.23
Present value (PV) Interest rate (r)
Future value (FV) Time (T)
a) Compounded annually
𝑇 5
⇒ 𝐹𝑉 = 𝑃𝑉 × (1 + 𝑟) = $500 × (1 + 12%) = $881. 1708
The future value is $881.1708 if compounded annually
b) Compounded semiannually
𝑟 𝑇×2 12% 5 × 2
⇒ 𝐹𝑉 = 𝑃𝑉 × (1 + ) = $500 × (1 + ) = $895. 4238
2 2
The future value is $895.4238 if compounded semiannually
c) Compounded quarterly
𝑟 𝑇×4 12% 5 × 4
⇒ 𝐹𝑉 = 𝑃𝑉 × (1 + ) = $500 × (1 + ) = $903. 0556
4 4
The future value is $903.0556 if compounded quarterly
d) Compounded monthly
𝑟 𝑇 × 12 12% 5 × 4
⇒ 𝐹𝑉 = 𝑃𝑉 × (1 + ) = $500 × (1 + ) = $908. 3483
12 4
The future value is $908.3483 if compounded monthly
M. 6.2
● Nominal rate of interest of 30-day T-bills (r) = 5.5%
● Inflation premium (IP) = 3.25%
● Liquidity premium (LP) = 0.6%
● Maturity risk premium (MRP) = 1.8%
● Default risk premium (DRP) = 2.15%
● Real risk-free rate (r*) = ?
However, because these are 30-day T-bills, it can be assumed that its nominal interest rate only
contains the real risk-free rate and the inflation premium.
⇒ 𝑟 =𝑟 * + 𝐼𝑃
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⇔𝑟 * = 𝑟 − 𝐼𝑃 = 5. 5% − 3. 25% = 2. 25%
The real risk-free rate of return is 2.25%
N. 6.3
● Nominal rate of interest (r) = ?
● Inflation premium year 1 (IP1) = 2%; Inflation premium year 2, 3 (IP2) = 4%
● Liquidity premium (LP) = 0%
● Maturity risk premium (MRP) = 0%
● Default risk premium (DRP) = 0%
● Real risk-free rate (r*) = 3%
○ 2-year Treasury securities:
𝐼𝑃1 + 𝐼𝑃2 2% + 4%
The average inflation rate of the 2-year period: 𝐼𝑃𝐴1 = = = 3%
2 2
⇒ 𝑟1 = 𝑟 * + 𝐼𝑃𝐴1
⇔ 𝑟1 = 𝑟 * + 𝐼𝑃𝐴1 = 3% + 3% = 6%
The yield on 2-year Treasury securities is 6%
○ 3-year Treasury securities:
𝐼𝑃1 + 𝐼𝑃2 + 𝐼𝑃3 2% + 4% +4%
The average inflation rate of the 3-year period: 𝐼𝑃𝐴2 = =
3 3
10
= %
3
⇒ 𝑟2 = 𝑟 * + 𝐼𝑃𝐴2
10 19
⇔ 𝑟2 = 𝑟 * + 𝐼𝑃𝐴2 = 3% + % = % ≈ 6.3333%
3 3
The yield on 3-year Treasury securities is 6.3333%
O. 6.4
● Nominal rate of interest of the corporate bond (r) = 8%
● Inflation premium year (IP) = 0%
● Liquidity premium (LP) = 0.5%
● Maturity risk premium (MRP) = 0%
● Default risk premium (DRP) = ?
● Real risk-free rate (r*) = Nominal rate of interest of the Treasury bond = 6%
⇒ 𝑟 =𝑟 * + 𝐷𝑅𝑃 + 𝐿𝑃
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⇔ 𝐷𝑅𝑃 = 𝑟 − 𝑟 * − 𝐿𝑃 = 8% − 6% − 0. 5% = 1. 5%
The default risk premium on the corporate bond is 1.5%
P. 6.5
● Nominal rate of interest on the 2-year Treasury security (r) = 6.2%
● Inflation premium year (IP) = 3%
● Liquidity premium (LP) = 0%
● Maturity risk premium (MRP) = ?
● Default risk premium (DRP) = 0%
● Real risk-free rate (r*) = 3%
⇒ 𝑟 =𝑟 * + 𝐼𝑃 + 𝑀𝑅𝑃
⇔ 𝑀𝑅𝑃 = 𝑟 − 𝑟 * − 𝐼𝑃 = 6. 2% − 3% − 3% = 0. 2%
The maturity risk premium for the 2-year Treasury security is 0.2%
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