Câu 1 a Bond X has a face value of 20,000 USD and matures in 20 years The bond makes no payments for the first 6 years, then pays 1000 USD semiannually over the subsequent eight years, and finally pay.
Câu 1: a Bond X has a face value of 20,000 USD and matures in 20 years The bond makes no payments for the first years, then pays 1000 USD semiannually over the subsequent eight years, and finally pays 1,750 USD semiannually over the last six years If the required return on bond X is 12% compounded semiannually, what is the current price of bond X? N=20 years Par=20,000 USD I=12% compounded semiannually Present value of 1000 USD paid semiannually over the subsequent eight years: PV1 = (A/i)*(1-(1+i)^(-n)) = (1000/0.06)*(1-(1+0.06)^(-16)) = 10105.895 (USD) Present value of 1,750 USD paid semiannually over the last six years: PV2 = (1750/0.06)*(1-(1+0.06)^(-12)) = 14671.727 (USD) The current price of the bond X is: P = PV0 = PV1/((1+i)^(n1)) + PV2/((1+i)^(n2)) + Par/(1+i)^40 = 10105.895/(1+0.06)^12 + 14671.727/(1+0.06)^28 + 20000/(1+0.06)^40 = 9836.854 (USD) b You are considering going to graduate school for a 1-year master’s program Your research indicate that the master’s degree will add 120 mil VND to your salary for the next 10 years of your working life, starting at the end of this year After the next 10 years, it makes no differences Completing the master’s program will cost you 750 mil VND which you would have to borrow at an interest rate of 7% How would you decide if this investment in your education is profitable? Year Inflow Outflow -750 CCF -750 10 120 120 120 120 120 120 120 120 120 120 -52.5 -47.775 -42.719 -37.305 -25.327 -18.7 31.521 11.609 - - - - - - - - 682.5 610.275 532.994 450.299 361.82 267.147 165.847 57.456 Present value of 120 mil annuity: PV = (A/i)*(1-(1+i)^(-n)) = (120/0.07)*(1-(1+0.07)^(-10)) = 842.83 (mil USD) > 750 mil USD This investment is profitable -4.022 58.522 178.522 Cách 2: NPV = −750 + ∑10 120𝑡 (1+7%)𝑡 = 92.83 > profitable c Investor A bought a 91-day T-Bill when the market rate is 3% He kept these T-Bill for 38 days and then sold it to Investor B at the market rate of 2.6% The Par value of this T-Bill is 10,000 USD Compute: The T-Bill Yield for investor A and investor B Price of T-bill that A purchased: PP(A)= Par/(1+i*n/360) = 10000/(1+0.03*91/360) = 9924.74 (USD) Price of T-bill that B purchased: -> SP A PP(B)= Par/(1+i*n/360) = 10000/(1+0.026*53/360) = 9961.87 (USD) T-bill yield: For A: Y(A)=(SP-PP)/PP * 365/n = (9961.87-9924.74)/9924.74 * 365/38 = 0.036 For B: Y(B)=(Par-PP)/PP * 365/n = (10000-9961.87)/9961.87 * 365/53 = 0.026 Câu 2: a If you apply the Payback Period Method, which investment will you choose, if any? Why? Investment A: Year CF -175000 10000 25000 25000 375000 CCF -175000 -165000 -140000 -115000 260000 PBP(A) = + (-115000/375000) = 3.31 (years) Investment B: Year CF -20000 10000 5000 3000 1000 CCF -20000 -10000 -5000 -2000 -1000 Investment B don’t have PBP because it cant cover its initial cost => Choose investment A because after years A can recover its initial investment b If you apply the NPV Method, which investment will you choose, if any, you require a 15% return on your investment? Why? Investment A: NPV = -175000 + 10000/1.15 + 25000/(1.15)^2 + 25000/(1.15)^3 + 375000/(1.15)^4 = 83444.62 (USD) >0 Investment B: NPV = -20000 + 10000/1.15 + 5000/(1.15)^2 + 3000/(1.15)^3 + 1000/(1.15)^4 = -4979.33 (USD) profitable c Investor A bought a 91-day T-Bill when the market rate is 3% He kept these T-Bill for 38 days and then sold it to Investor B at the market rate of 2.6% The Par value of this