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**preview**shows half of the first page. to view the full**1 pages of the document.**Question 1

(a) C = 150,000 n = 40 r = 4%

Total sum @ t=15 is $2,968,916.08

(b) n = 15 r = 3% FV =

$2,968,916.08

Yearly deposit in the next 15 years

is

$159,628.47

(c) C = 200,000 n = 15 r = 3%

Total sum @ t=15 is $3,719,782.78

Yearly withdrawal after

retirement is

$187,936.41

Question 2

(a) C = 60 FV = 1000 n = 2 r = 5%

Bond price @ t=0 is $1,018.59

(b) C = 60 FV = 1000 n = 2 r = 7%

Bond price @ t=1 is $990.65

Annual rate of return is 3.15%

Question 3

(a) D0 = 0.13 Payout = 0.75 ROE = 26% r = 11%

Sustainable growth rate (g) is 0.065

TEL share price today is $3.08

(b) P09Mar2013 =

$2.35

Question 4

(a) 0 1 - 5 Total costs @ t=0

Plasma TV 2,477 112 $2,901.57

LCD TV 2,998 36 $3,134.47

$232.90

(b)

Plasma TV 2,477 112 $2,901.57

LCD TV 2,998 36 $2,861.92

-$39.65

The actual return is lower than the promised YTM of 5% because the increase in interest rate negatively

affects the bond price at the end of year 1. This is the price risk of the bond when the bond is not held until

maturity.

Since the current price for TEL shares is lower than its intrinsic value, it is cheap to buy TEL shares. Assume

that there are no transaction costs and tax, Nick could earn superior return by investing in the TEL.

Choose Plasma TV because the total costs is lower by $232.90

Choose LCD TV because the total costs is lower by -$39.65

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