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Class Notes (1,000,000)
NZ (300)
UOA (40)
Nick (1)
Lecture

FINANCE 251 Lecture Notes - Plasma Display


Department
Finance
Course Code
FINANCE 251
Professor
Nick

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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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