"Agreement for Barrowing"
HOW TO UPLOAD YOUR EXAM Be aware that: For each minute and for additional fractions there will be 4 points deduction without exception Exam ends at 10:30 sharp First: Enter your last name in front of existing file name and SAVE AS like: ertuna-FM-Ex-071105q Please do not use Turkish characters (ö ü ş ç ğ ı) After you finish your exam, open Internet explorer to upload your file and connect to the following site: bodrum/labc Username: yourusername -ug Password: yourpassword Enter login button Click on BROWSE and find on the desktop the file that contains your answers click 'open' click on UPLOAD You are done! DO NOT turn-off your computer! Leave "as is" and go! he following site: BILKENT UNIVERSITY SCHOOL OF APPLIED TECHNOLOGY AND MANAGEMENT Finance THM415 Midterm (5/11/07) (Dr. C.Ertuna) 1. NO Cell-phones: please turn-off your cell phone. If it rings or vibrates you have to leave the exam and you will be treated as some one who is trying to cheat! 2. Show your logic clearly, no logic absolutely no points! 3. Two decimal points for monetary values as well as for the percentages. 4. NO changes in format or size of the cells designated to answers! 5. NO exceeding the space designated to the results; you will suffer 10% deduction of the point for each violation without any exception. 6. NO additional Worksheet: Any and all additional worksheets in access to the original ones should be deleted. Additional worksheets cannot be considered as evidence under any circumstances. 7. Be logical, systematic, orderly and check your work at every step of your calculation; you will eliminate errors before they arise. G o o d L u c k ! Name: ID: Grade: 40.00 Adjusted Grade : 40.00 1 8.0 1. You are 22 years old and want to be a millionare on your own. If ou can spare 244.97 YTL evry month and invest in a mutual fund that earns about 17.13% per year 8 At what age would you be a millionare? It would take 24.00 years and I would be 46 Please do not exceed the line(s) Please do not change the widths of columns A to L m =12 means that the results will be in months, hence you should divide the results by 12 to get "Years". -8 The strategy is to compute n_per and convert it into annual terms! Suggested Solution m= 12 PV = 0 FV = 1000000 PMT = -244.97 k_per = 1.43% k_ann = 17.13% n_per = 288.00 months n= 24.00 years 46 years old TY AND MANAGEMENT Dr. C.Ertuna) vibrates you have to leave the exam o points! ercentages. gnated to answers! ts; you will suffer 10% deduction orksheets in access to the original ones s evidence under any circumstances. ur work at every step of your calculation; ! Sec.: 114.29 out of 100 ual fund that earns about 17.13% per year years old. mns A to L divide the results by 12 to get "Years". 8.0 2 You are buying a car that will cost you 72.000 YTL You will pay it in equal installments over 12. months. The first payment will be one month from the transaction and the interest will be 12%. 8 How much of your payment will go for interest on the 11 th month? 126.05 YTL Please do not exceed the line(s) Please do not change the widths of columns A to L -6.0 m = 12 m= 12 n= 1 n_per = 12 PV = -72,000.00 FV = 0.00 PMT = 6,397.11 k_per = 1.00% k_ann = 12.00% Period PMT Interest Pay Prncp Pay Balance 0 72,000.00 1 6397.11 720.00 5,677.11 66,322.89 2 6397.11 663.23 5,733.88 60,589.00 3 6397.11 605.89 5,791.22 54,797.78 4 6397.11 547.98 5,849.13 48,948.65 5 6397.11 489.49 5,907.63 43,041.02 6 6397.11 430.41 5,966.70 37,074.32 7 6397.11 370.74 6,026.37 31,047.95 8 6397.11 310.48 6,086.63 24,961.31 9 6397.11 249.61 6,147.50 18,813.81 10 6397.11 188.14 6,208.97 12,604.84 11 6397.11 126.05 6,271.06 6,333.78 12 6397.11 63.34 6,333.78 0.00 in equal installments over 12. and the interest will be 12%. L 6.0 3 The stocks of Young Brothers sell for $12.40. A recently paid dividend was $1.05. Expected growth rate rate for the dividend is 3.70% and the required rate for the stock is 11.50% 6 If you wish to sell this stock 4 years from now how much should you expect for a share? $16.14 Please do not exceed the line(s) Please do not change the widths of columns A to L Suggested Solution g= 3.7% D_0 = $1.05 D_5 = $1.26 S_0 = $12.40 k_req = 11.50% S_4 = $16.14 -6.0 You need to use required return for the stock. Actual return of a stock may change from year to year! What you did was the following: You computed return of the stock for the period t=0 and used that for the dend was $1.05. d rate for the stock is 11.50% d you expect for a share? L change from year to year! period t=0 and used that for the next 4 years! 8.0 4 You bought an US government bond that will mature in 15 years. The coupon rate is 16%. If the required rate of return on this bond is 13.75% 6 a) How much would you pay for this bond? $1,141.37 2 b) Answer this question only if your answer at part (a) is more than the face value of the bond: Why should you pay more than what you will get at the maturity? Since the coupon rate is more than required rate of the bond PV of the coupon payments will make the value of the bond more than its face value. Please do not exceed the line(s) Please do not change the widths of columns A to L Suggested Solution m= 2 n_ann = 15 n_per = 30 FV = $1,000.00 c= 16% C= $80.00 PMT = $80.00 k_per = 6.88% k_ann = 13.75% PV = -$1,141.37 Please be orderly and use cell references so you (and I) can check what you are doing. -4.0 Since the coupon rate is more than required rate of the bond -1.8 PV of the coupon payments will make the value of the bond more than its face value. Where is n_per? Please be orderly. If "m" is not one than n_per (n periodic) should be computed! That wo -6.0 You are mixing up coupon rate with bond's required rate! -4.8 If nothing said coupons are assumed to be paid semi-annually (m=2) he coupon rate is 16%. an the face value of the bond: re than its face value. L c) should be computed! That would have prevented you from error. 5.0 5 New Bulls Inc. has a beta of 0.753. If the 30-year government bond has a return of 7.2% a 3-month T-Bill has rate of 4.4% and the risk premium is 5.6% 5 What would be the appropriate return on this stock? 8.62% Please do not exceed the line(s) Please do not change the widths of columns A to L Suggested Solution k_i = 8.62% b_i = 0.753 k_rf = 4.40% RP = 5.60% has a return of 7.2% L 5.0 Bonus You wish to barrow 12,000 YTL for your business. Bank Garan and Bank Yapi offer you following monthly payments starting 1 month following the. agreement. Bank Garan Bank Yapi 2000 2000 2000 4000 4000 4000 2000 4000 2000 2000 5 Which bank would you choose and WHY? I would choose Bank Yapi since its interest cost is less. Please do not exceed the line(s) Please do not change the widths of columns A to L -2.5 WHY would you like to pay higher interests (you are barrowing money)? -1.3 3.68% is monthly rate. Interests are expressed in annual terms. Suggested Solution Period Bank Garan Bank Yapi 0 -12000 -12000 1 2000 0 2 2000 0 3 2000 4000 4 4000 4000 5 2000 4000 6 2000 2000 IRR = 4.48% 3.68% monthly Annual interest cost = 53.78% 44.15% It would be better if you would convert rates into annual terms. Nevertheless you can still make the decision. starting 1 month following the. L INITIAL OUTLAY DEPRECIATION - Purchase Value New + Purchase Value New - Shipping Cost + Shipping Cost - Installation Cost + Installation Cost - Training Cost + Other Relevant Costs - Other Relevant Costs = Depreciation Base - Increase in Working Capital / Economic Life New A/R = Depreciation New Annual Inventory - Depreciation Old Cash Register = Incremental Depreciation + Sales Value Old - Tax on Old (Sales Value-Book Value)*tx Only if that is positive!!! = Initial Outlay REGULAR CF TERMINAL CF + Increase in Revenues CF (Regular) + Increase in Savings + Increase in Working Capital - Increase in Expenses + Salvage Value of New - Increase in Depreciation - Tax on New = Net Savings Before Taxes (NSBT) (Sales Value-Book Value)*tx - Tax on NSBT Only if that is positive!!! + Increase in Depreciation = Terminal CF = Net Incremental After Tax CF Bond Preferred Stock Perpetuity m*C F *c Dp CF c C P PVp F m kp r Zero Growth Stock Constant Growth Stock D D1 D1 S0 S0 kS g (S 0 * k s D0 ) ks ks g S0 g (S 0 D0 ) D A B D A * (1 g ) B k i k rf b i ( k m k rf ) k AB w A k A wB k B k AB w A k A wB k B b AB w A b A w B b B TFC TFC QBE SALES BE P VC 1 (VC / P ) % EBIT % EPS DOL DFL % SALES % EBIT Q( P VC ) EBIT DOL DFL Q( P VC ) TFC EBIT IC % EPS Q ( P VC ) DCL DOL* DFL DCL DCL % SALES Q ( P VC ) TFC IC EBIT t (1 % SALES * DOL ) * EBIT t 1 EPS t (1 % EBIT * DFL ) * EPS t 1 2 SO EOQ EOQ AverageInventory Safety Stock C 2 IOP Delivery Stock SafetyStock INT APR_ effective *m B CB INT d 360 Annualized Opportunity Cost of Foregoing the Discount * 1 d np dp 1 3 Tr.Cost * 2 3 Spread 3* * 4 Daily Interest Rate UL = Min. Cash Balance + Spread Return Point = Lower Limit + 1/3 Spread (S 0 * k s D0 ) g (S 0 D0 ) EPS t (1 % Sales * DCL ) * EPS t 1 FM Grades Midterm 78.86 Grades Grade Groups Frequency 5-Nov-07 77.15 Mean = 41.45 00 - 30 30 3 73.55 Median = 38.48 30 - 40 40 1 40.97 St.Dev = 32.60 40 - 50 50 1 36.00 CV = 0.79 50 - 70 70 0 25.03 70 - 80 80 3 0.00 Max = 78.86 80 - 90 90 0 0.00 Min = 0.00 90 - 100 More 0 N= 8 Histogram of Gra 3.5 3 2.5 Frequency 2 1.5 1 0.5 0 30 40 50 Grade Group Frequency ogram of Grades 50 70 80 90 Grade Groups Frequency