Strayer fin 534 set 5 assignment

2. The total dividends for 2014 under the policy of continuing the 2013 dividend payout ratio would be 3,191,200 calculated as follows: DPS2013 x NI2014 = (Dividends/Net Income) x Net Income = ($2.6 million/$9.8 million)*$12.6 million=$3,191,200.

3. Under a Pure residual policy with all distributions in form of dividends (35% debt) calculation ,the total dividends for 2014 would be 2,370 000 calculated as follows: EPS2014 + [(Investment Amount – Debt){TaxRate}]*[DPS after Expansion] = Earnings Per Share + [($7.3million – $4million)( if we compound more often than annually since more compounding occasions offer greater opportunity for accumulation of interest.

4. The effective annual rate (EAR or EFF%) for a nominal rate of 12%, compounded semiannually is 12.735%, calculated as follows: EAR = (1 + r/2)^2 – 1 = (1+12%/2)^2 – 1= (1.06)^2 – 1= 1.12735– 1 = 0.12735, so the effective annual rate is 12.735%. Compounded quarterly, the EAR would be 12.854%; compounded monthly, the EAR would be 12.917%; and compounded daily it would be 13%.

5 . On October 1 you will have $115.48 in your account from the initial deposit of $100 on January 1 if the nominal interest rate is 11.33463% with interest added daily; this is calculated as follows: FV = PV(1 + R/n) ^ nt FV = 100(1+(11,33463%)/365) ^ 9 x 365FV=$115..48.

6 . The value of the bond described above if expected inflation rate rises by 3 percentage points and investors require a 13% return is $885, which is a discount bond; this can be calculated as follows: PV = CF/(1+r_d )^ t PV=-$100/(1+13%)10 + 1000/(1+13%)0=$885.

7 . If inflation falls and r_d declines to 7%, then we will have a premium bond with a value of $1177; this can be calculated as follows 😛 V=-$100/(1+7 % ) 10 +1000 /(11++7 % ) 0 ==$1177

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8 . The yield to maturity on a 10-year ,9% annual coupon ,$1000 par value bond that sells for $887 is 9%, calculated as follows : YTM=Interest Earned during Bond’s life /Market Price YTM=(90x 10)/887==9%. A bond selling at at discount tells us that required return or market yield exceeds coupon rate while one selling at premium implies market yield equals lower than coupon rate.

9 .The total return ,current yield and capital gain yield on the discount bond in Q#8 are given below ;Total Return= Coupon Interest payments plus Capital Gain realized upon sale of asset Total Return=(90 x10)+887-1000==787Current Yield= Coupon Interest payment / Market price Current Yield=(90×10)/887 ==10Capital Gain Realized Upon Sale Of Asset:- Appreciation Or Depreciation In Value * Market Price At Time Of Sale Capital Gain Realized Upon Sale Of Asset=-113*897 ===-1013.