Explain how you reached the answer or show your work if a mathematical Calculation is needed, or both in question 1-4. Please number each answer.
Use the following information for Questions 1 through 2:
Assume that you are nearing graduation and have applied for a job with a local bank. The bank’s evaluation process requires you to take an examination that covers several financial analysis techniques.
1. What is the present value of the following uneven cash flow stream−$50, $100, $75, and $50 at the end of Years 0 through 3? Theappropriate interest rate is 10%, compounded annually.
2. Suppose that on January 1 you deposit $100 in an account that pays a nominal (or quoted) interest rate of 11.33463%, with interest added (compounded) daily. How much will you have in your account on October 1, or 9 months later? Use the following information for Questions 3 and 4: A firm issues a 10-year, $1,000 par value bond with a 10% annual coupon and a required rate of return is 10%.
3. What is the yield to maturity on a 10-year, 9% annual coupon, $1,000 par value bond that sells for $887.00? That sells for $1,134.20? What does a bond selling at a discount or a premium tell you about the relationship between rd and the bond’s coupon rate?
4. What are the total return, the current yield, and the capital gains yield for the discount bond in Question #3 at $887.00? At $1,134.20? (Assume the bond is held to maturity and the company does not default on the bond.)’
Answer questions 5-7 in essay style.
5. Scenario 4, value a share of TFC’s stock using a growth model method and compare that value to the current trading price of a share of TFC. Determine whether the stock is undervalued or overvalued. Provide a rationale for your response.
6. Determine two to three (2-3) methods of using stocks and options to create a risk-free hedge portfolio. Support your answer with examples of these methods being used to create a risk-free hedge portfolio.
7. Scenario 5, create a unique hypothetical weighted average cost of capital (WACC) and rate of return. Recommend whether or not the company should expand, and defend your position.
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