Please provide answers / solutions to all 8 Study Questions (SQ) and Study Problems (SP), which is found at the end of each chapter of the prescribed textbook by Titman et al. (2016) 6–23 (Future value of an annuity and annuity payments) You are planning for retirement in 10 years and currently you have $150 000 in a savings account and $250 000 in shares. In addition, you plan to deposit $8000 per year into your savings account at the end of each of the next five years, and then $10 000 per year at the end of each year for the final five years until you retire. (Ignore tax.)
(a) Assuming your savings account returns 8% interest compounded annually, and your investment in shares will return 12% compounded annually, how much will you have at the end of 10 years.
(b) If you expect to live for 20 years after you retire, and at retirement you deposit all of your savings in a bank account paying 11% interest annually, how much can you withdraw each year after you retire beginning one year after you retire) so that you end up with a zero balance at death.
Calculating the standard deviation for a portfolio of two risky investments) Mary Guilott recently graduated from university and is evaluating an investment in two companies’ shares. She has collected the following information about the shares of firm A and firm B:
Expected return Standard deviation
Firm A’s shares 0.15 0.12
Firm B’s shares 0.1 0.06
Correlation coefcient 0.4
(a) If Mary invests half her money in each of the two shares, what is the expected rate of return and standard deviation in portfolio return?
(b) Answer part (a), where correlation between the two investments is equal to zero.
(c) Answer part (a), where correlation between the two investments is equal to 11.
(d) Answer part (a), where correlation between the two investments is equal to 21.
(e) Using your responses to parts (a)–(d), describe the relationship between correlation and the risk and return of the portfolio.
(Related to Checkpoint 9.2 on page 267 and Checkpoint 9.3 on page 271) (Bond valuation) A 14-year, $1000 face-value Fingen bond has an annual coupon rate of 9%. The market price of the bond is $1100 and the market’s required yield to maturity on a comparable-risk bond is 10%.
(a) Calculate the bond’s yield to maturity.
(b) Determine the value of the bond to you, given your required rate of return.
(c) Should you purchase the bond?
Preference share valuation) Kendra Corporation’s preference shares are trading for $25 in the market and pay a $4.50 annual dividend. Assume the market’s required return is 14%.
(a) What is the share’s value to you, the investor
(b) Should you purchase the shares.
Please use the formulae for the problems provided in the formulae sheet provided in Moodle, because these are the formulas we will provide you with during the final exams.