Written Assignment

FIN 305 Week 3

Name: _________________________________________ Date: ___________________

Chapter 5 – 6

1. What is the present value of an investment that yields $5000 to be received in eight

years and $6000 to be received in 12 years. Assume the discount rate is 5%?

2. Suppose you were planning to provide for a down payment for a house; you plan to

deposit $1000 at the end of each year for the next eight years in a bank where he will

earn 5% interest, how much will you have at the end of the eight years?

3. Regarding the present value of an annuity, a person is getting the benefit of an annuity

from an insurance policy. Accordingly he wants to know what thousand dollars received

at the end of each of the next 7 years is worth today. Assume a discount rate of 5%.

4. Amortized Loan example. Suppose a CEO wants to purchase a facility that makes bread.

So he borrows $8000, to be repaid in eight equal payments at the end of each of the

next eight years. Assume the interest rate that is paid to the lender is 15% on the

outstanding portion of the loan. The CEO wants to calculate what the annual payments

associated with the repayment of this debt will be.

5.

6.

7.

8. Write a definition for amortized loan

9.

10. What is meant by the investor’s required rate of return?

11. How do we measure the riskiness of an asset?

12. What is (a) unsystematic risk (company-unique or diversifiable risk) and (b)

systematic risk (market or nondiversifiable risk)?

13. How do we measure the beta of a portfolio?