Week 2: Text Problems
University of Phoenix
FIN/GM571 International Corporate Finance

Chapter 4

A9. (Rate of return) After graduation, Adrian moved across the country to Brownville and bought a small house for $208,000. Bill moved to Columbus and bought a house for $195,000. Four years later, they both sold their houses. Adrian netted $256,000 when she sold her house and Bill netted $168,000 on his.
a. What annual rate of return did Adrian realize on her house?
b. What annual rate of return did Bill realize on his house?
a. to get anual rate of return for Adrian: n = 4 r = ? PV = -$208,000 PMT = 0 FV = $256,000 r = ?

PV =

r = 5.33%

b. to get anual rate of return for Bill: n = 4 r = ? PV = -$195,000 PMT = 0 FV = $168,000 r = ?

PV =

r = -3.66%

A11. (Calculating the PV and FV of an annuity) Assume an ordinary annuity of $500 at the end of each of the next three years.
a. What is the present value discounted at 10%?
b. What is the future value at the end of year 3 if cash flows can be invested at 10%?

a. to get present value: n = 3 r = ? PV = ? r = 10% PMT = $500.00 FV = 0
PV =

PV = $1,243.43

b. to get future value: n = 3 r = ? PV = 0 r = 10% PMT = $500.00 FV = ?
FV=

FV = $1,655

Chapter 5

A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond?

Calculating PV factor i= required return = 9% = 0.09 n= 10 years Coupon Rate to get value Annuity Cash Flow of $1000 to get present value
Cash flow= $1000 * 7.4/100 = $74 Cash flow=