It is a delayed annuity

a)
Step 1
PMT 120000
N 32
i 6.50%
PV(28) ??
PV(28) $1,600,071.51
Step 2
FV(28) $1,600,071.51
N 28
i 6.50%
PV(0) ??
PV(0) $274,378.69
b)
PMT ??
N 28
i 6.50%
PV $274,378.69
PMT $21,525.85
You plan on retiring in 29 years. To support your retirement, you want to be able to
make 32 annual withdrawals of $120,000 each year, with the first withdrawal on the
day you retire and your last withdrawal at the end of year 60. Assuming you can earn
6.5% on your retirement account:

a) How large of a deposit do you have to make today to be able to achieve
retirement goal?

b) If you decide to save for your retirement by making annual deposits
lump sum today, how much should your annual deposits be, if
made at the end of this year and your last deposit one year before you retire (end of
year 28)?
You plan on retiring in 29 years. To support your retirement, you want to be able to
make 32 annual withdrawals of $120,000 each year, with the first withdrawal on the
day you retire and your last withdrawal at the end of year 60. Assuming you can earn
6.5% on your retirement account:
a) How large of a deposit do you have to make today to be able to achieve your
b) If you decide to save for your retirement by making annual deposits instead of a
lump sum today, how much should your annual deposits be, if your first deposit is
made at the end of this year and your last deposit one year before you retire (end of
Winter Park Web Design
Income Statements
For the Years 2010 and 2011
2011 2010
Sales 186,946 150,000
Cost of Goods Sold 102,819 82,500
Gross Profit 84,127 67,500
Depreciation Expense 3,530 3,098
Selling & Admin Expense 550 480
Net Operating Income 80,047 63,923
Interest Expense 680 540
Earnings Before Taxes 79,367 63,383
Taxes 29,366 22,184
Net Income 50,001 41,199
Notes:
Tax Rate 37% 35%
Shares Outstanding 5,000 5,000
Dividends per Share 6 6
Dividend 30,000
Addition to Retained Earning 20,001
Winter Park Web Design
Balance Sheets
For the Years 2010 and 2011
Assets 2011 2010 Change
Cash 10,150 7,500
Accounts receivable 12,504 11,000 1,504
Inventories 8,607 7,550 1,057
Total Current Assets 31,261 26,050
Gross fixed assets 29,020 8,850 20,170
Accumulated depreciation 7,230 3,700
Net Fixed Assets 21,790 5,150
Total assets 53,051 31,200
Liabilities and Owner's Equity
Accounts payable 8,201 6,851 1,350
Notes payable 2,000 3,000 (1,000)
Total Current Liabilities 10,201 9,851
Long-term debt 7,115 5,615 1,500
Total Liabilities 17,316 15,466
Common stock 5,000 5,000 -
Additional paid in capital 500 500 -
Retained earnings 30,235 10,234
Total Equity 35,735 15,734
Total Liabilities & Equity 53,051 31,200
Check 0 0
Direction
2,650
-
-
-
+
-
+

Winter Park Web Design
Statement of Cash Flows
For the Year 2011
Cash Flows from Operations
Net Income 50,001
Depreciation Expense 3,530
Change in Accounts Receivable (1,504)
Change in Inventories (1,057)
Change in Accounts Payable 1,350
Total Cash Flows from Operations 52,320
Cash Flows from Investing
Change in fixed assets (20,170)
Total Cash Flows from Investing (20,170)
Cash Flows from Financing
Change in Notes Payable (1,000)
Change in Long-Term Debt 1,500
Change in Common Stock -
Change in Paid-In Capital -
Cash Dividends (30,000)
Total Cash Flows from Financing (29,500)
Check answer against Balance Sheet
Beginning Cash From Balance Sheet 7,500
Ending Cash From Balance Sheet 10,150
Net Change in Cash Balance 2,650
Winter Park Web Design
Common-size Balance Sheet
As of Dec. 31, 2011
Assets 2011 2010
Cash 19% 24%
Accounts receivable 24% 35%
Inventories 16% 24%
Total Current Assets 59% 83%
Gross fixed assets 55% 28%
Accumulated depreciation 14% 12%
Net Fixed Assets 41% 17%
Total assets 100% 100%
Liabilities and Owner's Equity
Accounts payable 15% 22%
Notes payable 4% 10%
Total Current Liabilities 19% 32%
Long-term debt 13% 18%
Total Liabilities 33% 50%
Common stock 9% 16%
Additional paid in capital 1% 2%
Retained earnings 57% 33%
Total Equity 67% 50%
Total Liabilities & Equity 100% 100%
a)
PV 20000
PMT 60000
N 7
i 5.50%
PV of payments ??
PV of payments $340,978.03
Total deposit today $360,978.03
b)
PMT 60000
N 4
i 5.50%
PV ??
PV $210,309.01
c)
PMT 60000
N 0
i 5.50%
PV ??
PV $0.00
d)
FV ??
PV 20000
PMT 60000
N 7
i 5.50%
FV of lump sum $29,093.58
FV of payments $496,013.63
Total FV $525,107.21 $525,107.21
To complete your degree and then go through graduate school, you will need $20,000 today and $60,000 per year for 7 years. Yo
Aunt offered to put you through school, and she will deposit in a bank paying 5.5% interest a sum of money that is sufficient
provide the $20,000 you need today and the 7 payments of $60,000 each.

a) How large of a deposit must she make today?
b) How much will be in the account immediately after you make the 3
c) How much will be in the account immediately after you make the last withdrawal in 7 years?
d) Now, if you decide to drop out of school today and not make any of the seven withdrawals, but keep your aunts money in th
account that is earning 5.5%, how much would you have in your account at the end of 7 years?

To complete your degree and then go through graduate school, you will need $20,000 today and $60,000 per year for 7 years. Your
Aunt offered to put you through school, and she will deposit in a bank paying 5.5% interest a sum of money that is sufficient to
provide the $20,000 you need today and the 7 payments of $60,000 each.
a) How large of a deposit must she make today?
b) How much will be in the account immediately after you make the 3
rd
$60,000 withdrawal?
c) How much will be in the account immediately after you make the last withdrawal in 7 years?
d) Now, if you decide to drop out of school today and not make any of the seven withdrawals, but keep your aunts money in the
account that is earning 5.5%, how much would you have in your account at the end of 7 years?
2)
FV 100
N 0% 6% 12%
0 $100.00 $100.00 $100.00
1 $100.00 $94.34 $89.29
2 $100.00 $89.00 $79.72
3 $100.00 $83.96 $71.18
4 $100.00 $79.21 $63.55
5 $100.00 $74.73 $56.74
6 $100.00 $70.50 $50.66
7 $100.00 $66.51 $45.23
8 $100.00 $62.74 $40.39
9 $100.00 $59.19 $36.06
10 $100.00 $55.84 $32.20
11 $100.00 $52.68 $28.75
12 $100.00 $49.70 $25.67
13 $100.00 $46.88 $22.92
14 $100.00 $44.23 $20.46
15 $100.00 $41.73 $18.27
16 $100.00 $39.36 $16.31
17 $100.00 $37.14 $14.56
18 $100.00 $35.03 $13.00
19 $100.00 $33.05 $11.61
20 $100.00 $31.18 $10.37

2) Plot the PV, over time, of $100 at different interest rates (0%, 6%, 12%)

$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
0
P
r
e
s
e
n
t

V
a
l
u
e

2) Plot the PV, over time, of $100 at different interest rates (0%, 6%, 12%)
5 10 15 20 25
Years (N)
0% Interest Rate
6% Interest Rate
12% Interest Rate
1)
Settlement 1/1/2000
Maturity 1/1/2008
Coupon 8.50%
frequrncy 2
Face 1000 how many 100s in par 10
discount rate 5.50%
years 8
Price 1,192.07 $
PV $1,192.07
2)
Settlement 8/15/2013 28-13=15*2=30 periods
Maturity 8/15/2028
Callable date 2/15/2018
Coupon 7%
frequrncy 2
Face 250 how many 100s in par 2.5
call premium 4%
Price 300 120
a)
YTM 5.08%
b)
Current Yeild 5.83%
c)
Yeild to call 3.05%
D)
YTM using PV 5.08%


1) As an investor, you are considering an investment in a bond that pays 8.5% semiannual coupon. This
bond has a $1,000 face value and will mature in eight years. If your required rate of return is 5.5% for bonds
in this risk class, what is the highest price you would be willing to pay? (Use Excel Price built in function)

2) On Aug 15
th
Face value $250 (par value)
Coupon rate 7%
Coupon frequency semiannual (8/15 & 2/15)
Maturity date Aug 15, 2028
First call date February 15, 2018
Call premium 4% of the face value
Bond current market price $300
a) Calculate YTM using the Yield function
b) Calculate the current yield
c) Calculate Yield to Call using the yield function


As an investor, you are considering an investment in a bond that pays 8.5% semiannual coupon. This
bond has a $1,000 face value and will mature in eight years. If your required rate of return is 5.5% for bonds
in this risk class, what is the highest price you would be willing to pay? (Use Excel Price built in function)
On Aug 15
th
, 2013 you are offered the following bond:
Face value $250 (par value)
Coupon rate 7%
Coupon frequency semiannual (8/15 & 2/15)
Maturity date Aug 15, 2028
First call date February 15, 2018
Call premium 4% of the face value
Bond current market price $300
Calculate YTM using the Yield function
Calculate the current yield
Calculate Yield to Call using the yield function