COURSE CODE: BCO212 COURSE NAME: Business Finance I Task brief & rubrics: Topics 1 & 2

Name: Surname: Group: Date: –

Assessment 1

Resolve and comment 3 Problems According to Topics 1 and 2:

Details of the task :

· Individual

· The task consists of developing and justifying each of the problems solution and additionally summarizing their funding in the “Summary Table” clearly.

· Format: Document and upload in pdf

Formalities:

· Develop and solve each problem and Include your final answers in a “Summary Table” too.

· Font: Arial 12,5 pts.

· Text alignment: Justified.

Submission: Due in Week (4)

Weight: This task is a 15% of your total grade for this subject.

It assesses the following learning outcomes:

· Outcome 1: Introduction to Financial Management and Time Value Money

· Outcome 2: The Meaning and Measurements of Risk and Return

· Outcome 3: Foundation of Business Finance Principles

Rubrics

Points are stated at the end of each question.

Part I

Problem 1:

Your mother just gave you 8.000 €.

a. Calculate the future of 8.000 €, given that it will be invested for 10 years at annual interest rate of 8%.

b. Recalculate part (a) using compounding period that is bimonthly.

c. Now, lets look at what might happen if you invest the money at a rate 12% rather than 8%; recalculate part (a) for a semiannual interest rate.

d. With respect to the changes in the interest rate and length of time the money is invested in parts a and c, what conclusion can you draw?

Picture the problem, decide on a solution strategy, solve and analyze

Problem 2 :

If you deposit 10,000 $ today into an account earning an annual rate of return of 11%, how much accumulated interest would be earned in the third year ? Picture the problem, decide on a solution strategy, solve and analyze.

Problem 3 :

You are offered 150,000 $ today or 300,000 $ in 13 years. Assuming that you can ear 11% on your money, which should you choose? Picture the problem, decide on a solution strategy, solve and analyze.

Part II

Problem 1:

According to the five Foundations of Finance Principles, explain the difference between “Cash flow is what matters” and “Money has a Time Value” (20 points)

Problem 2:

George received 12,345 $ for his services as a consultant to the mayor’s office of his hometown of Boston. He has invested his money into an account paying 3,98% annual interest and left the account in his will to the city of Boston on the condition that the city could not collect any money from the account for 200 years. How much money will the city receive in 200 years from George’s generosity? Picture the problem, decide on a solution strategy, solve and analyze. (20 points)

Problem 3:

You just received a bonus of 5,000 $. Answer these questions Picture the problem, decide on a solution strategy, solve and analyze.

a) Calculate the future value of 5,000 $ given that it will be held in the bank for 5 years and earn an annual interest rate of 6%. (10 points)

b) Recalculate part “a” using a compound period that is 1) semiannual and 2) bimonthly.(5 points)

c) Recalculate part “a” using a time horizon of 12 years at an annual interest rate of 6%. (5 points)

Problem 4 :

From the following price data:

a) compute the annual rates of return for W and K companies. Picture the problem, decide on a solution strategy, solve and analyze. (15 points)

b) How would you interpret the meaning of the annual rates of return? (5 points)

Problem 5:

AXX has a beta of 0.795. If the expected market return is 10.5% and the risk-free rate is 3.5 %, what is the appropriate required return of AXX using CAPM (Capital Asset Market Model)?