Major Assignment PRBF010 Aspects of Corporate Finance Semester 2, 2015 Maximum Marks: 45 (Please show your calculations clearly) Instructions: Please use excel spreadsheet wherever appropriate. If you use excel spreadsheets, please copy and paste them into MSWord. Once you have completed the assignment, it needs to be lodged in the Assessments section of Learnline. Your assessments must be lodged using MSWord. PDF, Excel or paper copies will not be accepted. Required: 1) Make sure your entire assignment can be readily printed on A-4 paper in portrait (preferred) or landscape format with appropriate page breaks. Do not have a portion of a wide worksheet expand beyond 1 page. 2) Make sure your name and student number are on every page of your submission. Ethics: This is not a group assignment; it is an individual assessment. Your solutions will likely be different from other students. If portions of your assignment are copied or very close to copying, all parties will be penalised for copying. Copying would be considered plagiarism and CDU has strict policies. It is up to you to keep your assessment confidential. Q. 1 (Total Marks: 18) You are now 50 years old and plan to retire at the age of 67. You currently have a share portfolio worth $150,000, a superannuation fund worth $250,000 and a money market account worth $50,000. Your share portfolio is expected to provide you annual returns of 12%, your superannuation will earn you 9.5% annually and the money market account earns 6.25%, compounded monthly. Required: a) If you do not save another cent, what will be the total value of your investments when you retire? (Marks: 3.25) b) Assume that your superannuation contribution is $12,000 per year for the next 15 years (starting 1 year from now). How much will your investments be worth when you retire? (Marks: 2.5) c) Assume that you expect to live 23 years after you retire (until age 90). Today, at age 50, you take all of your investments and place them an account that pays 8% annually (use the scenario from part b) in which you continue saving. If you start withdrawing funds starting at age 67, how much can you withdraw every year and leave nothing in your account after the 23rd & final withdrawal? (Marks: 8.5) d) At age 67, you want your investments, which are described in the problem statements above, to support a perpetuity that starts a year from now. How much can you withdraw each year without touching your principal (at 8% per year)? (Marks: 3.75) Q. 2 (Total Marks: 19) Wattyl Group Ltd has 18-year bonds outstanding. These bonds, which pay semiannual coupons, have a coupon rate of 9.375 per cent and a yield to maturity of 7.95 per cent. Required: a) Calculate the bonds current price. (Marks: 2.25) b) If the bonds can be called after 5 more years at a premium of 13.5% over the par value, what is the investors realized yield? (Marks: 7.25) c) If you bought the bond today & sold it a year later, what is your expected rate of return? (Marks: 6.5) Explain in your own words. (Marks: 3) Q. 3 (Total marks: 8) What would be the effect on the price of bonds of a) an unexpected rise in interest rates, and (Marks: 2.5) b) An unexpected fall in interest rates? (Marks: 2.5) c) Would these interest rate changes have a similar effect on the price of shares? (Marks: 3) Explain in your own words.
