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Mathtype Training - Finance-1

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46 views1 page

Mathtype Training - Finance-1

Uploaded by

Nisha Patel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Mathtype Training – Finance

(1) Calculate the Future value of a sum of money having present value of $10,000
compounded monthly for 5 years at 12% rate of interest.

Future value = Present value X (1 + 𝑟)𝑛

0.12 12 X 5
= $10,000 X (1 + )
12
= $18,166.97

(2) Calculate the WACC of a capital structure of a firm having cost of equity of 10%,
cost of preferred stock of 8% and cost of debt of 15%. The firm faces a tax rate of 40%.
The equity, preferred stock and debt and in a ratio 2:3:5 respectively.

Weighted average cost of capital


= (Weight of Equity X Cost of Equity)
+ (Weight of Prefrerred stock X Cost of Preferred stock)
+ (Weight of Debt X Cost of Debt(1 − Tax Rate))

2 3 5
=( X 10%) + ( X 8%) + ( X 15%(1 − 40%))
10 10 10

= 8.9%

(3) Calculate yield to maturity of a bond trading at $750. The coupon rate of the bond is
7% which is going to reach maturity in 10years. The face value of bond is $1,000.

Face Value − Market Price


Coupon rate + Time to maturity
Yield to maturity =
Face value + Market Price
2
1,000 − 750
70 +
= 10
1,000 + 750
2
= 10.86%

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