# Finance

4. Assume personal income was \$ 28 million last year. Personal outlays were \$ 20 million and personal current taxes were \$ 5 million.

a. What was the amount of disposable personal income last year?

b. What was the amount of personal saving last year?

c. Calculate personal saving as a percentage of disposable personal income.

4. A thirty- year U. S. Treasury bond has a 4.0 percent interest rate. In contrast, a ten- year Treasury bond has an interest rate of 3.7 percent. If inflation is expected to average 1.5 percentage points over both the next ten years and thirty years, determine the maturity risk premium for the thirty- year bond over the ten- year bond.

6. Determine the present values if \$ 5,000 is received in the future ( i. e., at the end of each indicated time period) in each of the follow-ing situations:

a. 5 percent for ten years

b. 7 percent for seven years

c. 9 percent for four years

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Week 6 Homework Submission .

•Chapter 10: P22, P23, P24

22. The Fridge- Air Company’s preferred stock pays a dividend of \$ 4.50 per share annually. If the required rate of return on compara-ble quality preferred stocks is 14 percent, calculate the value of Fridge- Air’s preferred stock.

23. The Joseph Company has a stock issue that pays a fixed dividend of \$ 3.00 per share annually. Investors believe the nominal risk- free rate is 4 percent and that this stock should have a risk premium of 6 percent. What should be the value of this stock?

24. The Lo Company earned \$ 2.60 per share and paid a dividend of \$ 1.30 per share in the year just ended. Earnings and dividends per share are expected to grow at a rate of 5 percent per year in the future. Determine the value of the stock:

a. if the required rate of return is 12 percent.

b. if the required rate of return is 15 percent.

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