1. If the future value of an ordinary, 7-year annuity is $10,000 and interest rates are...

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1. If the future value of an ordinary, 7-year annuity is $10,000and interest rates are 4%, what is the future value of the sameannuity due? A. $9,615.39 B. $10,010.00 C. $10,710.00 D.$10,400.00
2.The returns on the common stock of ACME closely follow theeconomy. In a booming economy, the stock is expected to return 23%in comparison to 14% in a normal economy and a -18% in a recession.The probability of a recession is 18% while the probability of aboom is 22%. What is the standard deviation of ACME stock'sreturns?
A. 14.71%
B. 12.01%
C. 11.51%
D. 15.81%
E. 13.71%
3. Suppose the common stock of ACME has a beta of 1.28 and arequired return of 15.47%. The rate of return on T-Bills 3.7% whilethe inflation rate is 4.2%. What is the expected market riskpremium?
A. 10.13%
B. 11.50%
C. 11.20%
D. 7.12%
E. 9.20%

Answer & Explanation Solved by verified expert

4.2 Ratings (876 Votes)

FV_{Ordinary Annuity} = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

10000= Cash Flow*(((1+ 4/100)^7-1)/(4/100))

Cash Flow = 1266.1

FV_{Annuity Due} = c*(((1+ i)^n - 1)/i)*(1 + i )

C = Cash flow per period

i = interest rate

n = number of payments

FV= 1266.09612*(((1+ 4/100)^7-1)/(4/100))*(1+4/100)

FV = 10400

ACME
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(A)^2* probability
Recession	0.18	-18	-3.24	-28.22	0.014334631
Normal	0.6	14	8.4	3.78	0.000857304
Boom	0.22	23	5.06	12.78	0.003593225

	Expected return %=	sum of weighted return =	10.22	Sum=Variance ACME=	0.01879
			Standard deviation of ACME%	=(Variance)^(1/2)	13.71

Please ask remaining parts separately, questions are unrelated. I have done one bonus

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1. If the future value of an ordinary, 7-year annuity is $10,000and interest rates are 4%, what is the future value of the sameannuity due? A. $9,615.39 B. $10,010.00 C. $10,710.00 D.$10,400.002.The returns on the common stock of ACME closely follow theeconomy. In a booming economy, the stock is expected to return 23%in comparison to 14% in a normal economy and a -18% in a recession.The probability of a recession is 18% while the probability of aboom is 22%. What is the standard deviation of ACME stock'sreturns?A. 14.71%B. 12.01%C. 11.51%D. 15.81%E. 13.71%3. Suppose the common stock of ACME has a beta of 1.28 and arequired return of 15.47%. The rate of return on T-Bills 3.7% whilethe inflation rate is 4.2%. What is the expected market riskpremium?A. 10.13%B. 11.50%C. 11.20%D. 7.12%E. 9.20%