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Week 3 - Homework P4-1. A best-selling author decides to cash in on her latest novel by selling the rights to the book’s royalties for the next four years to an investor. Royalty payments arrive once per year, starting one year from now. In the first year the author expects \$400,000 in royalties, followed by \$300,000, then \$100,000, and then \$10,000 in the three subsequent years. If the investor purchasing the rights to royalties requires a return of 7 percent per year, what should the investor pay?
A4-1 P = \$400,000+\$300,000+\$100,000+\$10,000=\$725,122.13 1.071 1.072 1.073 1.074 P4-12. Bennifer Jewelers recently issued 10-year bonds that make annual interest payments of \$50. Suppose you purchased one of these bonds at par value when it was issued. Right away market interest rates jumped, and the YTM on your bond rose to 6 percent. What happened to the price of your bond?
A4-12 P = 50/1.06 + 50/1.062 + 50/1.063 + 1.050/1.0610 = \$926.40

P5-1. The equity section of the balance sheet for Hilton Web-Cams looks like this: Common stock, \$0.25 par \$400,000 Paid-in capital in excess of par \$4,500,000 Retained earnings \$1,100,000
a. How many shares has the company issued? 400,00/.025=1.6 MILLION SHARES
b. What is the book value per share? (400,000+4,500,000+1,100,000)/1.6 MILLION SHARES = \$3.75 PER SHARE
c. Suppose that Hilton Web-Cams has made only one offering of common stock. At what price did it sell shares to the market? (4,500,000+400,000)/1.6 MILLION SHARES = \$3.0625

P5-3. Owners of the Internet bargain site FROOGLE.com have decided to take their company pubic by conducting an initial public offering of common stock. They have agreed with their…...

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