Module 2 - Section 1
In Class Exercises

1.Primary Market - Initial sale of new securities

The primary market is where corporation issue their shares and receive the proceeds
from this issue, via the underwriting process.

Secondary Market - Resale of existing securities

The secondary market is the market where the public can buy and sell shares after
they have been issued in the primary market. Here, the issuer of shares does not
participate in the transaction.

2.iv
3.a
5.true
6. e
7.true
8.True
9.True
10.True
11.c
12.True

Module 2 - Section 2
In Class Exercises

1 FALSE 2 TRUE 3 FALSE 4 FALSE 5 TRUE 6 TRUE 7 FALSE 8 Comfy Mats Bedroom Supplies Inc. Year 2 Year 1 Net Income $61,000 $39,000 Dividends declared per share (common) $1.45 $1.25 Common Shares (12,000 Outstanding, no par) $190,000 $190,000 Common Shares Outstanding (no par) 12,000 12,000 Current Market Price per share $54.00 $45.00 Preferred Shares Outstanding 0.00 0.00 Dividends declared per share (Preferred) $0.00 $0.00 Retained Earnings $183,600 $140,000

Earnings Per Share Ratio (EPS) EPS Net Income $61,000 $39,000 subtract: Preferred dividends Value for EPS Calculation $61,000 $39,000 Common Shares Outstanding (no par) 12,000 12,000 EPS = Net income / Common shares Outstanding $5.08 $3.25 P/E Current Market Price per share $54.00 $45.00 EPS = Net income / Common shares Outstanding $5.08 $3.25 Price to Earnings Ratio $10.62 $13.85 Dividend Yield Dividends declared per share (common) $1.45 $1.25 Current Market Price per share $54.00 $45.00 Dividend Yield Ratio 2.69% 2.78% Payout Ratio Dividends declared per share (common) $1.45 $1.25 EPS = Net income / Common shares Outstanding $5.08 $3.25 Payout Ratio 28.525% 38.462%

9 TRUE 10 FALSE 11 TRUE 12 TRUE 13 TRUE 14 FALSE 15 TRUE 16 FALSE 17 TRUE 18 TRUE 19 TRUE 20 TRUE 21 B 22 A 23 D 24 TRUE 25 TRUE 26 B 27 True

28 True 29 E Calculate I/Y 30 Step 1 after tax yield = ((1.00 - tax rate) x yield) Calc. After tax yield =((1.00 - .3) X .06 =((.7) X .06) = .042 or 4.2% Step 2 Calculate the effect of both the after tax yield and the rate of inflation (after tax yield - inflation rate) / (1 + inflation rate) 0.012 (.042 - .03) / (1.00 + .03) = (.012) / (1.03) I/Y = 1.16505% Step 3 Compute FV I/Y 1.65 P/Y 1 C/Y 1

N 10 PV -1000 PMT 0 CPT FV $1,123.00 31 a Let X be t he unknown % of invested capital and additional return needed to recover your losses 30,000 = 21,000X 30,000 / 21,000 = X X = 1.43 or 143% (rounded) 31 b P/Y 1 C/Y 1 N 1 PV -21,000 PMT 0 FV 42,077 CPT IY 100.37

31 c P/Y 1 C/Y 1 I/Y 10 PV -21,000 PMT 0 FV 42,077 CPT N 7.29 Years

Module 3 - Section 2
In Class Exercises

			Original				Revised
			Mr.	Mrs	Total		Mr.	Mrs	Total
		Income	35,000.00	51,000.00	86,000.00		36,050.00	52,530.00	88,580.00
		Tax Rate	0.20	0.30			0.20	0.30
		Tax Paid	7,000.00	15,300.00	22,300.00		7,210.00	15,759.00	22,969.00
		Disposable Income (Income - tax paid)	28,000.00	35,700.00	63,700.00		28,840.00	36,771.00	65,611.00
		Cost of Living
		Sched A (Forced Savings)			0.00				0.00
		Shed B (Basic Survival)			27,300.00		=27,300*1.02			27,846.00
		Sched C (Debt Servicing)			15,000.00		=15,000*1.02			15,300.00
		Shed D (Discretionary)			22,500.00		=22,500*1.02			22,950.00
		Total Cost of Living			64,800.00				66,096.00
		Net Savings (Disposable Income - total cost of Living)			-1,100.00				-485.00
	1	A
	2	A

	3	E
	4	C
	5	B
	6	C
	7	A
	8	B
	9	C

Module 3 - Section 3
In Class Exercises

Gross income = (payment) / (1 - tax rate) Equivalent interest rate - (interest rate) / (1 - tax rate) 1 A 2 B 3 FALSE 4 E 757.58 500 / (1 - .34) 5 D - Note.. This question is not asking what the gross income is. It is asking how much extra he has to make, that is, the difference between the gross payment and his credit card payment 146.03 (375.5 / ((1 - 0.28)-375.5) 6 B 26.47% 0.18/(1-0.32) 7 The question is asking, as a ratio, how much bigger is the equivalent interest rate than the original interest rate original rate equivalent Using basic algebra, .2647 = .18X 0.18 0.2647 .2647 / .18 = X X = 1.4707, which means 26.47 is 1.4707 times bigger than .18 or X = 47.07% higher 8 B

9 A CPT PMT 10 C Mode CY PY N IY PV PMT FV Original Mortgage payment BGN 2 12 240 0.06 -73,000 ??? 0 517.34 11 Please note that there is an error in the text book. The text book adds up the monthly payments and mortgage to $99,000 and does its calculations based on that number. In fact, the original mortgage (73,000) plus the car balance (16,000) plus the credit card balance (8,000) add up to 97,000, not 99,000. So if you are adding up the numbers and it is not working out, that is why. I have included the calculation for both Present Values below Credit card balance = 300 monthly and 8,000 total Car payments are 500 monthly and 18,000 total Mortgage = 517.34 Total montly payments = 1,317.34 Total of non-mortgage debts = 8,000 + 18,000 = 26,000 Adding the car and credit card debts to his existing mortgage = 73,000 + 8,000 + 16,000 = 97,000 Mode CY PY N IY PV PMT FV CPT PMT Now recalculate his montly payment @ 99,000 BGN 2 12 240 0.06 -99,000 ??? 0 701.6 Now recalculate his montly payment @ 97,000 BGN 2 12 240 0.06 -97,000 ??? 0 687.42 12 Because there is an error in the first part of the question, there is also an error in this part. I have provided both answers below. 1317.34 - 701.60 = 615.74 1317.34 - 687.42 = 629.92