Question 1:

A) The bond shown below issued by Phoenix Plc was priced initially at par (100), when the
YTM was 10%.
Coupon Year Yield to Maturity (10%) Present Value PV*t
Year 1
10
Year 2
10
Year 3
10
Year 4
10
Year 5
110
Required:
(i)
What is the bonds Macaulay Duration?
(15 marks)
(ii)
When the interest rate is increased by 3%, what will be the impact on the prices?
(5 marks)
B) Phoenix Plc faltered in the recent recession but has recovered since. EPS and dividends have
grown rapidly since 2012.
2011
2012
2013
2014
2015
EPS
0.75
2.00
2.50
2.60
2.65
Dividends
0
1.00
2.00
2.30
2.65
Dividend
100%
15%
15%
growth
Phoenixs stock price today in 2013 is 21.75 (Year 2013 is year 0). The figures for 2014 and 2015
are forecasts. Phoenixs recovery will be complete in 2018, and there will be no further growth in
EPS or dividends.
A security analyst forecasts next years rate of return on Phoenix stock as follows:

D g
1

2.3
0.15 25.6%
21.75

Required:
(i)
Is this forecast correct? If yes, why? If not, then whats wrong with the securitys forecast?
(5 marks)
Total 25 marks
Question 2:
(i)
Suppose that IBM would like to borrow fixed rate yen, whereas Korea Development Bank
(KDB) would like to borrow floating-rate dollars. IBM can borrow fixed-rate yen at 4.5%
or floating rate dollar at LIBOR+0.25%. Korea Development Bank (KDB) can borrow
fixed-rate yen at 4.9% or floating-rate dollars at LIBOR+0.8%.
(ii)
IBM considers also an alternative portfolio: buy one call option, cost C, with exercise
price X, buy zero-coupon government bonds with face value X, and sell one share. The
share price at time=0 is S. The option matures at time t.
(iii)
The share price of Renfrew Plc has been trading in a narrow price range for the

past month, and you are convinced it is going to break far out of that range in the
next three months. You do not know whether, it will go up or down. The current
share price is 100 per share and the price of a three-month call option at an
exercise price of 100 is 10.
Required:
(i)
What is the possible cost savings that IBM can realize through an interest rate/currency
swap with KDB? Assume that the companies decide to split all potential cost savings.
(10 marks)
(ii)
Draw a diagram showing the value of the portfolio when the option matures. What other
derivative has the same type of payoff?
(5 marks)

(iii)

If the risk free interest rate is 10% per annum, what must be the price of a threemonth put option on Renfrew Plc at an exercise price of 100 (the stock pays no
dividend)?
What would be a simple options strategy to exploit your conviction about future
price movements? How far would the share price have to move in either direction
for you to make a profit on your investment?
(10 marks)
Total 25 marks

Question 3:
Pagehurst Limited is considering investing in a malt making machine costing 1 million. The
machine has a working life of four years and installation of the machine is likely to generate
the following pre-tax cost savings:
Year 1
200,000
Year 2
300,000
Year 3
400,000
Year 4
600,000
At the end of year four the machine is expected to have a scrap value of 100,000. Initial
investment in working capital is estimated at 300,000 (although this is expected to be
recovered at the end of the projects life). Capital allowances are available on the project at
25% on a reducing balance basis. Frosty Ice has existing profits from other operations on
which it can utilise any available allowances. The companys effective tax rate is 25% and
taxes are paid one year in arrears.The industry beta for this project is 1.25 and the average
debt:equity ratio in this industry is 2:3.
Pagehurst Limited plans to issue 600,000 of redeemable debt against the project to be repaid
in four equal installments at a coupon rate of 7%.
The market risk-free rate and market return are 5% and 9% respectively.
Required:
a) Prepare calculations to show the impact of this project on shareholder wealth
(18 marks)
b) Explain what is meant by the Weighted-Average-Cost-of-Capital (WACC) and discuss its
usefulness in the evaluating Pagehurst Limited capital investment decision
(7 marks)
Total 25 marks
Question 4:
(a) There is considerable debate on the contribution of mergers and acquisitions to contemporary
economic life. Give a critical and brief review of the main arguments developed in the literature in
favour or against the mergers and acquisitions and focuses your discussion on their effect on
shareholders, managers and managerial behaviour and the society.
(13 marks)
(b) Discuss the managerial motivation for mergers and acquisitions within the agency theory

framework. Include in your discussion the implications of the free cash flow hypothesis and
the market for corporate control.
(12 marks)
Total 25 marks
Question 5:

TouchSky Ltd has a current working capital structure as follows:

Stock - Raw materials

10% of purchases
- Finished goods
15% of cost of goods sold
Purchases
60% of cost of goods sold
2

Trade debtors
15% of sales
Trade creditors
5% of purchases
Finished goods are valued at variable cost. The present level of sales, all on credit is
2,100,000 per annum. Gross profit margin is 40% of cost of sales. Bad debts are
currently 2% of sales.
The company is currently reviewing its credit policy. Market research has indicated
that if they allow customers to take double the credit period now allowed, sales will
increase by 25%. However it also suggests that bad debts will rise to 3.5% of sales.
Assuming that the Cost of capital is currently 15% and one year has 365 days
Required:
(a)
Calculate the working capital (cash conversion cycle) in days and indicate its
importance.
(10 marks)
(b)
Evaluate the impact of the proposed change in credit policy on net profit.
(6 marks)
(c)
Outline the policies the company could consider in order to reduce the length
of its cash conversion cycle and discuss the issues to be considered when
financing working capital by short term debt.
(9 marks)
Total 25 marks
Question 6:

(a) Euripides plc, Sophocles plc and Aeschylus plc are companies in different industries,
listed in the London Stock Exchange. Currently, at the common ex-dividend day, their
share prices are 800p, 200p and 400p respectively. The economic and market
performance of these companies are volatile and depend on the condition of the
economy. Your expectations about the share prices and distributed dividends in oneyear time are given in the following table:
Condition of Probabili Euripides plc
Sophocles plc
Aeschylus plc
economy
ty
800p
200p
400p
Price Dividend Price Dividend Price Dividend
Boom
0.20
960
40
240
12
404
4
Growth
0.60
840
40
220
4
430
10
Recession
0.20
820
20
202
4
462
30
You strongly believe in the accuracy of your forecasts and you borrow 1,000,000
from your bank at 8.5% to invest in a portfolio that includes only two of the above
shares. Assume that your investment horizon is one year and you want to invest 50%
of your portfolio value in Sophocles plc shares.
Required:
Explain which of the other two shares you should include in your portfolio.
Additionally, find the risk and return of your portfolio and the amount of gain
or loss from your investment.
(13 marks)
(b)
Sophocles plc is a relatively new, all-equity, Hospitality Company and has just
announced the opening of its exclusive Red Sea resort and plans to develop
five more over the next 6 years. As a result, the company will grow at 24% for
the first 6 years followed by constant growth of 5% in perpetuity thereafter.
Hathor has 2,000,000 shares and 20,000,000 value of assets. Currently, at the
ex-dividend day, the company has 6,000,000 earnings and 3,000,000
distributed dividends. We assume that the risk-free rate is 6%, the expected
market return 10% and the company has beta 1.5.
3

Required:
Calculate the share price, market-to-book value, dividend yield, PE ratio and
the total returns.
(12 marks)
Total 25 marks
END OF EXAMINATION PAPER

BA3325: Corporate Finance Exam 2011-12

1.

Market
condition
Recession
Growth
Boom

You consider investing in portfolios including X plc, Y plc and Z plc,

which are listed companies operating in different industries and their
performance depends on the condition of the economy. Currently, their
share prices, all simultaneously ex-dividend, are 8, 10 and 20
respectively. The following table give your expectations about the state
of the economy and company performance:
X plc 8
Y plc 10
Z plc 20
Probability Price
Dividend
Price Dividend Price Dividend

0.3
7.6
0.2
9.5
0
23.1
1.5
0.4
8.4
0.4
11
0.2
21.5
0.5
0.3
9.6
0.8
12
0.8
20.2
0.1
Required:
a)
If the risk and returns of portfolio P1 comprising 50-50 shares of X plc
and Y plc are 0.127 and 0.1197 respectively, compare the risk and
returns of portfolio P1 with those of a portfolio P2 with 50-50 shares of X
plc and Z plc. Which portfolio will you choose to invest in? Explain and
justify your findings and recommendations.
(15 marks)
(b)
Explain how the diversification of a portfolio reduces the risk and when
the diversification is more effective. Include in your discussion the
relationship between the correlation of the returns of the securities
included in the portfolio and the risk of the portfolio and also explain
why international diversification is more effective than national
diversification.
(5 marks)
(c)
Describe the CAPM and its basic assumptions. Include in your
discussion an explanation of what is beta, how it is measured and what
does it represent.
(5 marks)
(Total 25 marks)
2.
(a)
Describe the horizontal, vertical and conglomerate mergers and briefly
explain the major potential sources of value creation for each type.
(15 marks)
(b)
It is common practice for bidders to buy shares of the prospective target
before the bid announcement. Discuss the advantages and
disadvantages of this pre-bid stake or toehold building in the targets.
(6 marks)
(c)
Explain the similarities and differences between mergers and
divestments.
(4 marks)
(Total 25 marks)
3.

(a)

The share price of Profile plc is currently traded at 3.30. The share
price is relatively moderately volatile with standard deviation of returns
15% but you believe that it is likely the price to increase significantly
over the next couple of years. You contact your broker to buy a
European call option on this share with exercise price 3.00 and two
5

(b)

(c)

(d)

years time to expiry. If the risk-free interest rate is 5%, estimate the fair
price that you are expected to pay for this call option.
(10 marks)
If the share price at maturity is 52.5p, calculate the payoffs and profits
for investments in the following equity options.
Exercise Price (p)
Option premium (p)
Call option
47.5
7.10
Put option
47.5
0.83
Call option
52.5
2.30
Put option
52.5
1.80
Call option
57.5
0.80
Put option
57.5
5.30
(5 marks)
Define the spot and forward foreign exchange rates. If the spot rate is
1.90 dollars per pound, the UK interest rate is 9% and the US interest
rate is 3%, what is the dollar per pound one-year forward rate?
(5 marks)
Philip plc is a UK based luxury goods distributor that trades mainly with
Canada and Mexico. On 1 January 2009, the expected receipts and
payments for the next six months in Canadian Dollars (C$) and
Mexican Pesos (MXN) are:
Country
Payment Date
Exports
Imports
Canada
31 March
100,000
C$500,000
Mexico
31 June
MXN20,000,000
Exchange Rates:
Spot
3 months
6 months

C$ /
1.82 1.84
1.80 1.82
1.78 1.80

Current base rates:

United Kingdom 6%

Pesos /
20.80
N/A
N/A

Canada 2%

Mexico N/A

Philip plc has currently no surplus cash, but can borrow short-term at
3% above the bank base rate or invest at 2% below the bank base rate
in either the United Kingdom or Canada.
Required:
(i)
Advise Philip plc as how to best use the forward market or
money market, regarding its trade with Canada.
(5 marks)
(Total 25 marks)
4.

(a)

Dragon Ltd is about to be listed in the stock exchange and its Board of
Directors asks you to produce a report exploring the alternative mix of
debt and equity for the company. Information about three similar
companies in the same industry, that are already listed, is as follows:

Earnings before interest and tax

A Plc
30m

B Plc
60m

C Plc
90m

Book value of equity

80m

300m

240m

Market value of equity

140m

245m

340m

Market value of debt

Nil

50m

160m

Eventually, following your report, the Board has decided to adopt a mix
of debt and equity such that 40% of its market value is debt and 60%
equity. All the companies pay corporation tax at the rate of 30%. Dragon
Ltd is expected to generate Earnings before interest and tax of 36
million in perpetuity.
Required:
(i)
Assuming that the valuation of A Plc is correct, determine which
of the other two companies has a market value of equity and
debt in equilibrium and consistent with the Modigliani and Miller
with tax capital structure hypothesis.
(10 marks)
(ii)
Assuming that the Modigliani and Miller with tax capital structure
hypothesis is correct, calculate the total market value of Dragon
Ltd if it adopts a 40:60 debt:equity ratio and calculate its
Weighted Average Cost of Capital
(5 marks)
(b)
Peter and Paul each own 50% of the shares of SmartTech Ltd a
specialist electronics manufacturer. The company generates stable net
profit after-taxes of 200,000 per annum over the recent years and all
the net after-tax profits have been paid as dividends. SmartTech Ltd
explores the acquisition of the patents for a new production technology
which will result in significant cost savings. The patents cost 200,000
and are likely to produce cost savings of 8,000 in year 1, 12,000 in
year 2 and 18,000 after three years indefinitely into the future. There
are no other cash flows implications of this investment project. The
finance director proposes to suspend dividend payments for this year to
fund the acquisition cost of the patents. The cash savings from the use
of the new technology will be paid out as dividends in full as they arise.
Peter is in agreement with the finance directors proposal to invest in
the project and finance it with suspending dividends. However, Paul
was planning to use the dividend to buy a sailing boat and he is against
the proposal to cut dividends. SmartTech Ltd has a Cost of Capital is
6%.
Required:
Evaluate if the company is acting in the best interests of both its
shareholders, by accepting the project if:
(i)
Peter and Paul can borrow freely at 6%
(ii)
Peter and Paul can borrow freely at 20%
(5 marks)
In the above question (a) Peter has managed to convince Paul that he
can borrow money to fund his sailing boat, while allowing the company
to pursue its investment program. In each of the above calculate the
maximum amount of funds that Paul can borrow and still fund the loan
repayments from his dividend income
(5 marks)
(Total 25 marks)
7

5.

(a)

(b)

Track plc manufactures one product with the following cost structure:

Selling price
20
Direct materials
3
Direct labour
6
Variable overheads
5
14
6
Annual fixed costs are 10,000.
The current working capital structure is as follows:
Stocks
000s
000s
Raw materials
1.2
Work in progress
1.2
Finished goods
6
8.4
Cash
0.2
Trade debtors
7.6
Trade creditors
2.4
Work in progress and finished goods are both valued at total variable
cost.
The companys present level of sales is 100,000. Annual material
purchases, all on credit, are 15,000. The cost of sales per annum, at
variable cost, is currently 70,000.
The company is considering a proposal to increase production so that
sales can be raised to 120,000 next year. All sales will be on credit.
This increase will require no additional plant as the company has
sufficient spare capacity. No increase in fixed costs is anticipated.
The expansion in sales is likely to cause the following changes to the
working capital requirements:
(i)
Credit allowed is likely to increase by 3 days.
(ii)
The number of days that the additional raw material stock is
held is expected to increase by 20%.
(iii)
The length of the work in progress cycle will be unaltered.
(iv)
The number of days that the additional finished goods stock will
be held is expected to be 4 more days than at present.
(v)
Payment to all trade creditors will need to be made more
promptly,reducing the current period of credit by 7 days.
Assume a 360 day year.
Required:
Assuming a 360-day year, calculate, after taking into account points (i)
to (v) above, the increase in cash needed to finance the additional
working capital required by the proposed expansion.
(15 marks)
Tudor Ltd is a regional construction company and considers three
alternatives regarding the leasing of a new crane, as follows:
1.
Purchase price = 130,000; interest rate = 12 %; 5 year lease;
no residual value. The Lessor has a nil marginal tax rate.
2.
Purchase price = 130,000; interest rate = 12%; 5 year lease;
residual value of 15,000 The Lessor has a nil marginal tax rate.
3.
Purchase price = 130,000; interest rate = 12%; 5 year lease;
residual value of 15,000 and the Lessor has a marginal tax rate
of 30% and is able to claim capital allowances on a reducing
balance basis at 25%.
8

Required:
Given the above information, compute the annual lease payment that a
lessor will require, given that the lease payments are made in advance.
(10 marks)
(Total 25 marks)

FORMULA SHEET
Dividend Valuation model:

Vo t o

where

Vo
DIVt
t
re

=
=
=
=

DIVt
(1 re)t

present outlay/investment
Dividend to time t
number of years
rate of return on equity

Gordon Growth Model:

Vo

DIV1

Vo

where

DIV
DIV1
re
g

=
=
=
=
=

or

DIV (1 g )

current value of shares

current dividend
dividend paid at the end of year 1
rate of return on equity
annual average growth in dividends

T
1 h T 1
d 0 1 g s 1 g
1
+

T
h
rg

(1 r )

P0 d 0 1 h

g (1 g s ) (1 g )1 1 ;

where:

1 h

1 g s
1 r

(The part of price related to supernormal growth )

P0

Valuation of Debentures:

FMVD
where FMVD =
R
I
r
n

I
R
n
(1 r )
(1 r ) n

fair market value of the debt

=
redemption value
=
annual interest payment
=
required return / redemption yield
=
number of years to redemption

Bonds:

and

Valuation of Irredeemable Debentures:

I
rb
fair market value of the debt
Annual Interest Payment
the rate required on borrowing
FMVD

where FMVD =
I
=
rb
=
Capital Asset Pricing Model:

Rco R f Rm R f

where

Rco

rate of return demanded by investors from the company

10

Rf

=
=
=

Rm

risk free rate of return

companys equity beta
rate of return on the market index portfolio

cov AB p i ( x i x)( y i y )

cov AB A B AB

i 1

rAB w A rA wB rB
AB

rABC w A rA wB rB wC rC

w A2 A2 wB2 B2 2 w A wB cov AB

ABC

w A2 A2 wB2 B2 wC2 C2 2w A wB cov AB 2wB wC cov BC 2 wC w A cov CA

Options:

Where:

Or:

P C N d 1 P S Xe rT N d 2

Where:
P Xe
C

PS
X

P P

d1
rT

r 0.5 2 T

ln

and:

d 2 d1 T

P0 C *

1
1
1
r
(1 r ) T

T
P

Annuities:
A
1
P0 1
i
1 i N
1
PV
(1 K ) N

and

PV

(1 K ) 1
K (1 K ) N
N

11

PT *

1
(1 r ) T

t =

10

11

12

13

14

15

5.00% 0.95238

0.90703

0.86384

0.82270

0.78353

0.74622

0.71068

0.67684

0.64461

0.61391

0.58468

0.55684

0.53032

0.50507

0.48102

6.00% 0.94340

0.89000

0.83962

0.79209

0.74726

0.70496

0.66506

0.62741

0.59190

0.55839

0.52679

0.49697

0.46884

0.44230

0.41727

7.00% 0.93458

0.87344

0.81630

0.76290

0.71299

0.66634

0.62275

0.58201

0.54393

0.50835

0.47509

0.44401

0.41496

0.38782

0.36245

8.00% 0.92593

0.85734

0.79383

0.73503

0.68058

0.63017

0.58349

0.54027

0.50025

0.46319

0.42888

0.39711

0.36770

0.34046

0.31524

9.00% 0.91743

0.84168

0.77218

0.70843

0.64993

0.59627

0.54703

0.50187

0.46043

0.42241

0.38753

0.35553

0.32618

0.29925

0.27454

10.00% 0.90909

0.82645

0.75131

0.68301

0.62092

0.56447

0.51316

0.46651

0.42410

0.38554

0.35049

0.31863

0.28966

0.26333

0.23939

11.00% 0.90090

0.81162

0.73119

0.65873

0.59345

0.53464

0.48166

0.43393

0.39092

0.35218

0.31728

0.28584

0.25751

0.23199

0.20900

12.00% 0.89286

0.79719

0.71178

0.63552

0.56743

0.50663

0.45235

0.40388

0.36061

0.32197

0.28748

0.25668

0.22917

0.20462

0.18270

13.00% 0.88496

0.78315

0.69305

0.61332

0.54276

0.48032

0.42506

0.37616

0.33288

0.29459

0.26070

0.23071

0.20416

0.18068

0.15989

14.00% 0.87719

0.76947

0.67497

0.59208

0.51937

0.45559

0.39964

0.35056

0.30751

0.26974

0.23662

0.20756

0.18207

0.15971

0.14010

15.00% 0.86957

0.75614

0.65752

0.57175

0.49718

0.43233

0.37594

0.32690

0.28426

0.24718

0.21494

0.18691

0.16253

0.14133

0.12289

16.00% 0.86207

0.74316

0.64066

0.55229

0.47611

0.41044

0.35383

0.30503

0.26295

0.22668

0.19542

0.16846

0.14523

0.12520

0.10793

17.00% 0.85470

0.73051

0.62437

0.53365

0.45611

0.38984

0.33320

0.28478

0.24340

0.20804

0.17781

0.15197

0.12989

0.11102

0.09489

18.00% 0.84746

0.71818

0.60863

0.51579

0.43711

0.37043

0.31393

0.26604

0.22546

0.19106

0.16192

0.13722

0.11629

0.09855

0.08352

19.00% 0.84034

0.70616

0.59342

0.49867

0.41905

0.35214

0.29592

0.24867

0.20897

0.17560

0.14757

0.12400

0.10421

0.08757

0.07359

20.00% 0.83333

0.69444

0.57870

0.48225

0.40188

0.33490

0.27908

0.23257

0.19381

0.16151

0.13459

0.11216

0.09346

0.07789

0.06491

21.00% 0.82645

0.68301

0.56447

0.46651

0.38554

0.31863

0.26333

0.21763

0.17986

0.14864

0.12285

0.10153

0.08391

0.06934

0.05731

22.00% 0.81967

0.67186

0.55071

0.45140

0.37000

0.30328

0.24859

0.20376

0.16702

0.13690

0.11221

0.09198

0.07539

0.06180

0.05065

23.00% 0.81301

0.66098

0.53738

0.43690

0.35520

0.28878

0.23478

0.19088

0.15519

0.12617

0.10258

0.08339

0.06780

0.05512

0.04481

24.00% 0.80645

0.65036

0.52449

0.42297

0.34111

0.27509

0.22184

0.17891

0.14428

0.11635

0.09383

0.07567

0.06103

0.04921

0.03969

25.00% 0.80000

0.64000

0.51200

0.40960

0.32768

0.26214

0.20972

0.16777

0.13422

0.10737

0.08590

0.06872

0.05498

0.04398

0.03518

r =

t =

10

11

12

13

14

15

5.00% 0.95238

0.90703

0.86384

0.82270

0.78353

0.74622

0.71068

0.67684

0.64461

0.61391

0.58468

0.55684

0.53032

0.50507

0.48102

6.00% 0.94340

0.89000

0.83962

0.79209

0.74726

0.70496

0.66506

0.62741

0.59190

0.55839

0.52679

0.49697

0.46884

0.44230

0.41727

t7.00%
=
10 0.47509
11 0.44401
12 0.41496
13 0.38782
14
0.934581 0.873442 0.816303 0.762904 0.712995 0.666346 0.622757 0.582018 0.543939 0.50835

15
0.36245

r =

8.00% 0.92593
r =
9.00% 0.91743

0.85734

0.79383

0.73503

0.68058

0.63017

0.58349

0.54027

0.50025

0.46319

0.42888

0.39711

0.36770

0.34046

0.31524

0.84168

0.77218

0.70843

0.64993

0.59627

0.54703

0.50187

0.46043

0.42241

0.38753

0.35553

0.32618

0.29925

0.27454

10.00%
5.00%
11.00%
6.00%

0.90909
0.95238
0.90090
0.94340

0.82645
1.85941
0.81162
1.83339

0.75131
2.72325
0.73119
2.67301

0.68301
3.54595
0.65873
3.46511

0.62092
4.32948
0.59345
4.21236

0.56447
5.07569
0.53464
4.91732

0.51316
5.78637
0.48166
5.58238

0.46651
6.46321
0.43393
6.20979

0.42410
7.10782
0.39092
6.80169

0.38554
7.72173
0.35218
7.36009

0.35049
8.30641
0.31728
7.88687

0.31863
8.86325
0.28584
8.38384

0.28966
9.39357
0.25751
8.85268

0.26333
9.89864
0.23199
9.29498

0.23939
10.37966
0.20900
9.71225

7.00%
12.00%
8.00%
13.00%

0.93458
0.89286
0.92593
0.88496

1.80802
0.79719
1.78326
0.78315

2.62432
0.71178
2.57710
0.69305

3.38721
0.63552
3.31213
0.61332

4.10020
0.56743
3.99271
0.54276

4.76654
0.50663
4.62288
0.48032

5.38929
0.45235
5.20637
0.42506

5.97130
0.40388
5.74664
0.37616

6.51523
0.36061
6.24689
0.33288

7.02358
0.32197
6.71008
0.29459

7.49867
0.28748
7.13896
0.26070

7.94269
0.25668
7.53608
0.23071

8.35765
0.22917
7.90378
0.20416

8.74547
0.20462
8.24424
0.18068

9.10791
0.18270
8.55948
0.15989

16.00%
12.00% 0.86207
0.89286

0.74316
1.69005

0.64066
2.40183

0.55229
3.03735

0.47611
3.60478

0.41044
4.11141

0.35383
4.56376

0.30503
4.96764

0.26295
5.32825

0.22668
5.65022

0.19542
5.93770

0.16846
6.19437

0.14523
6.42355

0.12520
6.62817

0.10793
6.81086

13.00% 0.88496
17.00%
0.85470
14.00%
18.00% 0.87719
0.84746
15.00% 0.86957
19.00% 0.84034
16.00% 0.86207
20.00%
17.00% 0.83333
0.85470

1.66810
0.73051
1.64666
0.71818

2.36115
0.62437
2.32163
0.60863

2.97447
0.53365
2.91371
0.51579

3.51723
0.45611
3.43308
0.43711

3.99755
0.38984
3.88867
0.37043

4.42261
0.33320
4.28830
0.31393

4.79877
0.28478
4.63886
0.26604

5.13166
0.24340
4.94637
0.22546

5.42624
0.20804
5.21612
0.19106

5.68694
0.17781
5.45273
0.16192

5.91765
0.15197
5.66029
0.13722

6.12181
0.12989
5.84236
0.11629

6.30249
0.11102
6.00207
0.09855

6.46238
0.09489
6.14217
0.08352

1.62571
0.70616
1.60523
0.69444
1.58521

2.28323
0.59342
2.24589
0.57870
2.20958

2.85498
0.49867
2.79818
0.48225
2.74324

3.35216
0.41905
3.27429
0.40188
3.19935

3.78448
0.35214
3.68474
0.33490
3.58918

4.16042
0.29592
4.03857
0.27908
3.92238

4.48732
0.24867
4.34359
0.23257
4.20716

4.77158
0.20897
4.60654
0.19381
4.45057

5.01877
0.17560
4.83323
0.16151
4.65860

5.23371
0.14757
5.02864
0.13459
4.83641

5.42062
0.12400
5.19711
0.11216
4.98839

5.58315
0.10421
5.34233
0.09346
5.11828

5.72448
0.08757
5.46753
0.07789
5.22930

5.84737
0.07359
5.57546
0.06491
5.32419

21.00%
18.00% 0.82645
0.84746

0.68301
1.56564

0.56447
2.17427

0.46651
2.69006

0.38554
3.12717

0.31863
3.49760

0.26333
3.81153

0.21763
4.07757

0.17986
4.30302

0.14864
4.49409

0.12285
4.65601

0.10153
4.79322

0.08391
4.90951

0.06934
5.00806

0.05731
5.09158

19.00% 0.84034
22.00%
0.81967
20.00%
23.00% 0.83333
0.81301
21.00% 0.82645
24.00% 0.80645
22.00% 0.81967
25.00% 0.80000
23.00% 0.81301

1.54650
0.67186
1.52778
0.66098

2.13992
0.55071
2.10648
0.53738

2.63859
0.45140
2.58873
0.43690

3.05763
0.37000
2.99061
0.35520

3.40978
0.30328
3.32551
0.28878

3.70570
0.24859
3.60459
0.23478

3.95437
0.20376
3.83716
0.19088

4.16333
0.16702
4.03097
0.15519

4.33893
0.13690
4.19247
0.12617

4.48650
0.11221
4.32706
0.10258

4.61050
0.09198
4.43922
0.08339

4.71471
0.07539
4.53268
0.06780

4.80228
0.06180
4.61057
0.05512

4.87586
0.05065
4.67547
0.04481

1.50946
0.65036
1.49153
0.64000
1.47399

2.07393
0.52449
2.04224
0.51200
2.01137

2.54044
0.42297
2.49364
0.40960
2.44827

2.92598
0.34111
2.86364
0.32768
2.80347

3.24462
0.27509
3.16692
0.26214
3.09225

3.50795
0.22184
3.41551
0.20972
3.32704

3.72558
0.17891
3.61927
0.16777
3.51792

3.90543
0.14428
3.78628
0.13422
3.67310

4.05408
0.11635
3.92318
0.10737
3.79927

4.17692
0.09383
4.03540
0.08590
3.90185

4.27845
0.07567
4.12737
0.06872
3.98524

4.36235
0.06103
4.20277
0.05498
4.05304

4.43170
0.04921
4.26456
0.04398
4.10816

4.48901
0.03969
4.31522
0.03518
4.15298

24.00% 0.80645

1.45682

1.98130

2.40428

2.74538

3.02047

3.24232

3.42122

3.56550

3.68186

3.77569

3.85136

3.91239

3.96160

4.00129

25.00% 0.80000

1.44000

1.95200

2.36160

2.68928

2.95142

3.16114

3.32891

3.46313

3.57050

3.65640

3.72512

3.78010

3.82408

3.85926

10

11

12

13

14

15

5.00% 0.95238

1.85941

2.72325

3.54595

4.32948

5.07569

5.78637

6.46321

7.10782

7.72173

8.30641

8.86325

9.39357

9.89864

10.37966

6.00% 0.94340

1.83339

2.67301

3.46511

4.21236

4.91732

5.58238

6.20979

6.80169

7.36009

7.88687

8.38384

8.85268

9.29498

9.71225

7.00% 0.93458

1.80802

2.62432

3.38721

4.10020

4.76654

5.38929

5.97130

16.51523

7.02358

7.49867

7.94269

8.35765

8.74547

9.10791

8.00% 0.92593

1.78326

2.57710

3.31213

3.99271

4.62288

5.20637

5.74664

6.24689

6.71008

7.13896

7.53608

7.90378

8.24424

8.55948

9.00% 0.91743

1.75911

2.53129

3.23972

3.88965

4.48592

5.03295

5.53482

5.99525

6.41766

6.80519

7.16073

7.48690

7.78615

8.06069

10.00% 0.90909

1.73554

2.48685

3.16987

3.79079

4.35526

4.86842

5.33493

5.75902

6.14457

6.49506

6.81369

7.10336

7.36669

7.60608

9.00%
14.00%
10.00%
15.00%
11.00%

t =

0.91743
0.87719
0.90909
0.86957
0.90090

1.75911
0.76947
1.73554
0.75614
1.71252

2.53129
0.67497
2.48685
0.65752
2.44371

3.23972
0.59208
3.16987
0.57175
3.10245

3.88965
0.51937
3.79079
0.49718
3.69590

4.48592
0.45559
4.35526
0.43233
4.23054

5.03295
0.39964
4.86842
0.37594
4.71220

5.53482
0.35056
5.33493
0.32690
5.14612

5.99525
0.30751
5.75902
0.28426
5.53705

6.41766
0.26974
6.14457
0.24718
5.88923

6.80519
0.23662
6.49506
0.21494
6.20652

7.16073
0.20756
6.81369
0.18691
6.49236

7.48690
0.18207
7.10336
0.16253
6.74987

7.78615
0.15971
7.36669
0.14133
6.98187

8.06069
0.14010
7.60608
0.12289
7.19087

r =

APPENDIX 3 Standard Normal Probabilities

(The table is based on the area P under the standard normal probability curve, below the respective z-statistic.)
z

.00

-4.0

.01

.02

.03

.04

.05

.06

.07

.08

.09

0.00003 0.00003

0.00003

0.00003

0.00003

0.00003

0.00002

0.00002

0.00002

0.00002

-3.9

0.00005 0.00005

0.00004

0.00004

0.00004

0.00004

0.00004

0.00004

0.00003

0.00003

-3.8

0.00007 0.00007

0.00007

0.00006

0.00006

0.00006

0.00006

0.00005

0.00005

0.00005

-3.7

0.00011 0.00010

0.00010

0.00010

0.00009

0.00009

0.00008

0.00008

0.00008

0.00008

-3.6

0.00016 0.00015

0.00015

0.00014

0.00014

0.00013

0.00013

0.00012

0.00012

0.00011

-3.5

0.00023 0.00022

0.00022

0.00021

0.00020

0.00019

0.00019

0.00018

0.00017

0.00017

-3.4

0.00034 0.00032

0.00031

0.00030

0.00029

0.00028

0.00027

0.00026

0.00025

0.00024

-3.3

0.00048 0.00047

0.00045

0.00043

0.00042

0.00040

0.00039

0.00038

0.00036

0.00035

-3.2

0.00069 0.00066

0.00064

0.00062

0.00060

0.00058

0.00056

0.00054

0.00052

0.00050

-3.1

0.00097 0.00094

0.00090

0.00087

0.00084

0.00082

0.00079

0.00076

0.00074

0.00071

-3.0

0.00135 0.00131

0.00126

0.00122

0.00118

0.00114

0.00111

0.00107

0.00103

0.00100

-2.9

0.00187 0.00181

0.00175

0.00169

0.00164

0.00159

0.00154

0.00149

0.00144

0.00139

-2.8

0.00256 0.00248

0.00240

0.00233

0.00226

0.00219

0.00212

0.00205

0.00199

0.00193

-2.7

0.00347 0.00336

0.00326

0.00317

0.00307

0.00298

0.00289

0.00280

0.00272

0.00264

-2.6

0.00466 0.00453

0.00440

0.00427

0.00415

0.00402

0.00391

0.00379

0.00368

0.00357

-2.5

0.00621 0.00604

0.00587

0.00570

0.00554

0.00539

0.00523

0.00508

0.00494

0.00480

-2.4

0.00820 0.00798

0.00776

0.00755

0.00734

0.00714

0.00695

0.00676

0.00657

0.00639

-2.3

0.01072 0.01044

0.01017

0.00990

0.00964

0.00939

0.00914

0.00889

0.00866

0.00842

-2.2

0.01390 0.01355

0.01321

0.01287

0.01255

0.01222

0.01191

0.01160

0.01130

0.01101

-2.1

0.01786 0.01743

0.01700

0.01659

0.01618

0.01578

0.01539

0.01500

0.01463

0.01426

-2.0

0.02275 0.02222

0.02169

0.02118

0.02067

0.02018

0.01970

0.01923

0.01876

0.01831

-1.9

0.02872 0.02807

0.02743

0.02680

0.02619

0.02559

0.02500

0.02442

0.02385

0.02330

-1.8

0.03593 0.03515

0.03438

0.03362

0.03288

0.03216

0.03144

0.03074

0.03005

0.02938

-1.7

0.04456 0.04363

0.04272

0.04181

0.04093

0.04006

0.03920

0.03836

0.03754

0.03673

-1.6

0.05480 0.05370

0.05262

0.05155

0.05050

0.04947

0.04846

0.04746

0.04648

0.04551

-1.5

0.06681 0.06552

0.06425

0.06301

0.06178

0.06057

0.05938

0.05821

0.05705

0.05592

-1.4

0.08076 0.07927

0.07780

0.07636

0.07493

0.07353

0.07214

0.07078

0.06944

0.06811

-1.3

0.09680 0.09510

0.09342

0.09176

0.09012

0.08851

0.08691

0.08534

0.08379

0.08226

-1.2

0.11507 0.11314

0.11123

0.10935

0.10749

0.10565

0.10383

0.10204

0.10027

0.09852

-1.1

0.13566 0.13350

0.13136

0.12924

0.12714

0.12507

0.12302

0.12100

0.11900

0.11702

-1.0

0.15865 0.15625

0.15386

0.15150

0.14917

0.14686

0.14457

0.14231

0.14007

0.13786

-0.9

0.18406 0.18141

0.17878

0.17618

0.17361

0.17105

0.16853

0.16602

0.16354

0.16109

-0.8

0.21185 0.20897

0.20611

0.20327

0.20045

0.19766

0.19489

0.19215

0.18943

0.18673

-0.7

0.24196 0.23885

0.23576

0.23269

0.22965

0.22663

0.22363

0.22065

0.21769

0.21476

-0.6

0.27425 0.27093

0.26763

0.26434

0.26108

0.25784

0.25462

0.25143

0.24825

0.24509

-0.5

0.30853 0.30502

0.30153

0.29805

0.29460

0.29116

0.28774

0.28434

0.28095

0.27759

-0.4

0.34457 0.34090

0.33724

0.33359

0.32997

0.32635

0.32276

0.31917

0.31561

0.31206

-0.3

0.38209 0.37828

0.37448

0.37070

0.36692

0.36317

0.35942

0.35569

0.35197

0.34826

-0.2

0.42074 0.41683

0.41293

0.40904

0.40516

0.40129

0.39743

0.39358

0.38974

0.38590

-0.1

0.46017 0.45620

0.45224

0.44828

0.44433

0.44038

0.43644

0.43250

0.42857

0.42465

-0.0

0.50000 0.49601

0.49202

0.48803

0.48404

0.48006

0.47607

0.47209

0.46811

0.46414

Appendix 4 - Table of the Standard Normal Distribution

z

.00

.01

.02

.03

.04

.05

.06

.07

.08

.09

.0

.5000

.5040

.5080

.5120

.5160

.5190

.5239

.5279

.5319

.5359

.1

.5398

.5438

.5478

.5517

.5557

.5596

.5636

.5675

.5714

.5753

.2

.5793

.5832

.5871

.5910

.5948

.5987

.6026

.6064

.6103

.6141

.3

.6179

.6217

.6255

.6293

.6331

.6368

.6406

.6443

.6480

.6517

.4

.6554

.6591

.6628

.6664

.6700

.6736

.6772

.6808

.6844

6879

.5

.6915

.6950

.6985

.7019

.7054

.7088

.7123

.7157

.7190

.7224

.6

.7257

.7291

.7324

.7357

.7389

.7422

.7454

.7486

.7157

.7549

.7

.7580

.7611

.7642

.7673

.7704

.7734

.7764

.7794

.7823

.7852

.8

.7881

.7910

.7939

.7969

.7995

.8023

.8051

.8078

.8106

.8133

.9

.8159

.8186

.8212

.8238

.8264

.8289

.8315

.8340

.8365

.8389

1.0

.8413

.8438

.8461

.8485

.8508

.8513

.8554

.8577

.8529

.8621

1.1

.8643

.8665

.8686

.8708

.8729

.8749

.8770

.8790

.8810

.8830

1.2

.8849

.8869

.8888

.8907

.8925

.8944

.8962

.8980

.8997

.9015

1.3

.9032

.9049

.9066

.9082

.9099

.9115

.9131

.9147

.9162

.9177

1.4

.9192

.9207

.9222

.9236

.9215

.9265

.9279

.9292

.9306

.9319

1.5

.9332

.9345

.9357

.9370

.9382

.9394

.9406

.9418

.9492

.9441

1.6

.9452

.9463

.9474

.9484

.9495

.9505

.9515

.9525

.9535

.9545

1.7

.9554

.9564

.9573

.9582

.9591

.9599

.9608

.9616

.9625

.9633

1.8

.9641

.9649

.9656

.9664

.9671

.9678

.9686

.9693

.9699

.9706

1.9

.9713

.9719

.9726

.9732

.9738

.9744

.9750

.9756

.9761

.9767

2.0

.9772

.9778

.9783

.9788

.9793

.9798

.9803

.9808

.9812

.9817

2.1

.9821

.9826

.9830

.9834

.9838

.9842

.9846

.9850

.9854

.9857

2.2

.9861

.9864

.9868

.9871

.9875

.9878

.9881

.9884

.9887

.9890

2.3

.9893

.9896

.9898

.9901

.9904

.9906

.9909

.9911

.9913

.9916

2.4

.9918

.9920

.9922

.9925

.9927

.9929

.9931

.9932

.9934

.9936

2.5

.9938

.9940

.9941

.9943

.9945

.9946

.9948

.9949

.9951

.9952

2.6

.9953

.9955

.9956

.9957

.9959

.9960

.9961

.9962

.9963

.9964

2.7

.9965

.9966

.9967

.9968

.9969

.9970

.9971

.9972

.9973

.9974

2.8

.9974

.9975

.9976

.9977

.9977

.9978

.9979

.9979

.9980

.9981

2.9

.9981

.9982

.9982

.9983

.9984

.9984

.9985

.9985

.9986

.9986

3.0

.9987

.9987

.9987

.9988

.9988

.9989

.9989

.9989

.9990

.9990

3.1

.9990

.9991

.9991

.9991

.9992

.9992

.9992

.9992

.9993

.9993

3.2

.9993

.9993

.9994

.9994

.9994

.9994

.9994

.9995

.9995

.9995

3.3

.9995

.9995

.9995

.9996

.9996

.9996

.9996

.9996

.9996

.9997

3.4

.9997

.9997

.9997

.9997

.9997

.9997

.9997

.9997

.9997

.9998

Appendix 5 Future / Present Value Tables

Appendix 6
Cumulative Distribution Function Table
Area under the Normal Curve from 0 to X
X
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3.0
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
4.0

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.00000 0.00399 0.00798 0.01197 0.01595 0.01994 0.02392 0.02790 0.03188 0.03586
0.03983 0.04380 0.04776 0.05172 0.05567 0.05962 0.06356 0.06749 0.07142 0.07535
0.07926 0.08317 0.08706 0.09095 0.09483 0.09871 0.10257 0.10642 0.11026 0.11409
0.11791 0.12172 0.12552 0.12930 0.13307 0.13683 0.14058 0.14431 0.14803 0.15173
0.15542 0.15910 0.16276 0.16640 0.17003 0.17364 0.17724 0.18082 0.18439 0.18793
0.19146 0.19497 0.19847 0.20194 0.20540 0.20884 0.21226 0.21566 0.21904 0.22240
0.22575 0.22907 0.23237 0.23565 0.23891 0.24215 0.24537 0.24857 0.25175 0.25490
0.25804 0.26115 0.26424 0.26730 0.27035 0.27337 0.27637 0.27935 0.28230 0.28524
0.28814 0.29103 0.29389 0.29673 0.29955 0.30234 0.30511 0.30785 0.31057 0.31327
0.31594 0.31859 0.32121 0.32381 0.32639 0.32894 0.33147 0.33398 0.33646 0.33891
0.34134 0.34375 0.34614 0.34849 0.35083 0.35314 0.35543 0.35769 0.35993 0.36214
0.36433 0.36650 0.36864 0.37076 0.37286 0.37493 0.37698 0.37900 0.38100 0.38298
0.38493 0.38686 0.38877 0.39065 0.39251 0.39435 0.39617 0.39796 0.39973 0.40147
0.40320 0.40490 0.40658 0.40824 0.40988 0.41149 0.41308 0.41466 0.41621 0.41774
0.41924 0.42073 0.42220 0.42364 0.42507 0.42647 0.42785 0.42922 0.43056 0.43189
0.43319 0.43448 0.43574 0.43699 0.43822 0.43943 0.44062 0.44179 0.44295 0.44408
0.44520 0.44630 0.44738 0.44845 0.44950 0.45053 0.45154 0.45254 0.45352 0.45449
0.45543 0.45637 0.45728 0.45818 0.45907 0.45994 0.46080 0.46164 0.46246 0.46327
0.46407 0.46485 0.46562 0.46638 0.46712 0.46784 0.46856 0.46926 0.46995 0.47062
0.47128 0.47193 0.47257 0.47320 0.47381 0.47441 0.47500 0.47558 0.47615 0.47670
0.47725 0.47778 0.47831 0.47882 0.47932 0.47982 0.48030 0.48077 0.48124 0.48169
0.48214 0.48257 0.48300 0.48341 0.48382 0.48422 0.48461 0.48500 0.48537 0.48574
0.48610 0.48645 0.48679 0.48713 0.48745 0.48778 0.48809 0.48840 0.48870 0.48899
0.48928 0.48956 0.48983 0.49010 0.49036 0.49061 0.49086 0.49111 0.49134 0.49158
0.49180 0.49202 0.49224 0.49245 0.49266 0.49286 0.49305 0.49324 0.49343 0.49361
0.49379 0.49396 0.49413 0.49430 0.49446 0.49461 0.49477 0.49492 0.49506 0.49520
0.49534 0.49547 0.49560 0.49573 0.49585 0.49598 0.49609 0.49621 0.49632 0.49643
0.49653 0.49664 0.49674 0.49683 0.49693 0.49702 0.49711 0.49720 0.49728 0.49736
0.49744 0.49752 0.49760 0.49767 0.49774 0.49781 0.49788 0.49795 0.49801 0.49807
0.49813 0.49819 0.49825 0.49831 0.49836 0.49841 0.49846 0.49851 0.49856 0.49861
0.49865 0.49869 0.49874 0.49878 0.49882 0.49886 0.49889 0.49893 0.49896 0.49900
0.49903 0.49906 0.49910 0.49913 0.49916 0.49918 0.49921 0.49924 0.49926 0.49929
0.49931 0.49934 0.49936 0.49938 0.49940 0.49942 0.49944 0.49946 0.49948 0.49950
0.49952 0.49953 0.49955 0.49957 0.49958 0.49960 0.49961 0.49962 0.49964 0.49965
0.49966 0.49968 0.49969 0.49970 0.49971 0.49972 0.49973 0.49974 0.49975 0.49976
0.49977 0.49978 0.49978 0.49979 0.49980 0.49981 0.49981 0.49982 0.49983 0.49983
0.49984 0.49985 0.49985 0.49986 0.49986 0.49987 0.49987 0.49988 0.49988 0.49989
0.49989 0.49990 0.49990 0.49990 0.49991 0.49991 0.49992 0.49992 0.49992 0.49992
0.49993 0.49993 0.49993 0.49994 0.49994 0.49994 0.49994 0.49995 0.49995 0.49995
0.49995 0.49995 0.49996 0.49996 0.49996 0.49996 0.49996 0.49996 0.49997 0.49997
0.49997 0.49997 0.49997 0.49997 0.49997 0.49997 0.49998 0.49998 0.49998 0.49998