TUTORIAL EXERCISE WEEK 24 INTERNATIONAL COST OF CAPITAL AND CAPITAL STRUCTURE 1. By investing in the form of debt rather than equity‚ companies may be able to reduce their taxes (because principal repayments are treated as a return of capital and are not taxed) and to avoid currency controls (because governments are more reluctant to block loan repayments‚ than dividend payments). 2. Use the interest rate parity: One year forward rate: £1*1.13 = $2*1.10 ⇨ £1 = $1.9469‚ which is 2.65%
Premium Net present value Debt Corporate finance
DFI 501: FINANCIAL MANAGEMENT TIME VALUE OF MONEY Amortizing a Loan An important application of discounting and compounding concepts is in determining the payments required for an installment – type loan. The distinguishing features of this loan is that it is repaid in equal periodic (monthly‚ quarterly‚ semiannually or annually) payments that include both interest and principal. Such arrangements are prevalent in mortgage loans‚ auto loans‚ consumer loans etc. Amortization
Premium Bonds Bond Time value of money
CHAPTER 3 Valuing Bonds Answers to Problem Sets 1. a. Does not change b. Price falls c. Yield rises. 2. a. If the coupon rate is higher than the yield‚ then investors must be expecting a decline in the capital value of the bond over its remaining life. Thus‚ the bond’s price must be greater than its face value. b. Conversely‚ if the yield is greater than the coupon‚ the price will be below face value and it will rise over the remaining life of the bond. 3.
Premium Bond Bonds
Print Last Name: Print First Name: ID Number: COURSE FINANCE NUMBER COMM 308 SECTIONS: ( Circle your section) AA‚ AB DATE EXAMINATION June 18‚ 2012 Final Exam VERSION BLUE INSTRUCTOR: ( Underline your instructor’s name) Rahul Ravi Jay Mannadiar # OF PAGES 17 TIME Including cover 3 hours 19:00 to 22:00 DIVISION John Molson School of Business Concordia University READ THESE SPECIAL INSTRUCTIONS CAREFULLY ‐ You must submit a BLUE computer answer sheet. ‐ You are allowed to bring/use one or more calculators
Premium Rate of return Net present value Time value of money
semiannually = 10.25% annually‚ Hence 10.25 is said to be the Effective Annual Yield (EAY) 1+EAY = (1+r/m)mt Assignment 2 Perpetuity The value of D received each year‚ forever: PV = D/r Annuity The value of D received each year for T years: PV = (D/r)*[1 – 1/(1+r)T] Growing Perpetuity PV = D/(R-g) R: the cost of capital‚ interest rate G:growth Growing Annuity PV = (D/(r-g))*[1 – (1+g)T/(1+r)T] Dividend & Stock Price |------------|------------|----------- P0 P1/D1 Pt/Dt Rate
Free Financial markets Time value of money Interest
(Lexi) $5‚000 a year indefinitely. How much should Dottie deposit in an account paying 8 percent annual interest? PV = 5000 / 0.08 = 62500 7) Calculate the present value of an annuity of $3‚900 each year for four years‚ assuming an opportunity cost of 10 percent. 8) Calculate the future value of an annuity of $5‚000 each year for eight years‚ deposited at 6 percent. Rate | 6% | Nper | 8 | Pmt | 5000 | Pv | $0.00 | Fv | ($49‚487.34) | 9) Calculate the present value
Premium Time value of money Cash flow Rate of return
Chapter 1 Note: the summaries at the end of each chapter are good study tools. Corporations A corporation is a permanent entity‚ legally distinct from its owners‚ who are called shareholders or stockholders. A corporation confers limited liability to its owners: shareholders cannot be held personally responsible for the corporations’ debts; they only stand to lose their investment. To incorporate‚ you work with a lawyer to prepare articles of incorporation‚ which set out the purpose of the
Premium Investment Bond Time value of money
third year? Answer: $2‚108.52 56. Amortization with Equal Principal Payments Rework Problem 55 assuming that the loan agreement calls for a principal reduction of $7‚200 every year instead of equal annual payments. Answer: $1‚944.00 57. Calculating Annuity Values Bilbo Baggins wants to save money to meet three objectives. First‚ he would like to be able to retire 30 years from now with retirement income of $20‚000 per month for 20 years‚ with the first payment received 30 years and 1 month from now
Premium Bond Investment Time value of money
rate/frequency‚ m) ^ m-1 Annuities Ordinary annuities: cash flow at the end of each period‚ normal one; Annuities due: cash flow at the beginning of each period‚ first payment =t0; Calculator setting: [2nd][BGN]-[2ND][SET]; same procedure for setback to END; Payment at beginning of next three years‚ N=4‚ always +1 using annuities due It is a BGN question‚ if first payment is today! When calculate PV‚ make FV=0; when calculate FV‚ make PV=0 (0 must be input as well) Perpetuity: PV=PMT/(I/Y) Loan payment
Premium Arithmetic mean Normal distribution Standard deviation
present value of a perpetuity: Div 3 Div 1 Div 2 P0 1 2 3 (1 R) (1 R) (1 R) Div P0 R 9-4 Case 2: Constant Growth Assume that dividends will grow at a constant rate‚ g‚ h di id d ill forever‚ i.e.‚ Div 1 Div 0 (1 g ) Div 2 Div 1 (1 g ) Div 0 (1 g ) 2 Div 3 Div 2 (1 g ) Div 0 (1 g ) 3 . . . Since future cash flows grow at a constant rate forever‚ the value of a constant growth stock is the present value of a growing perpetuity: Div Di 1 P0
Premium Fundamental analysis Stock market P/E ratio