but corporations use 10-year treasuries 33% of the time‚ and also choose 10-30 year treasuries 33% of the time. By looking at the above number I thought using a 10 yeartreasury which currently had a yield of 5.39% was the best option available. K(cost of Equity)=RF+Beta(RM-RF) 5.870-5.39+0.8(6-5.39) Therefore the cost of equity is 5.870% For the dividend discount model the rate of growth is zero. Although (exhibit4) states that the value line forecast of dividend growth from 98-00 to ’04-’06
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understand time value Total 5.00 / 5.00 Question Explanation We have assumed that time value of money is positive. Question 2 (5 points) At an interest rate of 10% it is better to have $100 today than $120 in 2 years. Your Answer Score Explanation True Correct 5.00 Correct; it is compounding! False Total 5.00 / 5.00 Question Explanation All about compounding! Question 3 (5 points) Shawn wants to buy a new telescope. He estimates that it will take him one year to save the money and that the
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when she turns 55. She estimates that she will be able to earn a 9 percent rate of return on her retirement investments over time: she wants to set aside a constant amount of money every year (at the end of the year) to help achieve her objective. How much money must Robinson invest at the end of each of the next 25 years to realize her goal of $600‚000 at the end of that time? $600‚000 = PMT(FVIFA.09‚25) = PMT(84.701) PMT = $7‚083.74 2. Two investment opportunities are open
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Course Description This course applies quantitative reasoning skills to business problems. Students learn to analyze data using a variety of analytical tools and techniques. Other topics include formulas‚ visual representation of quantities‚ time value of money‚ and measures of uncertainty. Policies Faculty and students/learners will be held responsible for understanding and adhering to all policies contained within the following two documents: • University policies: You must be logged
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unsystematic risk? A risk that affects at most a small number of assets. 7.What is portfolio theory? Group of assets such as stocks and bonds held by an investor. 8.What is Internal rate of return (IRR)? The discount rate that makes the net present value of an investment zero. 9. What is the term structure of interest rates? The relationship between short and long term interest rates. 10.What is incremental cash flows? The different between a firm’s future cash flows with a project and those without
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Question 1 (5 points) $100 today is worth the SAME as $100 tomorrow. Your Answer Score Explanation True False Correct 5.00 Correct. You understand time value Total 5.00 / 5.00 Question Explanation We have assumed that time value of money is positive. Question 2 (5 points) $100 invested for 10 years at 12% interest is worth more in FV terms than $200 invested for 10 years at 4% interest. Your Answer Score Explanation True Correct 5.00 Correct. You know the mechanics for calculating
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salaries along with the potentially gained experience and lost salary (which he could get if he continue his current job) to make a more profound decision. Question 2 : Nonquantifiable factors are those that can’t be converted into a number value. Thinking of Ben’s situation‚ some of the Nonquantifiable factors that could affect his decision could be: 1. Family – If Ben has a family and kids to raise‚ and especially when he is the only/major source of income for his family‚ taking a year
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consumption consumption consumption consumption consumption consumption How to allocate your initial wealth and future income to consumption over time? Topic 1: Principles in Finance and Valuation M K Lai Page 3 What is Finance? the allocation of total wealth (initial wealth plus present value of future income‚ measured through cash flows) over time under uncertainty tradeoff between current consumption and future consumption borrowing (liabilities) vs. lending (assets) assets: investment‚ uses
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years. How much will your dream car cost by the time you are ready to buy it? A. $98‚340.00 B. $98‚666.67 C. $99‚517.41 D. $99‚818.02 E. $100‚023.16 4. Your father invested a lump sum 26 years ago at 4.25 percent interest. Today‚ he gave you the proceeds of that investment which totaled $51‚480.79. How much did your father originally invest? A. $15‚929.47 B. $16‚500.00 C. $17‚444.86 D. $17‚500.00 E. $17‚999.45 5. What is the present value of $150‚000 to be received 8 years from today
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Preferred Stock 8% 10% .8% Bonds and Debt 6.2% 40% 2.48% Total 100% 9.48% B) 1. Net present value (NPV) method is used to decide whether or not a company should take on a new project or acquisition. The formula for NPV is the difference between the present value of a project’s cash inflows and its cash outflows. To calculate the present values the future cash flows are discounted using the time value of money method. For the project to be accepted the NPV should be positive‚ because it means the return
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