Rs.2‚000 in 5 years‚ or Rs.3‚000 in 10 years if your time value of money is 12%? 9) Which would you prefer: Rs.3‚000 now‚ Rs.2‚000 that was placed in a savings account 5 years ago‚ or Rs.1‚000 that was placed in a savings account 10 years ago if a) your time value of money is 12%. b) your time value of money is 16%. c) your time value of money is 8%. 10) Using a discount rate of 12%‚ find the present value of Rs.100 received at the end of each of the next four
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CASES CONCEPT CHECK ANSWERS Concept Check 1-1 (p. 7) 1. What personal and economic factors commonly affect personal financial decisions? Personal financial decisions are affected by personal factors such as income‚ household size‚ age‚ and personal value. Economic factors that affect personal finance include global business activities‚ inflation‚ and interest rates. 2. For each of the following situations‚ indicate if the person would tend to “suffer” or tend to “benefit” from inflation. A person
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Risk & Return Q1: Which rules should be in mind during selection of stocks for portfolio investment? 1. Allocation 2. Sectors Basic Materials Capital Goods Communication Consumer Cyclical Energy Financial Health Care Technology Transportation 3. Stock Selection 4. Monitor Q2: Distinguish between market risk & diversifiable risk. Can market risk be avoided? Market Risk The possibility for an investor to experience losses due to factors that affect the overall performance of the financial
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The time value of money assumes that the present value of a dollar in the future is less than a dollar today (Edmonds‚ Chapter 24‚ 2007). To make sure that cash outflows and cash inflows are comparable the present value of the future cash flows are restated to “today’s dollars” (“Capital Budgeting Techniques”‚ n.d.). This in turn allows a company to determine if the investment will be beneficial considering the cost. The present value technique uses a discount rate and the present value of future
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payments is a set of: A. level cash flows occurring each time period for a fixed length of time. B. level cash flows occurring each time period forever. C. increasing cash flows occurring each time period for a fixed length of time. D. increasing cash flows occurring each time period forever. E. arbitrary cash flows occurring each time period for no more than 10 years. 2. Annuities where the payments occur at the end of each time period are called _____‚ whereas _____ refer to annuity
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EFB210 Finance 1 Sample Question for Final Exam THE FOLLOWING INFORMATION RELATES TO QUESTIONS 1 - 5 Davo Corp Ltd is a large investment company‚ which has investments in two of the following industries: | Expected Return | Beta | Covariance with the Market | Standard Deviation | Mining | ? | ? | 0.068 | 0.50 | Transport | 0.14 | 1.5 | ? | ? | Building | ? | 2.0 | ? | ? | Alcohol | ? | ? | 0.032 | 0.35 | Market Index | ? | 1 | ? | 0.20 | The ten-year
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a) Firm’s current book value per share n =Book value of common stock/total no. of common stock =60‚000‚000/2‚500‚000 =$24 per share b) P/E ratio = price / earnings = 40/6.25 = 6.4 times c) 1) current required return = Rf + β (Rm – Rf ) = 6% +1.1(8.8 - 6) =9.08% Note: beta is assumed as there is no information of beta in the case study. 2) New required return = Rf + β (Rm - Rf ) = 6% + 1.1 (10-6.6) = 9.74% d) Ke =D1+ G Po 9.74 % = 4 x100+ 0 Po Po = $41.07 e) 1)Ke=D1+
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– MSGP ESCP Europe (2011-2012) 1. Basic Tools in Financial Mathematics - Basic Tools in Financial Mathematics: • Compounding and future value (discrete and continuous compounded interest rates/rate of payments and receipts‚ which are spread over time. However‚ one Euro obtained (invested) today is not returns) • Discounting and present value (bond‚ stock and
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interest is added to an investment at the maturity date. Compound interest is added at regular time intervals and hence the interest added also earns interest. The second half of the unit applies these techniques to a range of financial transactions: - Housing loans Finding the instalment required to repay the loan in a certain time. Calculating the amount of loan outstanding at any point in time. Dividing each instalment into principal and interest. - Bonds and Debentures promise to pay regular
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Week 2 Sources of Finance 1) Introduction It was explained in week 1 that this week’s lectures will focus primarily on institutions that provide finance. Finance has been defined by Chadwick and Kirkby (1995‚ p 38) in their book Financial Management (first edition‚ publisher Routledge) as a “system of costs and risks”. As we will see throughout the course‚ the notion of risk from an investor’s point of view is related to whether there is the accrual of the financial returns that are anticipated
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