is a correct statement concerning risk premium? The greater the volatility of returns‚ the greater the risk premium. 9. Estimates using the arithmetic average will probably tend to overestimate values over the long-term while estimates using the geometric average will probably tend to underestimate values over the short-term. 10. The risk premium for an individual security is computed by multiplying the security’s beta by the market risk premium. CAPM = RFR + Beta x (MRP) 11. Standard deviation
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means maximization of economic welfare of its shareholders. Maximization of economic welfare means maximization of wealth of its shareholder’s wealth maximizations reflected in the market value of the firm’s shares. Experts believe that‚ the goal of financial management is attained when it maximizes the market value of shares. There are two versions of the goal of financial management of the firm-Profit Maximization and Wealth maximization. Let us now discuss the goals of financial management in datial
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Present value = $173‚876 = 20000 X 8.693793 Answer= $ 173‚876 Retirement money required b. How much will you need today as a single amount to provide the fund calculated in part A if you earn only 9% per year during the 20 years preceding retirement? n= 20 r= 9.00% FVIF= 20 periods‚ 9% = 5.604411 Amount required in 20 years = $ 173‚876 Amount to be invested = $ 31‚025 c. What effect would an increase in the rate you can earn both during and prior to retirement have on the values found in
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A. Compound Interest Formula:FV = P (1 + r) nFuture Value = FV‚ P = Principal‚ r = interest rate and n = number of years. = $500(1 + 0.06) 10a) An initial $500 compounded for 10 years at 6 percent. A = $ 895b) An initial $500 compounded for 10 years at 12 percent. 500(1 + 0.12) 10B = $1553Present Value Calculation:PV = present Value‚ Principal = $ 500‚ r = interest rate and n = number of yearsFormula:PV = FV/(1 + r) nThe present value of $500 due in 10 years at a 6 percent discount rate.
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A. $100 B. $200 A. Each investment costs $480. What investments should the firm make according to the present value? PVIF: Yr1 .909‚ Yr2 .826‚ Yr3 .751 A. $300(.909) + 200(.826) + 100(.751) = $513 $513 ‑ 480 = $33 B. $200(.909) + 200(.826) + 200(.751) = $497 $497 ‑ 480 = $17 Both investments have a positive net present value‚ so both would be a good investment. B. What is the internal rate of return for the 2 investments? Which investment
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$1‚000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond? Number of years (N) = 10‚ future value (FV) = 1000‚ interest rate (I/YR) = 9 0.074 * 1000 = 74 = PMT or annual payment‚ I then pressed CPT on my financial calculator to compute the price of the bond and then pressed PV or present value. The fair value of the bond is $897.32. Using Cash Flow of $1000 to calculate present value‚ Cash flow=
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adjustments where necessary to reflect the true value of JetBlue. Assumptions made in Exhibit 13 There were several valuation techniques used by analysts and underwriters to value an enterprise’s share‚ they are respectively the Discounted Cash Flow Method (DCF) for instance‚ Free Cash Flow to Equity (FCFE)‚ Free Cash Flow to Firm (FCFF)‚ and Dividend Discount Model‚ and the Relative Valuation Techniques‚ for instance Price Earnings Ratio (P/E) and Price Book Value Ratio (P/BV). Dividend Discount Model requires
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assess the project. The opportunity for investment is further complicated by a very long period before any returns are seen. 1.2 Theoretical Framework Financial assessment tools including payback period‚ accounting rate of return and net present value. In addition cash flow will be examined over the life of the project which has been limited to a fixed period of 15 years. 1.3 Methodology Firstly secondary research will be conducted into the market for rubber and substitute products. The
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Uniform Annual Equivalent (UAE) - A Capital Budgeting Method. (The evaluation of two mutually exclusive projects with varying lives requires careful examination of the existence of the reinvestment opportunities at the end of the different economic lives of the projects. The current article deals with a method that may be adopted in situations wherein the level of investments‚ the life of the projects and cash inflows (or outflows) are unequal.) Risk is inherent in almost every business decisions
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2013 Team Members: 2013 Team Members: 1. Executive Summary A report with results of geological tests in the south of Argentina determined that the area explored seemed to be rich in oil. A cost-benefit analysis needed to be done to make an investment decision for production facilities to extract oil from the ground. Evaluating investment opportunities in emerging markets is a mix of art and science. Unlike CAPM for developed markets‚ there is no standard pricing model for
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