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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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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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) 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
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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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DERIVATIVE CASES CASE STUDY II AMERICAN BARRICK RESOURCES CORPORATION: MANAGING GOLD PRICE RISK Group II - Cohort 5 American Barrick is the largest gold producer in North America. The implementation of the gold-hedging program differentiated the firm from other major gold rivals and improved its reserve and financial strength. In 1995‚ American Barrick ’s latest
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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 $1000 to calculate present value‚ Cash flow=
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1. Assume the current U.S. dollar-British spot rate is 0.6993£/$. If the current nominal one-year interest rate in the U.S. is 5% and the comparable rate in Britain is 6%‚ what is the approximate forward exchange rate for 360 days? A) 1.42£/$ B) 1.43£/$ C) 0.6993£/$ D) 0.7060£/$ E) 0.6927£/$ Answer: D 2: You are given the following exchange rate quotes in Sydney: |USD/AUD |0.5366
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year‚ what is the best option for Ben – from a strictly financial stand point? We think there are three options have to be calculated: 1. Keeping his current work for 40 years There are several factors to be considered to calculate the present values (PV) of the first options are: His annual salary at the firm is $60‚000 per year‚
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case he must search for a job‚ he has remained intellectually active. Which term best describes Bob’s activity? a. Moral Hazard b. Screening c. Adverse Selection d. Signaling Answer D 3. A three-year bond has 8.0% coupon rate and face value of $1000. If the yield to maturity on the bond is 10%‚ calculate the price of the bond assuming that the bond makes semi-annual coupon interest payments. (Chapter 2) a. $857.96 b. $949.24 c. $1057.54 d. $1000.00 Response: PV = (40/1
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Question 1 (5 points) In a world with no frictions (i.e.‚ taxes‚ etc.)‚ having debt is always better because it increases the value of the firm/projet. Your Answer | Score | Explanation | False | 5.00 | Correct. You understand the irrelevance of financing. | Total | 5.00/5.00 | | Question Explanation | | | Fundamental question about value creation. | Question 2 (5) the return of equity is equal to the return on debt of a project/firm Your Answer | Score | Explanation | Never true
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