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A firm's investment decision is also called the:
A. Financing decision
B. Liquidity decision
C. Capital budgeting decision
D. None of the above
Mr. Dell has $100 income this year and zero income next year. The market interest rate is 10% per year. Mr. Dell also has an investment opportunity in which he can invest $50 this year and receive $80 next year. Suppose Mr. Dell consumes $50 this year and invests in the project. What is the NPV of the investment opportunity?
A. $5 B. $22.73 C. $0 (zero) D. None of the above.
NPV = (80/1.1) - 50 = + 22.73
An initial investment of $500 produces a cash flow $550 one year from today. Calculate the rate of return on the project A. 10% B. 15% C. 25% D. none of the above
Rate of return = (550 - 500)/500 = 10%
What is the present value of $10,000 per year perpetuity at an interest rate of 10%?
A. $10,000 B. $100,000 C. $200,000 D. None of the above
PV = (10,000/0.1) = 100,000
After retirement, you expect to live for 25 years. You would like to have $75,000 income each year. How much should you have saved in the retirement to receive this income, if the interest is 9% per year (assume that the payments start on the day of retirement)?
A. $736,693.47 B. $802,995.88 C. $2,043,750 D. None of the above
Zie page 27: aftrekken van twee perpetuities met een 25-jaar discount factor. Kan je afleiden! In class gedaan op het boord. Op de eerste dag van retirement heb je 1 periode meer nodig, dus annuiteit maal 1,09
Which of the following statements about the relationship between interest rates and bond prices is true?
I) There is an inverse relationship between bond prices and interest rates.
II) There is a direct relationship between bond prices and interest rates.
III) The price of short-term bonds fluctuates more than the price of long-term bonds for a given change in interest rates. (Assuming that coupon rate is the same for both)
IV) The price of long-term bonds fluctuates more than the price of short-term bonds for a given change in interest rates. (Assuming that the coupon rate is the same for both)
What forward rate is embedded in a two year zero coupon bonds with a yield to maturity of 6% and a three year zero coupon bond and a yield to maturity of 6.5%? Assume both bonds are currently priced at par.
A. 5.50% B. 6.00% C. 6.50% D. 7.50%
D. 7.50% First calculate the future value of $1 at each YTM. You get 1.1236 for the 2 year bond and 1.2079 for the 3 year bond. Now determine the IRR over between years 2 and 3. 1.06^2 = 1.1236 1.065^3 = 1.2079
IRR= 1.2079/1.1236 = 7,5%
Super Computer Company's stock is selling for $100 per share today. It is expected that this stock will pay a dividend of 6 dollars per share, and then be sold for $114 per share at the end of one year. Calculate the expected rate of return for the shareholders.