# FENG2016CMEEXAMOLDTUD2013till2016

FENG2016CMEEXAMOLDTUD2013till2016

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Flashcards 462 English Finance University 11.09.2016 / 28.10.2016 No Copyright (CC0) https://card2brain.ch/box/financialengineering2016

A firm's investment decision is also called the:

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. B.$22.73

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

A. 10%

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

B. $100,000 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 B.$802,995.88

PV = [[(1/0.09) - (1/((0.09)(1.09^25)))] * 75,000] * (1.09) = 802,995.88

Remark from Chris:

$$x = 1.09 *[{75,000 \over 0.09}-{75,000 \over (0.09)(1.09^{25})}]$$

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?

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.

A. 20%
B. 15%
C. 10%
D. 25

A. 20%

r = (114 + 6 - 100)/100 = 20%