Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem1)

prepare a short essay of 300-350 words, using appropriate illustrative exs and references, on each of the following.

a. describe the ‘maximisation of shareholder wealth’ concept and contrast it with the notion of ‘maximisation of profit’.

b. ‘Risk aversion implies that corporate managers will only invest in low risk investments’. Critically evaluate this statement, indicating the extent to which you agree or disagree.

c. Is it possible for an ordinary annuity to have the same present value as a perpetuity if the cash flows and discount rates are identical? describe.

problem2)

Provide detailed answers to each of the following problems, including, where appropriate, a brief description of the problem, formulae used, and progressive and final answers.

a. Mary owns a business that generates $20,000 per annum for the next five years. Given an annual interest rate of 5%, would she be willing to sell this business today for $100,000?

b. Sam expects to receive the following stream of cash flows from an investment over the next five years:

End of year    Cash flow ($)
1                      400
2                      800
3                      500
4                      400
5                      300

If the relevant annual rate of interest is 9%, how much should he pay for this investment opportunity?

c. An investment scheme pays $200 at the end of each of the next four years, $400 at the end of year 5, $300 at the end of year 6 and $500 at the end of year 7. Given that other investments of equal risk earn 10% per year, find out the present and future values of this investment.

d. A loan of $100,000 with a nominal annual interest rate of 10% is to be paid off in 20 equal quarterly payments; the first of which is due today. Find the size of the quarterly payments.

e. Greg won a lottery of $200,000. He invested the entire amount in an annuity of 150 equal monthly payments commencing in two years. If the expected annual return is 10% (effective annual rate), what will be the amount of each payment?

f. Firm A pays 10% interest per annum, compounded quarterly. To remain competitive, the manager of another firm (Firm B) is willing to match the interest rate offered by Firm A, but interest will be compounded monthly. What nominal rate of interest must Firm B offer to its clients?

g. An amount of $28,974 is required at the end of ten years from now. Regular contributions can be made into an investment scheme that pays 8% per year compounded annually:

i. What single payment could be made at the beginning of the first year to achieve the objective?

ii. What amount could you pay at the end of each year annually for ten years to achieve this same objective?

problem 3

The following table provides the share return forecasts and associated probabilities for Advanced Limited and Bright Limited. Answer parts a. to d. using the information provided. Detailed worked solutions should be presented in your answers, including formulae used, and progressive and final answers to the problems.

        Advanced Limited                           Bright Limited
Return (%)    Probability (%)            Return (%)    Probability (%)
15.5                    30                         20.3                20
12.0                    30                         10.5                50
9.5                     40                            7.0                30

a. find out the expected rate of return on each share.

b. find out the variance and standard deviation of the expected rates of return for each share.

c. A portfolio comprises 60% invested in Advanced Limited and 40% invested in Bright Limited. The coefficient of correlation between the returns on each company is assumed to be 0.10. find out the expected rate of return and standard deviation of this portfolio. Compare your answers with those reported in parts a. and b. and state your conclusion(s).

d. Which of the following investments would you recommend?

i. The portfolio defined in Part c.

ii. 100% in Advanced Ltd.

iii. 100% in Bright Ltd.

Fully describe your answer.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91791

Have any Question? 


Related Questions in Basic Finance

Suppose someone offers you the following gamble you pay 7

Suppose someone offers you the following gamble: You pay $7 and toss a coin. If the coin comes up heads, he pays you $10, and if tails comes up, he pays you $5. You in turn get the idea of offering another person a coin ...

The following information was available spot rate for

The following information was available: Spot rate for Japanese yen: $0.009313 730-day forward rate for Japanese yen: $0.010475 (assume a 365-day year) U.S. risk-free rate: 7.0 percent Japanese risk-free rate: 1.0 percen ...

Comparing investment criteria consider the following two

Comparing investment criteria. Consider the following two mutually exclusive projects: Year               Cash Flow (A)                   Cash Flow (B) 0                     -$455,000                          -$65,000 1  ...

J smythe inc manufactures fine furniture the company is

J. Smythe, Inc., manufactures fine furniture. The company is deciding whether to introduce a new mahogany dining room table set. The set will sell for $6,800, including a set of eight chairs. The company feels that sales ...

1 how can a company effectively force conversion of a

1. How can a company effectively force conversion of a convertible security? 2. What is the preemptive right of common stockholders? In what type of company is the preemptive right important? Unimportant? 3. Why would a ...

Explain both interest rate swaps and currency swaps which

Explain both interest rate swaps and currency swaps. Which instrument has a greater credit risk: an interest rate swap or a currency swap? How can multinational companies utilize a currency swap to reduce borrowing costs ...

Consider a borrowing arrangement in which the annual

Consider a borrowing arrangement in which the annual percentage rate (APR) is 8%. a. Under what conditions does the effective annual rate of interest (EAR) differ from the APR of 8%? b. As the frequency of compounding in ...

1 why should researchers never use the one-group

1. Why should researchers never use the one-group pretest-posttest design? 2. What threats to internal validity are present when the nonequivalent control group posttest-only design is used? Which of these threats are el ...

1 a certain number of bankruptcies are good for the economy

1. A certain number of bankruptcies are good for the economy. Discuss why you agree or disagree with this statement. 2. A business should always be liquidated when the liquidation value exceeds the business's value as a ...

Go to wwwirsgov and click individuals to answer the

Go to www.irs.gov and click "Individuals" to answer the following questions: a. Under "1040 Central," what is the 2012 income limit that may entitle a taxpayer to the earned income tax credit? b. What is the maximum amou ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen