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

A certain loop requires 5 loads 7 stores and 8 arithmetic

A certain loop requires 5 loads, 7 stores, and 8 arithmetic operations. What is the minimum initiation interval for a software pipelining of this loop on a machine that executes each operation in one clock tick, and has ...

Explain the differences among the three means of

Explain the differences among the three means of terminating a futures contract: an offsetting trade, cash settlement, and delivery. How is a forward contract terminated? Explain the difference between hedge funds and fu ...

The concentric joint of problem 4 is subjected to an

The concentric joint of problem 4 is subjected to an increase in temperature of 1008F. Does this increase or decrease the tension in the bolts? By how much? (Assume that the coefficient of linear expansion of the bolts i ...

1 define extraneous variable and confounding variable

1. Define extraneous variable and confounding variable. Describe two methods used to prevent extraneous variables from becoming confounding variables. 2. In an experiment, participants are usually assigned to treatments ...

1 why should investors be concerned about market rents if

1. Why should investors be concerned about market rents if they are purchasing a property subject to leases? 2. What is meant by equity? 3. What are the similarities and differences between an overall rate and an equity ...

Question 1find the simple interest on a 400 investment made

Question 1 Find the simple interest on a $400 investment made for 5 years at an interest rate of 7%/year. What is the accumulated amount? A. The simple interest is $140, the accumulated amount is $540. B. The simple inte ...

Apple inc is building a branch in vietnam the cost is 6

Apple Inc. is building a branch in Vietnam. The cost is 6 million VND. The company expects the VND cash flows for the next four years are 3 million VND, 5 million VND, 3 million VND, and 4 million VND, respectively. The ...

1 before 1933 there was no federal deposit insurance was

1. Before 1933, there was no federal deposit insurance. Was the liquidity risk faced by banks during those years likely to have been larger or smaller than it is today? Briefly explain. 2. Does the existence of reserve r ...

Each of the following research studies uses a survey as a

Each of the following research studies uses a survey as a method for collecting data. However, not all of the studies are examples of the survey research design. Based on the information provided for each study, indicate ...

1 design an observational study of your own including the

1. Design an observational study of your own, including the creation of a set of behavioral categories that would be used to code for one or more variables of interest to you. Indicate the decisions that you have made re ...

  • 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

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

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