If the current market rate is 10%, you can compute this value by converting units. ($1000 in one year) % (1.10$ in one year/$today) = $909.09 today This process of moving a value or cash flow backward in time-finding the equivalent value today of a future cash flow-is known as Discounting. (Berk & DeMarzo, 2011, p. 91) Summary: Drawing a timeline as the first step in solving a problem will often clarify any confusion about amount and/or timing of cash flows, making
8% b. 8% 2. a. A $1,000 bond has a 7.5 percent coupon and matures after 10 years. If current interest rates are 10 percent, what should be the price of the bond? Price = $1,000 x 0.3855 + $1,000 x 7.5% x 6.1446 Price = $385.50 + $460.85 Price = $846.35 b.
80*7.1607+1000*.3555 = $928 • 5-2 Yield to Maturity for Annual payments Wilson Wonders’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity? 100+1000-850/12/1000+850/2 = 112.5/925 = .1216 or 12.16% • 5-6 Maturity Risk Premium The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years.
During 10 years, the investors will reinvest all the cash flows into the company, so maintaining the growth of 7.45% each year. The return on equity used for the valuation is the rate of 7.45% which is the return on PacifiCorp equity on 2005. For the cost of equity, the capital would be invested in MidAmerican if the company did not take the acquisition. Therefore, I consider the rate of return on MidAmerican on 2004 (5.72%) as the cost of equity of PacifiCorp. Dividing the present value of future cash flows by the cost of the investment indicates that every dollar invested buys securities worth $1.18.
c. What is the value of the test statistic? d. What is your decision regarding H0? e. What is the p-value? Chapter 10 Exercise 10 Given the following hypotheses: H0 : μ = 400 H1 : μ ≠ 400 A random sample of 12 observations is selected from a normal population. The sample mean was 407 and the sample standard deviation 6.
Taking the option to abandon into account, what is the project’s NPV? (d) What is the value of the option to abandon? Solution: (a) Using an initial cash flow of -2.1 million followed by 10 cash flows of 420,000 each and a discount rate of 16%, calculate NPV. You should get NPV = -$70,044.46. (b) Since the opportunity cost of continuing the project is 1.4 million and the project has 9 years left, use your calculator with n=9, R=16%, PV=−1.4 million and FV=0.
Determine the equation of the new function in the form y = … Copyright reserved (2) (3) [11] Please turn over Mathematics/P1 6 NSC DBE/November 2010 QUESTION 7 7.1 7.2 At what annual percentage interest rate, compounded quarterly, should a lump sum be invested in order for it to double in 6 years? (5) Timothy buys furniture to the value of R10 000. He borrows the money on 1 February 2010 from a financial institution that charges interest at a rate of 9,5% p.a. compounded monthly. Timothy agrees to pay monthly instalments of R450.
so it is asking us how much would it cost to build a 90-foot tower? Here we use the arithmetic sequence. n = 9 will be number of terms altogether d = 25 the common difference a1=100 the first term aN=a9 (yet to be computed), is the last term Now we compute what a9 is. We need to find the nth term of the sequence being 9th term. aN = a1 + (n-1)d a9 = 100 + (9-1)25 a9 = 100 + (8)25 a9 = 100 + 200 a9 = 300 a9 is 300, now we need to figure what the sum of the sequence is from a1 to a9.
The asset was originally expected to be useful for 10 years and have a zero salvage value. In 2010, the decision was made to change the depreciation method from straight-line to sum-of-years'-digits, and the estimates relating to useful life and salvage value remained unchanged. 2. Depreciable asset B was purchased January 3, 2006. It originally cost $180,000 and, for depreciation purposes, the straight-line method was chosen.
Case 12 REQUIRED 1. Given the unit sales information in Exhibit 1, develop an annual revenue forecast for 2004 through 2009. Forecast sales first assuming that the revised Bernoulli will be introduced one year from today, and then create a forecast which is based on sales of the current model, assuming that Working declines to invest more capital in Bernoulli. 2. Use the cost information Jennifer has assembled to construct a forecast of cost of goods sold and operating expenses for 2004 through 2009.