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ROI and Expected Return

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1) The Transatlantic Transfer Co. is an all-equity financed firm. The beta is .75, the market risk premium is 8% and the risk-free rate is 4%. What is the expected return of Transatlantic?

2) Tom borrowed $3,500 to consolidate his debts. He was able to borrow at a 12% annual percentage rate (APR) with monthly compounding. Tom is required to make equal monthly payments for the next 36 months. What are his monthly payments?

3) A mortgage instrument pays $1.5 million at the end of each of the next two years. An investor has an alternative investment with the same amount of risk that will pay interest at 8% compounded annually. What should the investor pay for the mortgage instrument?

4) An investment project has the cashflow stream of -250, 75, 125, 100, and 50. The cost of capital is 12%. What is the payback period?

5) What is the end value of investing $5,000 for 14 months at a stated annual interest rate of 6 percent compounded monthly?

6) Andale has just paid a dividend of $4.50. These dividends are expected to grow at a rate of 5% for the foreseeable future. The risk of this company suggests that future cash flows should be discounted at a rate of 9%. What should be paid for Andale common stock?

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ROI and expected return is examined.

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1) The Transatlantic Transfer Co. is an all-equity financed firm. The beta is .75, the market risk premium is 8% and the risk-free rate is 4%. What is the expected return of Transatlantic?
Risk-free rate 4%
Beta 0.75
Market premium 8%
Expected return 10% =4% + (.75 * 8%)

2) Tom borrowed $3,500 to consolidate his debts. He was able to borrow at a 12% annual percentage rate (APR) with monthly compounding. Tom is required to make equal monthly payments for the next 36 months. What are his monthly ...

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Chidi Ngene, M. Sc.
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  • M. Sc., London South Bank University
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