Time Value of Money and Risk
Not what you're looking for?
1. The fair rate is 8%. What is 100 per year, forever, worth now?
2. What is the same 100 per year in number 1 worth if it only lasts for 15 years? Same rate.
3. What if the 100 in number 1 was the past cash flow and we expect it to grow at 5% forever? Same rate.
4. What if we only get the 100 from number 1 once at the end of this year? Same rate.
5. What if it we get the 100 from number 1 once, at the end of ten years? Same rate.
6. If we get the 100 from number 1 each year for ten years and invest each payment in an account that earns 8% how much will be there at the end?
7. Put 1200 in an account earning 6%. How long until it grows to 2000?
8. Buy a new calculator for 400. Leave it in the original wrapping for six years. Sell it to a finance nerd for 600 at that point. What is your rate of return?
9. Castle Black Camping is twice as risky as the average stock. The market should earn 11% and the risk free rate is 2%. What is a fair return for CBC?
10. Harlan County Safety Co. has a beta of 1.2. Form a portfolio that is half HCSC and half CBC (from number 9). What is a fair return?
11. Analyze the performance of the following firm:
Blank This Year Last Year
Assets 500 478
Liabilities 100 100
Sales 480 478
EBIT 140 149
Interest 10 10
Taxes 65 70
Net Income 65 69
(This year's ratios: ROE .163, GROA .28, FE .581, GPM .292, ATO .96, EM 1.25, IR .929, TR .5) Find last years and tell the story. (Last year's: .183, .312, .587, .312, 1, 1.265, .933, .496)
Purchase this Solution
Solution Summary
Each calculation problem has been solved in 2 ways: by hand and using Excel. Step-by-step solutions showing formulas and calculations are available in text form. An Excel file containing formulas and calculations for each calculation problem is also provided.
Solution Preview
1
Since the 100 recurs every year forever, this is a Present Value of Perpetuity problem
PVP = PMT / r
= 100 / 0.08
= 1250
2
Since the 100 recurs every year, this is a Present Value of Annuity problem.
PVA = PMT * [(1 - (1 + r)^-n) / r]
= 100 * [(1- (1 + 0.08)^-15) / 0.08]
= 855.948
3
Since the 10 grows forever, this is a Present Value of Growth Perpetuity problem
PVGP = CF(1) / (r - g),
where CF(1) = CF(0) * (1 + g)
CF(1) = 100 * (1 + 0.05)
= ...
Education
- MSc, California State Polytechnic University, Pomona
- MBA, University of California, Riverside
- BSc, California State Polytechnic University, Pomona
- BSc, California State Polytechnic University, Pomona
Recent Feedback
- "Excellent work. Well explained."
- "Can you kindly take a look at 647530 and 647531. Thanks"
- "Thank you so very much. This is very well done and presented. I certainly appreciate your hard work. I am a novice at statistics and it is nice to know there are those out there who really do understand. Thanks again for an excellent posting. SPJ"
- "GREAT JOB!!!"
- "Hello, thank you for your answer for my probability question. However, I think you interpreted the second and third question differently than was meant, as the assumption still stands that a person still independently ranks the n options first. The probability I am after is the probability that this independently determined ranking then is equal to one of the p fixed rankings. Similarly for the third question, where the x people choose their ranking independently, and then I want the probability that for x people this is equal to one particular ranking. I was wondering if you could help me with this. "
Purchase this Solution
Free BrainMass Quizzes
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)
Organizational Leadership Quiz
This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.