1. You hold $10,000 EIB7% 14.02.2015.Interest rates are flat at 6%. Calculate the price of the bond.
2. Cupid Plc has a return on assets of 20% and distributes 40% of earnings as a dividend. At what rate can it grow without requiring any additional external funding?
3. You purchase £100,000 UK Treasury 5% 14.02.2016 at 98.125%.
A) What is your direct yield?
B) What is the yield to maturity?
C) What assumptions are implicit in the calculation of the yield to maturity?
4. Valentine Plc's required rate of return is 16%. The shares are paying a dividend of $2.00 per share. What is the theoretical share price...
A) With no growth?
B) With growth expected for the future at 5% p.a.?
5. You are considering applying to study for an MBA at a prestigious university in Switzerland. The program will cost you $25,000 in tuition fees and you estimate that you need about $20,000 to fund your living in Switzerland for the year that the course takes. You will also forego your current salary of $50,000 for the year that you are studying. You can borrow all this money at 7% and estimate that you will be able to earn extra $25,000 p.a. when you have graduated.
A) Describe the relevant cash flows if you wish to value the MBA that you plan to take.
B) When do you foresee the payback of your investment?
C) If you believe that you can work for at least 10 years with the same salary premium, what is the value of your investment in today's money?
D) What other factors may influence your decision to take the program?
6. What is the theoretical value of any investment?
7. If a project has a life of 7 years and a payback of 7 years, what can you say about its Net Present Value?
8. You have $1 million to invest and have the following projects to choose from. Which do you invest in if your cost of borrowing is 12%? What other factors may affect your decision?
|
Project/Time
|
A
|
B
|
C
|
D
|
|
0
|
-200,000
|
-500,000
|
-500,000
|
-300,000
|
|
1
|
-100,000
|
0
|
+200,000
|
+100,000
|
|
2
|
+100,000
|
+1,000,000
|
+300,000
|
+100,000
|
|
3
|
+500,000
|
0
|
+300,000
|
+100,000
|
|
4
|
+200,000
|
+200,000
|
+200,000
|
+100,000
|