1/ How do you calculate the present value of a future revenue stream ? How would
ID: 2797610 • Letter: 1
Question
1/ How do you calculate the present value of a future revenue stream ? How would you choose an appropriate discount rate ?
2/ Draw an appropriate graphic and briefly explain the Fisher separation theorem. What is "r" ?
3/ Briefly define the "certainty equivalent of risky decision and demonstrate using a graphic why a risk averse investor will prefer the certainty equivalent to the lottery itself.
4/ Briefly explain the critical difference (s) between the Markowitz mean-variance model and the Tobin-Sharpe CML.
Explanation / Answer
Present Value of future revenue stream is calculated by multipling appropriate discount factor with future cashflows.
Discount rate can be choosed as
Required Rate of Return on particular investment or
Weightage Average cost of Capital employeed.
(Since all the questions are unrelated, I cannot solve all as a part of one question. You should post all 4 questions seperately)
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