36: What is is the value of a I-year bond paying $1000 annual coupons bond is S1

Question

36: What is is the value of a I-year bond paying $1000 annual coupons bond is S10 000 and the required rate of return is $1000 annual coupons, where the face A: S10000 B: 59167 C: $10200 D: $10333 37: Assume Michael wishes to purchase sh that it will pay a dividend in will be $5. rate of 10 per cent per annum? ares in company XYz. XYZ announces How much should Michael pay for the shares now, assuming aniere the next year equal to so 50ce share price A: $5 B: $5.50 C: $5.65 D: $6 38: If an investment costing expected to for three years and prices are expected to increase at a real required rate of return if thenominal rate of return is 15%? A:6% B:5% $2,000 is expected to generate real cash flows of s900 p.a. rate of 10% p.a., what is the C: 1.05% D: 4.55% 39: If an investment costing $2,000 is expected to generate real cash flows of $900 p.a. for three years, prices are expected to increase at a rate of 10% p.a., and the nominal rate ofretum is 15%, what is the net present value of the investment? A: $520.59 B: $740.79 C: $471.97 D:$389.79 40: Using the constant chain of replacement in perpetuity method, calculate the net present value of a project with the following cash flows: Year 2 $20,000 Year 3 $30,000 Initial Outlay Year 1 S10,000 $10,000 Assume the required rate of return is 10% pa. A: $38,159 B: $153,444 C: $381,596 D: $148,308 END OF TEST

Explanation / Answer

36 Face Value $10,000 Annual Dividend $1,000 Cash Flow: Year1 $11,000 (10000+1000) Required Return=20%= 0.2 PV=FV/(1+i)^N PV=Present Value FV=11000,i=0.2,N=1 PV=Future Value Present Value of Cash Flow= $9,167 (11000/1.2) Answer: B:$9167 37 Interest Rate=10%= 0.1 Dividend in year 1=D1= $0.50 Share price in year 1 $5.00 Future Value =FV= $5.50 (5+0.5) PV=FV/(1+0.1)=5.5/1.1= $5.00 P0=D1/R R=Required rate of return= $0.10 Current Share Price=P0=5/0.1= $           5.00 Answer: A;$5 38 Real required return =r Nominalreturn=i Rate of increase of Price=f (1+r)=(1+i)/(1+f) i=15%=0.15 f=10%=0.1 1+r=1.15/1.1= 1.04545455 r=1.04545455-1= 0.04545455 Real required return =r 4.55% Answer: D:4.55% 39 Cash Flow: N A B=A/(1.15^N) Year Cash flow in real dollars Present Value of Cash flow 0 ($2,000) ($2,000) 1 $990 (900*1.1) 860.8695652 2 $1,089.0 (990*1.1) 823.4404537 3 $1,197.9 (1089*1.1) 787.6386948 SUM $471.97 Net Present Value $471.97 Answer: C.$471.97

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