Compound annual growth rate or cagr

Assignment Help Finance Basics
Reference no: EM13930531

1. Compounding is not restricted to money values - it can be applied to growth rates in many business and economic values. In business jargon, it is often called the compound annual growth rate or CAGR. This is the same as a compounding interest rate.

The International Air Transport Association predicts that, in 2017, 487.9 million passengers will fly domestic routes in China, the second largest number in the world behind the U.S. This prediction represents a 10.2% CAGR on 2012 passenger numbers.

(International Air Transport Association 2013, 'Airlines expect 31% rise in passenger demand by 2017', 10 December, available at www.iata.org/pressroom/pr/pages/2013-12-10-01.aspx, accessed 20 February 2015.)

i)  If this growth rate can be expected to continue beyond 2017, what is your prediction for the number of passengers flying domestic routes in China in 2020? (0.5 marks)

ii) What is the CAGR for a Chinese domestic airline that carried 20 million passengers in 2012 and 28 million passengers in 2014? If this CAGR is expected to continue, what market share do you predict for the airline in 2020? (1 mark)

2. On 1 July 2014 you borrow $350,000 to buy an investment property at Coolangatta. The rate on the loan is fixed for the first 5 years at 5.49% and the loan requires monthly payments, due on the last day of the month, over a 30 year term.

i) What is the effective annual rate on your loan?

ii) Assume you can claim the interest on this loan as a tax deduction against the rental income you receive from the property. How much interest will you be able to claim as an annual tax deduction in the first financial year (1 July 2014 to 30 June 2015) and in the fifth financial year?

3. In December 2014, Moody's Chief Economist John Lonski said in reference to US high-yield bonds

i) Explain which component(s) of market interest rates account for high-yield bonds having such large spreads over the yield on a Treasury bond of equivalent maturity and why a 'positive outlook for business activity' would have an impact on those spreads.

(Lonski, J. 2014, 'Credit Markets Review and Outlook: Foreign deflation risks menace 2015's benign outlook for corporate credit', Weekly Market Outlook, Moody's Analytics, 18 December, p. 3. )

ii) What would happen to the prices of high yield bonds if Lonski's prediction is correct? Illustrate your answer with a numerical example for a high-yield bond with 10 years to maturity and 8% semi-annual coupon payments. Assume a 10 year Treasury bond yields 2.14% p.a.

Reference no: EM13930531

Questions Cloud

Describe interest rate swaps and their valuation approaches : Describe interest rate swaps and their valuation approaches. Explain how interest rate swaps work
What is abc tax rate : ABC Company has 1,000,000 shares of stock outstanding with a book value of $10 per share and a market value of $12.00 per share. ABC's risk premium is 7.20%. ABC has determined that its WACC is 8.07%. What is ABC's tax rate?
Determine the minimum coefficient : Determine the minimum coefficient µ, of static friction for which the band will not slip relative to the fixed filter.
Name the restored database northwind : Perform a restore of the Northwind database from [YourName]_WinBackup_EM
Compound annual growth rate or cagr : 1. Compounding is not restricted to money values - it can be applied to growth rates in many business and economic values. In business jargon, it is often called the compound annual growth rate or CAGR. This is the same as a compounding interest r..
Record these transactions in general journal format : Record these transactions in general journal format assuming Apac uses the FIFO cost flow assumption and keeps perpetual records.
Evaluate the coefficient of kinetic friction : Determine the coefficient of kinetic friction µ,k be- tween the cable and the pipes, the maximum ten- sion T in the cable between the pipes, and the sag h in the cable.
Write a memo explaining why the party store : Write a memo explaining why The Party Store, would have difficulty applying the weighted average method on a perpetual basis.
Describe type of replication : You should select Snapshot replication as the type of replication

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd