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Suppose you just inherited an gold mine. This gold mine is believed to have three years worth of gold deposit. Here is how much income this gold mine is projected to bring you each year for the next three years:
Year 1: $42,000,000
Year 2: $62,000,000
Year 3: $99,000,000
Compute the present value of this stream of income at a discount rate of 8%. Remember, you are calculating the present value for a whole stream of income, i.e. the total value of receiving all three payments (how much you would pay right now to receive these three payments in the future). Your answer should be one number - the present value for this gold mine at a 8% discount rate but you have to show how you got to this number.
Now compute the present value of the income stream from the gold mine at a discount rate of 6%, and at a discount rate of 4%.
An investment will need a $2.4 million cash outlay to enter and will create perpetual cash inflows of $135,000 a year. Investors could earn 8% elsewhere by taking the same risk.
Your company has declared a dividend of $2.50 per share. You and rest of the marginal investors are in the 35 percent tax bracket.
The Peace River Corporation has 62,000 shares of stock outstanding at a market price of $48 a share. The company has just announced a 3-for-2 stock split. How many shares of stock will be outstanding after the split?
Suppose that we back-test a VaR model using 1,000 days of data. The VaR confidence level is 99% and we observe 15 exceptions. Should we reject the model at 5% confidence level. Use Kupiec's two-tailed test.
If the put premium is $18.00 and interest rates are 0.5% per month, what is the estimated price of a call option with an exercise price of $830?
Bill Shaffer wishes to have $200,000 in a retirement fund 20 years from now. He can create the retirement fund by making a single lump sum deposit today. What is the maximum annual withdrawal he can make over the following 15 years?
If a United States Savings bond can be purchased for $29.50 and has a maturity value at the end of 25 years of $100, what is the annual rate of return on the bond? (Please calculate the arithmetic solution and show your work)
You own a bond portfolio and expect the market interest rate to increase for the foreseeable future. (a) What should you do with regards to the Duration of the portfolio and your own investment horizon? (b) What are the two reasons for doing so?
The costs associated with issuing securities to the public can be high. Some types of securities have greater expenses associated with them than others. Which of the following is the most costly security to issue?
A corporation sells lawnmowers for $895 each. The variable cost per lawnmower is $520. The corporation's monthly fixed costs are $84,500.
Analyze Mark's budget as a financial planning tool for making decisions in the following situations. In each case, how will other financial planning tools affect Mark's decisions?
The expected return on Mike's Seafood stock is 17.9 percent. If the expected return on the market is 13 percent and the beta for Mike's is 1.7, then what is the risk-free rate?
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