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A brilliant young scientist is killed in a plane crash. It was anticipated that he could have earned $330,000 a year for the next 50 years. The attorney for the plaintiff’s estate argues that the lost income should be discounted back to the present at 6 percent. The lawyer for the defendant’s insurance company argues for a discount rate of 12 percent. What is the difference between the present value of the settlement at 6 percent and 12 percent? Compute each one separately. Use Appendix D. (Round "PV Factor" to 3 decimal places. Round your answers to the nearest dollar amount. Omit the "$" sign in your response) Present value PV at 6% rate $ PV at 12% rate Difference $
An investment under consideration has a payback of six years and a cost of $434,000. If the required return is 12 percent, what is the worst-case NPV? The best-case NPV? Explain. Assume the cash flows are conventional.
In general, what is arbitrage? What is triangular arbitrage? Consider the following exchange rate quotes: Barclay’s Bank: $US 1.52/ 1British Pound Canadian Imperial Bank: $US .80/ 1$Canadian Dollar NatWest Bank: .51 British Pound/ 1$Canadian Dollar A..
Find out who the producers of PVC pipe are in the US and call up the plant and talk to the plant manager or the sales manager.
"Mary and Nick Stalcheck have an investment portfolio containing 4 investments. It was developed to provide them with a balance between current income and capital appreciation. Calculate the holding period return on a before-tax basis for each of the..
A perpetuity pays 2 at the end of the 4th year, 4 at the end of the 6th year, 6 at the end of the 8th year, and so on. Find the present value (at time 0) of the perpetuity using the effective annual interest rate of 10%.
How does interest rate risk differ from market risk? You are the risk manager for a $2 billion portfolio of auto loans. Provide some discussion of how you might mitigate this risk.
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.53 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio?
Compute the yield to call for the FGH Company bond maturing in 10 years (7 percent coupon rate and a face value of $1,000) with the call provision of "after 7 at 115" and a market price of 995 "Efeyeyou Corp. is considering a project that will requir..
The Beach House has sales of $790,000 and a profit margin of 7 percent. The annual depreciation expense is $80,000. What is the amount of the operating cash flow if the company has no long-term debt?
How do we define and measure risks in financial projects? What are examples of uses for sensitivity analysis and what-if scenarios? Any examples from your work experience or research? How do we define fixed and variable costs?
Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is 0.05. There are put and call options available at exercise prices of 30 and a time to expiration of six months. What is the maximum profit on the transaction descr..
A stock has an expected return of 12 percent, its beta is 1.70, and the expected return on the market is 9.4 percent. What must the risk-free rate be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places..
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