Investment planning, Strategic Management

Assignment Help:

Using examples, explain the differences between the primary and secondary markets for securities.

Question

Discuss systemic risk and any effects that it might have on investors. Give an example.

Question

Joanna is interested in purchasing a government bond parcel. She asks you to explain how it is possible that an investor can make or lose money on fixed interest investments. As part of your explanation, calculate the purchase price of a 10-year government bond parcel with two full years remaining in its term. The bond's yield rate is 8.95% p.a., paid as a half-yearly coupon, and assume that the prevailing market interest rate is 7.50% p.a. Use a parcel price of $100.

Question

Yanni asks you to explain why different discounted cash flow (DCF) calculations use different discounting rates. Use the information provided below to frame your explanation. Yanni and Joanna's current investment property was purchased six months ago (assume this was in the current financial year) for $418,000 in an area that they believe has high growth prospects. They have an interest-only loan of $280,000 attached to this property. The expected sale price in three years is $575,000. Cash flows from the property are:In year 1:

Rent income $33,000

Cash expenses $12,500

  • In year 2, rent income is expected to increase by 2% compared to year 1 and cash expenses are expected to increase by 1.5% compared to year 1.
  • In year 3, rent income is expected to increase by 2.5% compared to year 2 and cash expenses by 2.0% compared to year 2.

The appropriate discount rate is 8.75%, being the risk-free rate plus a premium. The discount rate also recognises the interest rate for the property loan of 7.75%.

In your response, you should address the following points:

a)  Explain why DCF is used to evaluate investments and what impact increasing the discount rate will have on the results of a DCF valuation.
b)  Calculate to the nearest dollar the present value (PV) and net present value (NPV) of the couple's investment property.

c)  Calculate the internal rate of return (IRR) of this investment to one decimal place.

d)  Explain whether this investment is good value if comparative properties are returning 15.25% per annum.


Related Discussions:- Investment planning

Caselet, caselet in strategic management :National Competitive Advantage of...

caselet in strategic management :National Competitive Advantage of IKEA Group, a Swedish company founded in 1943 with its headquarters in Denmark, is a multinational operator of a

The strategic option of withdrawal might be considered where, An organizati...

An organization is unable to secure enough resources or competence.

Stock control and depreciation, Write policy guidelines for Heads of Depart...

Write policy guidelines for Heads of Departments on: Cash Flow and Capital Investment Stock Control and Depreciation.

Corporate parenting, Corporate parenting is a type of business strategy tha...

Corporate parenting is a type of business strategy that views a corporation in terms of resources and capabilities in an effort to develop business unit value, and align those busi

Designing stakeholders evaluation policies, 1. What stakeholders would you ...

1. What stakeholders would you have in the designing of the teacher evaluation policies? 2. What would be inclusive in a teacher evaluation process? (be very specific) 3. When

Managing value based management, Q. Managing value based management? ...

Q. Managing value based management? Strategic selection of projects that create high shareholder wealth. Resource allocation and funding should have a recognised oppor

Managing strategy and change, Taking into account the industry dynamics and...

Taking into account the industry dynamics and characteristics of the automotive industry, discuss the rationale (reasons for)the collaborative partnership between Renault, Nissan a

Lukas manufacturing , Lukas Manufacturing is presently producing a tape hol...

Lukas Manufacturing is presently producing a tape holder that has a variable cost of $0.75 per unit and a selling price of $2.00 per unit.  Fixed costs are $20,000 a year.  Present

Factors about transfer pricing, Q. Factors about transfer pricing? ...

Q. Factors about transfer pricing? Does the supplier have a solid track record for delivery e.g. references from other satisfied customers in terms of the quality of servic

Strategic managerial communications, The objective of the term project is t...

The objective of the term project is to demonstrate your understanding and ability to apply the body of knowledge covered in this course. The goal will be on identifying communicat

Write Your Message!

Captcha
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