Example 14.3: Yield to Maturity Suppose an 8% coupon‚ 30year bond is selling at 1‚276.76 what average rate of return would be earned by an investor purchasing the bond at this price? We find the interest rate at which the present value of the remaining 60 semiannual payments equal the bond price. This is the rate consistent with the observed price of the bond. Therefore‚ we solve for r in the following equation: [pic] 1‚276.76 = [pic] $40 + $1000
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Separation Theorem Summary and Conclusions Selected References PART TWO: THE INVESTMENT DECISION 2. 2.1 2.2 2.3 2.4 2.5 Capital Budgeting Under Conditions of Certainty The Role of Capital Budgeting Liquidity‚ Profitability and Present Value The Internal Rate of Return (IRR) The Inadequacies of IRR and the Case for NPV Summary and Conclusions 8 8 8 10 11 13 15 18 21 24 25 27 27 28 28 34 36 37 what‘s missing in this equation? Please click the advert You could be one of our future talents maeRsK inteRnationaL
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Beta (X) Beta (Y) Risk Free Rate EMPR a. Calculate the annual rate of return for each asset in each of the 10 preceding years‚ and use those v the average annual return for each asset over the 10-year period. Return (X) Return (Y) 15.00% 2.27% 20.95% -1.25% 13.18% 20.00% 2.69% 4.00% 21.25% 19.26% 11.74% 7.50% 8.00% 13.50% 8.57% 13.81% 13.64% 9.13% 13.91% 13.75% 9.60% 11.14% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Average Return b. Use the returns calculated in part a to find
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investments‚ which have a risk index of 6%. The expected return and expected risk of the investments are as follows: Investment Expected return Expected risk index X 14% 7% Y 12 8 Z 10 9 a. If Sharon were risk-indifferent‚ which investments would she select? Explain why. If Sharon were risk-indifferent‚ the investments that she would select would be X. The Risk – indifferent manager does not change. There is no change in return would be required for increase in risk. b. If she were
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those surplus earnings in the form of cash dividends or to repurchase the company’s stock through a share buyback program. If there are no NPV positive opportunities‚ i.e. projects where returns exceed the hurdle rate‚ and excess cash surplus is not needed‚ then – finance theory suggests – management should return some or all of the excess cash to shareholders as dividends. This is the general case‚ however there are exceptions. For example‚ shareholders of a "growth stock"‚ expect that the company
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depending on your time constraint and interest in the subject. Each of the special topics is briefly described below. Students will find NPV to be one of the most powerful tools of the course. You will notice that this chapter does not derive the rate of time preference; instead‚ it introduces students to financial decision-making. Students should have no problem comprehending the trade-off between consumption today and consumption tomorrow‚ but they may still have problems with (1 + R) as the
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P.R. China‚ 130012 chenglamei1962@126.com Abstract: The theory of traditional Du Pont Financial Analysis System is based on the purpose of maximizing stockholders’ equity and the core evaluating indicator of Du Pont Financial Analysis System is “Return on Equity”‚ therefore‚ it reflects concerns on maintaining and adding values on the Euity‚ however‚ it is undeniable that the Du Pont Analysis System has some thorny problems such as it over-depends financial information‚ omits related information
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heartfelt thanks to our friends and classmates for their help and wishes for the successful completion of this project. Group 1 Section C LBSIM Table of Contents Introduction to corporate history Performance highlights Risk‚ Return And Beta… Cost of Capital of ACC Dividend Policy Capital Structure Leverage Review of Cash Management And Working Capital Financial Analysis of ACC
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FINA104 GROUP BUSINESS CASE PRESENTATION 1ST Semester‚ Academic Year 2013-2014 Adapted from FUNDAMENTALS OF FINANCIAL MANAGEMENT‚ Twelfth Edition‚ by Eugene F. Brigham and Joel F. Houston‚ South-Western Cengage Learning Risk and Return Case. Assume that you recently graduated with a major in finance. You just landed a job as a financial planner with Merrill Finch Inc.‚ a large financial services corporation. Your first assignment is to invest $100‚000 for a client. Because the funds are to
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Allowing for inflation As the inflation rate increases so will the minimum return required by an investor The nominal interest rate incorporates inflation. When the nominal rate of interest > rate of inflation = positive real rate. When the rate of inflation > nominal rate of interest = negative real rate. The relationship between real and nominal rates of interest is given by the Fisher formula: 1.2 Do we use the real rate or the nominal rate? The rule is as follows. a) If cash
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