7.2 - VALUING INVESTMENTS WHICH WOULD YOU BUY? 1. 2. 3. You...

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VALUING INVESTMENTS WHICH WOULD YOU BUY? You have just inherited $100,000. You wish to make a 3 year investment. Which of the following should you choose? 1. Real Estate : condo selling for $100,000 and which comes with a 3 year lease of $6,000 per year. 2. Stocks: selling for $10.00 and pays a 3% dividend. It earns $1.00 per share and is expected to have a 15X price earning ratio in 3 years. 3. Bonds: a 3 year 4% Government of Canada bond with a yield to maturity of 5%.
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REAL ESTATE STOCK BOND PAID YEARLY CASH FLOW YEAR 1 YEAR 2 YEAR 3 SOLD (CLOSING TRANSACTION) YEAR 3 DISCOUNT RATE PRESENT VALUE CASHFLOW (RENT, DIVIDENDS, INTEREST) CLOSING TRANSACTION (SALE) VALUATION
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STEP 1: ENTER CASH FLOWS& WHAT YOU ARE GIVEN REAL ESTATE STOCK BOND PAID 100,000.00 $ 10.00 $ YEARLY CASH FLOW YEAR 1 6,000.00 $ 0.30 $ 40.00 $ YEAR 2 6,000.00 $ 0.30 $ 40.00 $ YEAR 3 6,000.00 $ 0.30 $ 40.00 $ SOLD (CLOSING TRANSACTION) YEAR 3 100,000.00 $ 15.00 $ 1,000.00 $ DISCOUNT RATE 5% PRESENT VALUE CASHFLOW (RENT, DIVIDENDS, INTEREST) CLOSING TRANSACTION (SALE) VALUATION
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7.2 - VALUING INVESTMENTS WHICH WOULD YOU BUY? 1. 2. 3. You...

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