midterm - k A = A k = 11.3%.k A =k RF + (k M -k RF )b11.3%...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
k A = A k = 11.3%.k A = k RF + (k M - k RF )b11.3% = 5% + (10% - 5%)b b = 1.26.4.Effective annual rateAnswer: d Diff: EStatement d is correct. The equation for EAR is as follows:EAR = 1mk1 mNom   + .If annual compounding is used, m = 1 and the equation abovereduces to EAR = k Nom . The equation for the periodic rate is: PERNom k=km. .If annual compounding is used then m = 1 and k PER = k Nom , and sinceEAR = k Nom then k PER = EAR. 5.PV of an uneven CF streamAnswer: b Diff: E NPV = $10,000/1.08 + $25,000/(1.08) 2 + $50,000/(1.08) 3 + $35,000/(1.08) 4 = $9,259.26 + $21,433.47 + $39,691.61 + $25,726.04= $96,110.38
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Financial calculator solution: Using cash flows Inputs: CF 0 = 0; CF 1 = 10000; CF 2 = 25000; CF 3 = 50000; CF 4 = 35000; I = 8.Output: NPV = $96,110.39 $96,110. 6.Time value of money and retirementAnswer: b Diff: E N Step 1:Find the number of years it will take for each $150,000 investment togrow to $1,000,000. BRUCE:
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 4

midterm - k A = A k = 11.3%.k A =k RF + (k M -k RF )b11.3%...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online