【正文】
oc k Prefer red Debt Asse ts op erati ngNon sInv est ment Futu re Asse ts Exis ti ng ??? Problem 1 Our pany has the opportunity to invest in a project. Our initial outlay is $500. The project will yield $1200 at the end of the fourth year. Given a pany cost of capital of 14%, what is the NPV of the project? Problem 1 Our pany has the opportunity to invest in a project. Our initial outlay is $500. The project will yield $1200 at the end of the fourth year. Given a pany cost of capital of 14%, what is the NPV of the project? Answer NPV = 500 + 1200 / (1+.14)4 = Problem 2 You are going to retire next month. An insurance agent offers to sell you an annuity which pays $20,000 per year (at the start of each year) for 15 years. Assuming a yield of 8% on the annuity, how much should you pay for the annuity? Problem 2 You are going to retire next month. An insurance agent offers to sell you an annuity which pays $20,000 per year (at the start of each year) for 15 years. Assuming a yield of 8% on the annuity, how much should you pay for the annuity? Answer PV = C [ ] + first yr PV = 20k + 20k[ ] = 184,884 1 1 r r(1+r)t _ 1 1 .08 .08(1+.08)14 _ Problem 3 If you sign an agreement today (t=0) to borrow $400 at the end of year 1, $400 at the end of year two, and repay $1000 at the end of year three, what is the interest rate you are paying? (hint: calculate the IRR) Problem 3 If you sign an agreement today (t=0) to borrow $400 at the end of year 1, $400 at the end of year two, and repay $1000 at the end of year three, what is the interest rate you are paying? (hint: calculate the IRR) Answer T0 T1 T2 T3 0 + 400 + 400 1000 calculator return % Problem 4 If you attempt to diversify your portfolio using BGE Disney stock, which Portfolio, A, B, C is possible? Risk Return DIS BGE A B C Problem 4 If you attempt to diversify your portfo