Internal rate of return and return on investments

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1. Capital budgeting takes into account computing a projects payback, net present value, internal rate of return and return on investments. Discuss the advantages and disadvantages on using each of these.

2. If JP Morgan’s preferred stock has an annual dividend of $9, and investors’ expected or required return on the stock is 12%, what is the intrinsic value of JP Morgan’s preferred stock today?

3. You buy a call option on SFr with a strike price of $0.6573/SFr. You pay a premium of $0.0010/SFr to buy the option. The contract size is SFr125,000. If the option expires when the spot price is $0.6682/SFr, what is your net profit on this transaction? (For simplicity, ignore the time value of money.)

Reference no: EM132023496

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