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Steps for present value with risk aversion:
(a) Figure the dollar amount of each payment
(b) Apply the discount factor
(c) Calculate utilities
(d) Apply probabilities
(e) Sum
You have $50,000 to invest for 2 years. At the end of two years, you will receive 20 percent of second-year profits.
Use 7 percent as the relevant interest rate. (No contract fee).
Second year profits:
25% chance of $150,000
50% chance of $250,000
25% chance of $500,000
Would you make the investment if you use present value with risk aversion?
You purchase 950 shares of 2nd Chance Co. stock on margin at a price of $29. Your broker requires you to deposit $18,500. 1. Suppose you sell the stock at a price of $37. What is your return? What would your return have been had you purchased the sto..
Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 10% of its $100 par value. Preferred stock of this type currently yields 7%. Assume dividends are paid annually. What is the estimated value of Rolen's preferred ..
An investment project provides cash inflows of $690 per year for eight years. What is the project payback period if the initial cost is $1,475? What is the project payback period if the initial cost is $3,500? What is the project payback period if t..
General Electric has just issued a callable (at par) 10-year, 6.3% coupon bond with annual coupon payments. What is the bond's yield to maturity?
Select two publicly traded companies in different industries/sectors, then compose a comparison of the capital structure for each. Explain your conclusions on the similarities and differences. What factors can you suggest for why each company adheres..
Suppose a riskless project requires an initial investment of $10 and will generate a one-time cash inflow of $30 two years later.
What would be the nominal and effective cost of such a credit?
Summarize the role of management as it relates to finance in a corporation. In your post, address the following: Indicate the various aspects of finance that management must understand. Describe why a manager needs to understand the characteristics a..
You want to start a bakery business. For this, you will need a capital of $ 75,000 to start operating. If you have to operate within 4 years. That sum total should now invest 12% quarterly composite, the amount needed to keep and operate your busines..
Use the Black-Scholes model to find the price for a call option with the following inputs: (1) current stock price is $28, (2) strike price is $35, (3) time to expiration is 2 months, (4) annualized risk-free rate is 6%, and (5) variance of stock ret..
You are considering a new investment. The rate on T-bills is 3.3% and the return on the S&P 500 is 8.5%. You have measured the non-diversifiable risk of the investment you are considering to be .7. What rate of return will you require on the investme..
Cox Media Corporation pays a coupon rate of 7 percent on debentures that are due in 10 years. The current yield to maturity on bonds of similar risk is 6 percent. The bonds are currently callable at $1,070. Find the market value of the bonds using se..
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