Reference no: EM132823737
Question -
Q1. On March 28, 2008, Toyota Motor Credit Corporation (TMCC), a subsidiary of Toyota Motor, offered some securities for sale to the public. Under the terms of the deal, TMCC promised to repay the owner of one of these securities $100,000 on March 28, 2038, but investors would receive nothing until then. Investors paid TMCC $24,099 for each of these securities; so they gave up $24,099 on March 28, 2008, for the promise of a $100,000 payment 30 years later.
a) Based on the $24,099 price, what rate was TMCC paying to borrow money?
b) Suppose that, on March 8, 2016, this security's price is $39,583. If an investor had purchased it for $24,099 at the offering and sold it on this day, what annual rate of return would she have earned?
c) If an investor had purchased the security at market on March 8, 2016, and held it until it matured, what annual rate of return would she have earned?
Q2. Zevon Co. has identified an investment project with the following cash flows
|
Year
|
Cash Flow ($)
|
|
1
|
1,270
|
|
2
|
1,210
|
|
3
|
1,580
|
|
4
|
1,940
|
(a) Assume the discount rate is 10 percent, what is the present value of these cash flows?
(b) What is the present value at 18 percent? What is the present value at 24 percent?