Which investment has greater value to brainless

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Reference no: EM132025734

You are the manager of a hedge fund, Brainless Capital, investigating two investment opportunities: one is a 10-year German bund (government bond, denominated in euros) with 5 years remaining until maturity; the other is a royalty interest in a hydro-fracking gas well in Nigeria. Remarkably, you determine that the expected annual future cash returns for the gas well (in thousands, $75, $70, $65, $65, and $50) are identical to the expected future cash returns on the bund (converted to dollars at the forward exchange rates.) Your firm’s cost of capital is 12%; a 5-year US Treasury note yields a return of 3%. Which investment has greater value to Brainless? How much would you be willing to pay for each investment? (Remember to incorporate terms we discussed in class such as book value, market value and intrinsic value)

Reference no: EM132025734

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