Investment planning, Strategic Management

Assignment Help:

Using examples, explain the differences between the primary and secondary markets for securities.

Question

Discuss systemic risk and any effects that it might have on investors. Give an example.

Question

Joanna is interested in purchasing a government bond parcel. She asks you to explain how it is possible that an investor can make or lose money on fixed interest investments. As part of your explanation, calculate the purchase price of a 10-year government bond parcel with two full years remaining in its term. The bond's yield rate is 8.95% p.a., paid as a half-yearly coupon, and assume that the prevailing market interest rate is 7.50% p.a. Use a parcel price of $100.

Question

Yanni asks you to explain why different discounted cash flow (DCF) calculations use different discounting rates. Use the information provided below to frame your explanation. Yanni and Joanna's current investment property was purchased six months ago (assume this was in the current financial year) for $418,000 in an area that they believe has high growth prospects. They have an interest-only loan of $280,000 attached to this property. The expected sale price in three years is $575,000. Cash flows from the property are:In year 1:

Rent income $33,000

Cash expenses $12,500

  • In year 2, rent income is expected to increase by 2% compared to year 1 and cash expenses are expected to increase by 1.5% compared to year 1.
  • In year 3, rent income is expected to increase by 2.5% compared to year 2 and cash expenses by 2.0% compared to year 2.

The appropriate discount rate is 8.75%, being the risk-free rate plus a premium. The discount rate also recognises the interest rate for the property loan of 7.75%.

In your response, you should address the following points:

a)  Explain why DCF is used to evaluate investments and what impact increasing the discount rate will have on the results of a DCF valuation.
b)  Calculate to the nearest dollar the present value (PV) and net present value (NPV) of the couple's investment property.

c)  Calculate the internal rate of return (IRR) of this investment to one decimal place.

d)  Explain whether this investment is good value if comparative properties are returning 15.25% per annum.


Related Discussions:- Investment planning

Technique to strategic management, A new technique to strategic management ...

A new technique to strategic management was developed in early 1990's by Drs. Robert Kaplan (Harvard Business School) and David Norton. Kaplan and Norton explain the innovation of

Case study, Akash Engineering Ltd. (AEL) had achieved sales of Rs. 3440 lak...

Akash Engineering Ltd. (AEL) had achieved sales of Rs. 3440 lakhs during the year 2004-05 against sales of Rs. 1209 lakhs previous year. The sales this year were highest ever achie

Comparison of conventional and jit wisdom, Comparison of Conventional and J...

Comparison of Conventional and JIT Wisdom  JIT philosophy Ideal lot size is 1 Balanced production is best Inventory is wasteful Eliminate waste Handle only so

Controlling subsidiaries, Controlling subsidiaries Mission stateme...

Controlling subsidiaries Mission statement, goals and objectives. Performance measurement systems e.g. financial ratios and multidimensional frameworks. Systems

Divisional structures – product organisation, Q. Divisional structures – pr...

Q. Divisional structures – product organisation? The functional structure is normally adopted by an entrepreneurial structure e.g. small business, because the organisation grow

Delta products case instructions, Here is the "Delta Products" case for Gra...

Here is the "Delta Products" case for Graduate Operations. You need to determine the number of hours for Mike's and Nikki's plan. To do this you need to compute the number of hours

Synerge, What are the problems in assessing the potential for synergy from ...

What are the problems in assessing the potential for synergy from a merger

Mensa, I need a five year plan with cost estimates and a time line also net...

I need a five year plan with cost estimates and a time line also net present values at 10% discount rate

Feasibility concerns, Whether an organization has the resources and compete...

Whether an organization has the resources and competences to deliver a plan

Illustrate about asset turnover - performance ratios, Q. Illustrate about A...

Q. Illustrate about Asset turnover - performance ratios? Asset turnover                                    =    Turnover /    Total assets or Capital employed This shows how

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd