Time Value of Money
What is defect of IRR method?
One defect of the IRR method is it assumes that the cash flows to be received from a project can be reinvested at the IRR itself, and that assumption is often not valid.
When is the bond duration higher?
When the coupon rate is lower.
What is Capital Asset Pricing Model (CAPM)?
It is a model based on the proposition that any stock’s required rate of return is equal to the risk-free rate of return plus a risk premium reflecting only the risk remaining after diversification.
How are shares or stocks that are protected from withdrawal by the original owners of the shares classified?
They are classified as founder shares.
What is the weighted average cost of capital (WACC)?
WACC is the average of firm’s cost of equity and aftertax cost of debt that is weighted based on the firm’s capital structure.
To an investor the most desirable compounding period is?
Daily period is the most desirable.
How to calculate current bond yields?
The ratio of annual coupon revenue to price.
What is the relevant risk in the context of CAPM?
In the context of the CAPM the relevant risk is a market risk.
What is the value of a financial asset?
The value of a financial asset equals the present value of expected future cash flows accruing to the asset’s owner.
In calculating the costs of the individual components of a firm's financing, for which the corporate tax rate is important?
It is important for debt.
What the time value of money helps to understand?
The time value of money helps to understand present and future value.
What is the amount of interest on the bonds?
The amount of interest on the bonds is the exchange rate of the bond.
According to the CAPM, how increases the risk premium an investor expects to receive on any stock or portfolio?
Directly with beta.
What will be the value of the preferred stock if the preferred dividend is $ 50 and the required rate of return is 2.5%?
2000
Why is the expected excess market return equal if CAPM is used to estimate the value of equity?
It is equal difference between the return on the market and the risk-free rate.
What will be the future value of 1,000 UAH with a yield of 20% at the end of the fourth year?
In the case of compound interest it will be 2073,60 UAH.
Who decides on the issue of domestic government bonds?
The decision is made by the Ministry of Finance.
The risk-free rate and the expected market rate of return is 0.06 and 0.12, respectively. According to CAPM, what is the expected rate of return on security X with a beta of 1.2?
0,132
What will be the dividend yield if the current price is $40 and the dividends paid are $10?
0,25
What is the WACC for the firm?
Rate of return a firm must earn on its existing assets to maintain the current value of its stock.
How much do you need to invest to get 1,000 UAH at the end of the fifth year, at a 20% discount rate?
In the case of simple interest, 500 UAH.
Why is the emission of corporate bonds allowed in Ukraine?
Emission is allowed to attract investors' credit resources in a satisfactory financial condition.
The risk-free rate is 5% and the market risk premium is 10%. The beta of Stock A is 1.4 and its standard deviation is 30%. What is the expected return of Stock A according to the CAPM?
0,19
The last dividend paid by a publicly traded company is 2.7 USD per share. 12% constant growth is expected in the dividend.If the rate of return is 16%, what is the current value of this stock?
82,5 USD
Is this statement correct: If a project’s internal rate of return (IRR) exceeds the cost of capital, then the project’s net present value (NPV) must be positive.?
Yes.