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A Financial asset is expected to pay a constant perpetual cash flow of $1,280 per year starting at the end of year one. The required
- A Financial asset is expected to pay a constant perpetual cash flow of $1,280 per year starting at the end of year one. The required rate of return on the asset is 9% per year. Calculate the value of the asset today.
- A three-year project is expected to yield a cash flow of $5.4 million in year one, $7.6 million in year two, and $8.2 million in year three. The terminal value of the asset at the end of year three is expected to be $18 million. Whats the maximum amount of money would should the company that initiates the project be willing to invest to start the project today if the required rate of return on similar projects is 14% per year?
- A cash flow-producing investment asset has just made a payoff of $750. The payoff is expected to grow by 5% per year indefinitely. The required rate of return on the asset is 12% per year. Calculate the value of the asset today?
- An investment opportunity requires an outlay of $x today but is not expected to have any cash inflows for the coming five years. At the end of year six, its expected cash flow is $1,005.07 and that is expected to grow by 5% per year in perpetuity. The required rate of return on the investment is 12% per year. Calculate the fair value of x.
- A growing 5-year annuity just paid $750 and is expected to grow at 5% per year. How much will you be willing to pay for this annuity today if you require 12% per year rate of return on it?
- Reflect on the previous three problems and try to find the commonalities and any relationship among them. Now take the answers to the first two and compare them to the answer of the third. Can you see how they relate to one another? Can you explain why?
- An asset promises the following series of cash flows: $2,300 in year one; $3,200 in year two; $3,600 in year three. After year three, the cash flows are expected to grow at a constant rate of 4.8% in perpetuity. The RRR on the asset is 12.60%. Calculate the value of the asset today.
- A Six-year, 9% (annual) bond requires a rate of return of 11%. At what price should the bond be trading? What is the required rate of return on the bond called?
- A five-year, 11% (semi-annual) bond has a required rate of return of 9%. At what price should the bond be trading?
- A seven-year, 8% (semiannual) bond is currently priced at $856.16. Calculate the YTM of the bond.
I'm trying to learn how to do this. Can you please explain the thought process in all this when solving it? Thanks, I really appreciate it.
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