Problem 1. How do you find the present value of each of the following cash flows?:
a. $50,000 a year for 20 years, @6%
b. $2.50 a year for ever @ 12%
c. $65 a year for four years and $1065 in the 5th year, @8%
d. $1,250/month for 30 years, @5.75%
Problem 2. When the following cash flows are listed as follows how do I find the net present value at 10% and calculate the internal rates of return?:
P0= $-50,000
C1=$18,000
C2= $15,000
C3=$12,000
C4=$8,000
C5=$13,000
a). Find the net present value (NPV) @ 10%
b). Find the internal rate of return (IRR)
Problem 3. Beta values
B=0.5 Company A
B=2.2 Company L
B=1.6 Company S
B=0.8 Company T
Look up the 10 year Treasury bond yield on https://finance.yahoo.com/bonds and use that for the risk free rate (Rrf). Use an average market rate of return Rm=7.7%. Find the expected rate of return (cost of equity) for each of the four companies listed above using the Capital Asset Pricing Model (CAPM)
Problem 4. Assuming I have a portfolio that includes the following amounts of stock given the beta value values shown in question 3 above: What is the weighted average beta of the securities in your portfolio?
Company A= 20%
Company L= 40%
Company S= 30%
Company T= 10%
Problem 5. If I needed to decide to purchase items at $999,995 each or lease them for 6 years at $18,500.55 per month. Assuming no salvage value, how do I figure out at what interest rate do the lease and the purchase have the same present value?