1. Jordan Jessup is planning to invest $25,000 in a mutual fund that will provide a return of 8% per year. What will be the value of the investment at the end of 10 years?
2. You are in desperate need of cash and you turn to your uncle who has offered to lend you some money. You decide to borrow $1,300 and agree to pay back $1,500 in two years. Alternatively, if you borrow from your bank they will charge 6.5% interest per year. Which is the best plan?
3. Zepher Manufacturing Co. has sales of $1,125 million. They expect sales to grow at the rate of 6.5% annually. How long will it take for sales to double?
4. Lucy Linder can receive a bonus of $1,820 today, or $2,100 in two years. If she takes the $1,820 bonus she can invest it at 6% per year at her company credit union. Which is best?
5. One year ago you purchased 100 shares of Office Max for $12 per share. Today you sold it for $18 per share. It paid no dividends. What was the holding period risk?
6. The local real estate market is heating up and you have purchased a residential dwelling for $100,000 that you plan to flip in one year. The following are possible future prices and the probabilities: $80,000 at 10%, $110,000 at 30%, $125,000 at 50%, and $130,000 at
10%.Compute the Expected Rate of Return.
7. Describe how investing in more than one asset can reduce risk through diversification?
8. Calculate the slope or beta where the following facts exist: In Year 1 a share of IBM stock increased 8%, and in Year 2 it increased 10%. At the same time the S&P index increased 5% in Year 1 and 7% in Year 2.. Once calculated, explain what your answer means.
9. Calculate the expected rate of return using the CAPM where the expected return on the market is 5%, the risk free rate is 1%, and the beta is 1.5.