Homework answers / question archive / 1)What would be the annualized investment rate if a Treasury bill was purchased for $9,360 maturing in 270 days for $10,000? You must show your calculation, otherwise, your mark will be deducted

1)What would be the annualized investment rate if a Treasury bill was purchased for $9,360 maturing in 270 days for $10,000? You must show your calculation, otherwise, your mark will be deducted

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1)What would be the annualized investment rate if a Treasury bill was purchased for $9,360 maturing in 270 days for $10,000? You must show your calculation, otherwise, your mark will be deducted.

2)You and your friend, Polly Horn are thinking of going on a year trip around the world in exactly

3 years’ from today. Unfortunately, you will need a lot of money to ensure you can afford all

the fun activities you have planned! You have determined that you will each need $30,000 to

fund this trip. Polly Horn has been lucky enough to win the lottery recently and can afford to

put a single lump sum into the bank account today. Unfortunately, you are unable to do the

same, and have to place fortnightly payments into the bank account for the next three years,

starting in a fortnight from today. Given this, and the fact that the interest rate available to

both Polly Horn and yourself is 9% p.a. compounded monthly, calculate:

a) The lump sum Polly Horn puts into the bank today; and,

b) The fortnightly payment you have to place into the bank account to have exactly

$30,000 in three years’ time.

3)

You are considering investing in JouJou Ltd, a public company that manufactures bottle

openers and other kitchen tools. In considering purchasing shares in JouJou Ltd, you are

utilising your valuation skills to see if the market price is fair. Using the information below, find

the theoretical value of one share of JouJou Ltd and compare it to the current market price of

$42.53:

? A dividend was paid out yesterday of $0.50;

? The next dividend of $0.50 is expected to occur in two years’ time, and this

dividend will be constantly paid every six months for 6 consecutive dividend

payments (this includes the dividend at year 2);

? Thereafter, dividends will grow at 6% p.a. compounded semi?annually in

perpetuity; and,

? The required rate of return on equity is 8% p.a. compounded quarterly and

all dividends are paid out semi?annually.

Would you purchase JouJou Ltd? In providing your decision, you may need to state some

assumptions that allow you to compare the market value with the calculated share price.