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Homework answers / question archive / 1)Domestic financial management, the goal of multinational finance is also to maximize the shareholder’s wealth
1)Domestic financial management, the goal of multinational finance is also to maximize the shareholder’s wealth. Can you think of any areas where the goals may differ between domestic and multinational finance?
2)What's the present value of a $920 annuity payment over six years if interest rates are 10 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Answer is complete but not entirely correct.
3)You have $100 and think where to invest your money. You have three options. Option A promises you a weekly interest rate of 0.3%, compounded weekly. Option B promises a 16% annual interest rate with one payment at the end of each year. Finally, option C has a quoted annual rate of 15% with quarterly compounding. Assume that a year consists of 52 weeks. (a) (3 points) What are APRs of the three investment opportunities? (b) (6 points) Rank these investment opportunities by their attractiveness to you. (c) (6 points) How much more will earn over 10 years if you invest in your most preferable option relative to your least preferable option?
1)
Goals are differing between the domestic and the multinational Finance as follows-
A. Currency risk- Domestic finance is generally considered with the domestic currency whereas if there is a multinational Finance involved, then there are risk related to investing into different countries and managing the interest in a better way by reducing the risk of multiple currencies.
B. There are difference in rules and regulations and taxation regimes in different countries associated with investment so rate of return will be different due to different tax regimes.
C. There will be risk related to different monetary policies which can be changed by the central bank's of different countries in multinational Finance and investor will have to protect exposure in various countries because he will be exposed to different interest rates.
D. there will also be a different political risk involved because there will be a place of instability of political reasons involved with investment into different countries so it is better to manage micro risk in an efficient and effective manner
E. cost of capital associated with investment in different countries are different so investor should be trying to get exposed to such countries where the cost of capital is lower in multinational Finance.
Hence it can be said that multinational Finance is related towards engaging with multiple country and higher degree of market risk and it will also offering with the higher diversification.
2)
We are given the following information:
| Annual payment | PMT | $ 920.00 |
| rate of interest | r | 10.00% |
| number of years | n | 6 |
| Present value | PV | To be calculated |
We need to solve the following equation to arrive at the required PV
So the PV is $4006.84 rounded to 2 decimal places
3)
Given information :
Investment value = $ 100
Option A = 0.3% compound weekly
Option B = 16% Per annum
option C = !5 % per annum with quarterly compounding
weeks in a year = 52
a) Calculation of APR of 3 investment options :
Option A :
interest rate is 0.3 % which is compund weekly and we have 52 weeks in a year
Future value = P (1+I)n
= 100 (1+0.03)52
= 100 * 1.1685
= $ 116.85
Annual percentage rate (APR) = Future value / Present value
= 116.85/100
= 1.1685
OPTION B :
interest rate is 16% per annum
Future value = P (1+I)n
= 100 (1+0.16)
= 100 * 1.16
= $ 116.00
Annual percentage rate (APR) = Future value / Present value
= 116/100
= 1.16
OPTION C :
interest rate is 15 % per annum and which is compund quarterly and we have 4 Quarters in a year
Quarter interest rate is = 15%/4
= 3.75 %
Hence interest rate is 3.75% per Quarters for 4 Quarters in a year
Future value = P (1+I)n
= 100 (1+0.0375)4
= 100 * 1.1586
= $ 115.86
Annual percentage rate (APR) = Future value / Present value
= 115.86/100
= 1.158
b) Ranking the investments ;
Ranking will be done based on APR of each investment
Rank 1 = Option A having (APR is 1.1685)
Rank 2 = Option B having (APR is 1.16)
Rank 3 = Option C having (APR is 1.158)
C) How much more earn :
Most preferable option is Option A
Least Preferable option is Option C
Calculation of future value after 10 years under option A
Given Future value factor is 0.3% per week So we are calculationg future value for 10 years
Hence FVF is 0.3 % for 520 week
Future value = P (1+I)n
= 100 (1+0.003)520
= 100 * 4.74
= $ 474
Calculation of future value after 10 years under option C :
interest rate is 15 % per annum and which is compund quarterly and we have 4 Quarters in a year
Quarter interest rate is = 15%/4
= 3.75 %
Hence interest rate is 3.75% per Quarters for 4 Quarters in a year
So we are calculationg future value for 10 years
Hence FVF is 3.75 % for 40 week
Future value = P (1+I)n
= 100 (1+0.0375)40
= 100 * 4.36
= $ 436
Difference between 2 options = 474-436
= $ 38
