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Which of the following investments has the highest return? 1
Which of the following investments has the highest return?
1. Investment One: 12% p.a. compounding continuously
2. Investment Two: 13.00% p.a. compounding semi-annually
3. Investment Three: 13.50% p.a. compounding annually
4. Investment Four: 12.75% p.a. compounding monthly
Select one:
a. The highest return is from Investment Two since it returns 13.42%
b. The highest return is from Investment Four because the effective return is the highest
c. The highest return is from Investment Three because it has the highest rate of 13.5% of all four investments
d. The highest return is from Investment One since it is compounded continuously
9.
The share of a Copper Tech is currently $180. You are aware that its current dividend is $5.00 (D0) per share with a growth rate of 2.5% (g). The required return is 5% (R). What is your recommendation on the share?
Select one:
a. The share is overpriced, so buy it.
b. The share is underpriced, so buy it.
c. The share is overpriced, so sell it.
d. The share is underpriced, so sell it.
10.
What is the present value of $10,000 received every year for 6 years? The interest rate is 4.50% p.a. and you receive the first payment in one year.
Select one:
a. $72,414.62
b. $51,578.83
c. $60,000
d. $38,203.51
Expert Solution
1
| EAR =[ e^(Annual percentage rate) -1]*100 |
| Effective Annual Rate=(e^(12/100)-1)*100 |
| Effective Annual Rate% = 12.75 |
2
| EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100 |
| ? = ((1+13/(2*100))^2-1)*100 |
| Effective Annual Rate% = 13.42 |
3
| EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100 |
| ? = ((1+13.5/(1*100))^1-1)*100 |
| Effective Annual Rate% = 13.5 |
4
| EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100 |
| ? = ((1+12.75/(12*100))^12-1)*100 |
| Effective Annual Rate% = 13.52 |
b. The highest return is from Investment Four because the effective return is the highest
10
| PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)] |
| C = Cash flow per period |
| i = interest rate |
| n = number of payments |
| PV= 10000*((1-(1+ 4.5/100)^-6)/(4.5/100)) |
| PV = 51578.72 |
| Using Calculator: press buttons "2ND"+"FV" then assign |
| PMT =10000 |
| I/Y =4.5 |
| N =6 |
| FV = 0 |
| CPT PV |
| Using Excel |
| =PV(rate,nper,pmt,FV,type) |
| =PV(4.5/(100),6,,PV,) |
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