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Review TVM & Risk Return

1. This document reviews concepts related to time value of money and risk-return including calculating present values of annuities and lump sums given discount rates, determining interest rates on loans, and comparing investment alternatives based on expected returns and risks. 2. It provides 10 examples of calculations related to present value, interest rates, compound growth rates, expected returns, standard deviation, beta, and portfolio risk and return. 3. The examples cover topics such as calculating present values of annuities and lump sums, determining interest rates on loans, comparing investment alternatives, calculating amounts needed to accumulate a future sum, finding compound growth rates, and portfolio risk and return.

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NIKNISH
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124 views

Review TVM & Risk Return

1. This document reviews concepts related to time value of money and risk-return including calculating present values of annuities and lump sums given discount rates, determining interest rates on loans, and comparing investment alternatives based on expected returns and risks. 2. It provides 10 examples of calculations related to present value, interest rates, compound growth rates, expected returns, standard deviation, beta, and portfolio risk and return. 3. The examples cover topics such as calculating present values of annuities and lump sums, determining interest rates on loans, comparing investment alternatives, calculating amounts needed to accumulate a future sum, finding compound growth rates, and portfolio risk and return.

Uploaded by

NIKNISH
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Review Time Value of Money and Risk Return

1. A 12-payment annuity of Rs.10,000 will begin 8 years hence. (the first payment occurs at the end of 8years.). What is the present value of this annuity if the discount rate is 14 %. 2. What is the present value of Rs.1,00,000 receivable 60 years from now, if the discount rate is 10% 3. ABC has borrowed Rs.1,000 to be repaid in 12 monthly installments of Rs.94.56. compute the annual interest. 4. You have a choice of accepting either of two 5-year cash flow streams or lump sum amounts given below: End of year C.Flow alternative 1 C. Flow alternative 2 1 2 3 4 5 Rs.7,000 Rs.7,000 Rs.7,000 Rs.7,000 Rs.7,000 Lump-sum amount At time zero (t=0) 28,250 28,000 Rs.11,000 Rs.9,000 Rs.7,000 Rs.5,000 Rs.3,000

Assuming 10 percent required rate of return, which alternative ( 1 or 2) and in which form (cash flow or lump sum) would you prefer and why

5. You wish to accumulate Rs.8,00,000 by the end of 5 years by making equal annual year end deposits over the next 5 years. Assuming 7% rate of return, how much should you deposit at the end of each year to accumulate Rs.8,00,000? 6. Mohan bought a share 15 years ago for Rs. 10. It is now selling for Rs.27.60. what is the compound growth rate in the price of the share? 7. Exactly 10 years from now Rohan will start receiving a pension of Rs.3,000 a year. The payment will continue for 16 years. How much is the pension worth now, if interest rate is 10%? 8. A company has issued debentures of Rs.50 lakhs to be repaid after 7 years. How much should the company invest in a sinking fund earning 12 percent in order to be able to repay the debentures? 9. A firm purchases a machinery for Rs.8,00,000 by making a down payment of Rs.1,50,000 and remainder in equal installments of Rs.1,50,000 for 6 years. What is the rate of interest to the firm? 10. P ltd has an expected return of 22% and S.D. of 40%. Q Ltd. Has an expected return of 24% and S.D. of 38%. P has a beta of 0.86 and Q 1.24. the correlation between the returns of P and Q is 0.72. the S.D of market return is 20%. (a) is investing in Q better than investing in P? (b) if you invest 30% in Q and 70% in P , what is your expected rate of return and portfolio S.D.? what is the market portfolios expected rate of return and how much is the risk- free rate? (d) what is the beta of the portfolio if Ps weight is 70% and Qs 30%?

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