Suppose the current price of gold is $1,240 an ounce. Hotshot Consultants advises you that gold prices will increase at an average rate of 14% for the next two years. After that the growth rate will fall to a long-run trend of 2% per year. Assume that gold prices have a beta of O and that the risk-free rate is 6%. What is the present value of 1.2 million ounces of gold produced in 10 years? (Do not round intermediate calculations. Enter your answer in billions rounded to 2 decimal places.)

Suppose the current price of gold is $1,240 an ounce. Hotshot Consultants advises you that gold prices will increase at an average rate of 14% for the next two years. After that the growth rate will fall to a long-run trend of 2% per year. Assume that gold prices have a beta of O and that the risk-free rate is 6%. What is the present value of 1.2 million ounces of gold produced in 10 years? (Do not round intermediate calculations. Enter your answer in billions rounded to 2 decimal places.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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An investor is looking to invest OR.70,000 for one year. He requires a real return of 12%. The inflation is currently running at 5% per annum. What is the money rate of return? a. 16.6% b. 18.6% c. 17.6% d. 15.6%
5. Suppose you are evaluating the following potential investment project: Spend $34 million today on a factory in Alabama that will be completed in 1 year. You expect to receive $12 million in profits from this factory at the end of the second year, at which time you also expect to sell the factory to Toyhonda, a Japanese competitor, for a further $30 million. The market interest rate is 9%. (Assume the inflation rate is constant at 0, and is expected to remain so for the duration of the above investments.) Would this plan generate profits enough to cover the investment cost? Yes b. No c. break-even (i.e., no profit nor loss) a.
H4. Work out the value of European Call on a risky asset A, currently selling at $600. The European Call has a term to maturity of 1.5 years and a strike price of $675. SD(dA/A), the volatility of returns on the risky asset is 18% per year, and the discrete risk-free rate is 0.9% per year
The cash flows for an investment with an economic life of 5 years are as follows: k0 = -10000, k1 = k2 = k3 = k4 = 3000, k5 = k1 + 1000 = 4000. This investment can be repeated in years 5, 10, ... etc. . What is the net present value of the infinite cash flow that follows if the discount rate is 12% per annum.
A venture will provide a net cash inflow of $57,000 in Year 1. The annual cash flows are projected to grow at a rate of 7 percent per year forever. The project requires an initial investment of $739,000 and has a required return of 15.6 percent. The company is somewhat unsure about the growth rate assumption. At what constant rate of growth would the company just break even? O 9.48% O 9.29% O 7.89% O 8.49% A Moving to another question will save this response. «< Question 15 of 30
9
Consider two interest rate scenarios for investing over next 20 years. In steady scenario A, you get interested of 4% each year. In choppy scenario B, in the first year you get that rate plus 10% but then in next year get that rate minus 10% and so forth. The average rate is the same in each scenario. But for an initial investment of $4000, how much more is A worth than B at the end of the period?
A venture will provide a net cash inflow of $57,000 in Year 1. The annual cash flows are projected to grow at a rate of 7 percent per year forever. The project requires an initial investment of $739,000 and has a required return of 15.6 percent. The company is somewhat unsure about the growth rate assumption. At what constant rate of growth would the company just break even? O 9.48% 9.29% O 7.89% O 8.49% A Moving to another question will save this response. « >
You are planning to produce a new action figure called "Nia." However, you are very uncertain about the demand for the product. If it is a hit, you will have net cash flows of $80 million per year for three years (starting next year [i.e., at t = 1]). If it fails, you will only have net cash flows of $40 million per year for two years (also starting next year). There is an equal chance that it will be a hit or failure (probability = 50 percent). You will not know whether it is a hit or a failure until the first year's cash flows are in (i.e., at t = 1). You must spend $140 million immediately for equipment and the rights to produce the figure. If you can sell your equipment for $90 million once the first year's cash flows are received, calculate the value of the abandonment option. (The discount rate is 10 percent.) Multiple Choice $24.38 $18.56 -$5.82 $0.00
10. Three years from now you will sell 10 ounces of gold and immediately deposit the proceeds for two years. The spot price of gold is $500 per ounce and it costs 8% to store gold. You decide to hedge all risk. How much will you have at t=5?
Given the following information regarding Bank XYZ: DA = 3 years, DL = 5 years, A = $100 million, E = $10 million, we have a flat yield curve that is expected to fall from 8 to 7% in the next 6 months. Answer the following three questions related to this information: Which of the following statements is true? Select the correct answer: 1.- Assets increase from $100,000,000 to $104,629,630 (rounded) 2.- Assets decrease from $100,000,000 to $97,222,222 (rounded) 3.- Liabilities (“Liabilities”) increase from $90,000,000 to $94,166,667 (rounded) 4.- Liabilities (“Liabilities”) decreased from $90,000,000 to $85,833,333 (rounded)
B. J. Gautney Enterprises is evaluating a security. One-year Treasury bills are currently paying 5.2 percent. Calculate the investment's expected return and its standard deviation. Should Gautney invest in this security? Probability Return a. 0.05 0.50 0.40 0.05 -5 3 7 8 % % % % The investment's expected return is ___%.

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