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(c) The probability of returns from an asset are as follows: Probability Return 35% 8% 55%...

(c) The probability of returns from an asset are as follows: Probability Return 35% 8% 55% 17% 10% -2% Determine the risk (i.e., standard deviation of returns) of the asset. [5 marks]

(d) Prepare a loan amortisation schedule for a term loan entailing $5,000 borrowed over 2 years at 8.5% p.a. interest repaid annually. [5 marks]

(e) For a rapidly growing Germancompany, the projectedgrowth rate is 10% for the next twoyears and 7% for the two yearsfollowing that. At the end of 4 years, the growth rate will expectantly settle to4% and remain so for the foreseeable future. The company expects to paya dividend of€2.5 per share next year. Assume that the investors' required rate of return for the company's shares is 20%. Determine the value of this company's share.Is the share a desirable purchase if its market price is £25€25per share? [7.5 marks

Solutions

Expert Solution

(c) The probability of returns from an asset are as follows: Probability Return 35% 8% 55% 17% 10% -2% Determine the risk (i.e., standard deviation of returns) of the asset. [5 marks] = 6.24%

(d) Prepare a loan amortisation schedule for a term loan entailing $5,000 borrowed over 2 years at 8.5% p.a. interest repaid annually. [5 marks] = Provided above

Loan Annual payment = Loan / PVAF(0.085,2) = 50001.7711 = $2823.08

(e) For a rapidly growing Germancompany, the projectedgrowth rate is 10% for the next twoyears and 7% for the two yearsfollowing that. At the end of 4 years, the growth rate will expectantly settle to4% and remain so for the foreseeable future. The company expects to paya dividend of€2.5 per share next year. Assume that the investors' required rate of return for the company's shares is 20%. Determine the value of this company's share.Is the share a desirable purchase if its market price is £25€25per share? [7.5 marks

Stock Price = 17.08

If the market stock price is 25 but intrinsic value of stock is 17.08. The stock price is overpriced so i would recommend to short sell the stock.

Please upvote if satisfied

jeff jeffy answered 1 year ago
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