work must be done on excel , show calculations and analysis

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Answered 3 days AfterFeb 02, 2024

Answer To: work must be done on excel , show calculations and analysis

Nitish Lath answered on Feb 05 2024
32 Votes
Solution P6-9
        Given is the following information
        1 year treasury bill rate of return (r1)    5%
        2 year treasury bill rate of return (r2)    5.50%
        Expected return on bill next yea
r    ((1+r2^2)/ (1+r1^2)) - 1
        Expected return on bill next year    ((1+0.55^2)/(1+0.05^2))-1
        Expected return on bill next year    (1.113025/ 1.05) - 1
        Expected return on bill next year    0.0600238095
        Expected return on bill next year    6.00%
Solution P6-17
        Given is the following information
        Cash inflows 1-4 years    $3,000    per year
        Cash inflows 5th year    $15,000
            Return
        Low-risk    4%
        Average risk assets    7%
        High risk assets    14%
    a.    Determination of present value of asset based on risk classification
        For the low-risk assets
        Present value of asset
        Year    Cash flows    Pvf @ 4%    Present value
        1    3000    0.962    2885
        2    3000    0.925    2774
        3    3000    0.889    2667
        4    3000    0.855    2564
        5    15000    0.822    12329
        Total value of asset            23219
        For the average risk assets
        Present value of asset
        Year    Cash flows    Pvf @ 7%    Present value
        1    3000    0.935    2804
        2    3000    0.873    2620
        3    3000    0.816    2449
        4    3000    0.763    2289
        5    15000    0.713    10695
        Total value of asset            20856
        For the high risk assets
        Year    Cash flows    Pvf @ 14%    Present value
        1    3000    0.877    2632
        2    3000    0.769    2308
        3    3000    0.675    2025
        4    3000    0.592    1776
        5    15000    0.519    7791
        Total value of asset            16532
    Requirement b
        Laura should take into account the worst-case scenario, which is the greatest required rate of return (in this example, 14% for high-risk assets), to make sure she is getting a decent deal without evaluating the risk. Thus, the asset's worth determined in part a for high risk is the highest price she should be willing to pay.
    Requirement c
        An asset's value is significantly impacted by its level of risk. The present value of...
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