HomeworkLib
Question

e) You invest long term in a tech company, Macrotough, that always pays repeatable returns of 1% the first year, 2% the second year, and 12% the third year. Calculate effective yearly return. Calculate the growth in yearly returns in (e) above using two formulas. Is each formula valid?
business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

e) Let us assume, the Investment value is $10,000 Growth rate-296-196-196 Growth rate-12%-2%-10% At year 1, Interest is 1%; Return-$ 100 ( 10,000196) At year 2, Interest is 2%; Return-$ 200 ( 10,000.296) At year 3, Interest is 12%; Return : $ 1,200 ( 10,000*12%) Notel In case of Compounding, CAGR (Ending Value/beginning Value) (1/No of years) -1 CAGR (11,538/10,000) (1/3) -1 CAGR (1.1538) 0.3333 -1 CAGR 1.0488 -1 CAGR 0.0488 -1 CAGRz 4.88% Yearly return Return of 3 years/No of Years Yearly return (1+2+12)/3 Yearly return-5% Note Since question has specified it pays return.Hence considered the same is not compounded in the second year If the same is compounded, return shall be At year 1, Interest is 1%; Returns $ 100 ( 10,000*196) At year 2, Interest is 296; Return : $ 202 ( 10, 100*296) At year 3, Interest is 12%; Return-$ 1,236 ( 10,302*12%) Effective return (Ending value - Beginning value )/beginning Value Effective return (11,538- 10,000)/ 10,000 Effective return 15.38% 10302+ 1236 11,538]

0 0
Add a comment
Know the answer?
Add Answer to:
e) You invest long term in a tech company, Macrotough, that always pays repeatable returns of...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Given the following year end stock closing prices for Long Tech Inc. calculate the annual holding...

    Given the following year end stock closing prices for Long Tech Inc. calculate the annual holding period returns for each year from 2015 to 2018. Please Show all work with formulas! Year                       Price                      HPR 2018                       $45                         _________ 2017                       $41                         _________ 2016                       $24                         _________ 2015                       $28                         _________ 2014                       $20                         _________                                 b. For the above holding period returns, what is the effective annual return if you purchased the stock in 2014 and sold it in 2018 at the prices listed? c....

  • If the variability of the returns on large-company stocks were to decrease over the long-term, you...

    If the variability of the returns on large-company stocks were to decrease over the long-term, you would expect which one of the following to occur as a result? Increase in the risk premium Increase in the average long-term rate of return Decrease in the 68 percent probability range of returns Increase in the standard deviation Increase in the geometric average rate of return

  • Historical average returns for Large Company Common Stocks, Long Term Government Bonds, and US Treasury Bills...

    Historical average returns for Large Company Common Stocks, Long Term Government Bonds, and US Treasury Bills for the period 10-year period of 1999 through 2008 are shown in the following table.  Use these data to solve the next several problems. Year Large Common Stock Long Term Government Bonds US Treasury Bills 1999 0.2104 -0.0751 0.0480 2000 -0.0910 0.1722 0.0598 2001 -0.1189 0.0551 0.0333 2002 -0.2210 0.1515 0.0161 2003 0.2889 0.0201 0.0094 2004 0.1088 0.0812 0.0114 2005 0.0491 0.0689 0.0279 2006 0.1579...

  • The stock had returns of -50% and +100% in two consecutive years. If the initial stock...

    The stock had returns of -50% and +100% in two consecutive years. If the initial stock was $100, what is it at the end of the first and second year? In the first year you invest in 1 share, in the second year in another 2 shares Find: Arithmetic Average Geometric Average Dollar Weighted Average Which of the averages best reflects historical performance over long time? Given above data, what return would be reasonably expected for the third year?

  • Your company has an opportunity to invest in a project that is expected to result in...

    Your company has an opportunity to invest in a project that is expected to result in after-tax cash flows of $13,000 the first year, $15,000 the second year, $18,000 the third year, -$8,000 the fourth year, $25,000 the fifth year, $31,000 the sixth year, $34,000 the seventh year, and -$6,000 the eighth year. The project would cost the firm $67,100. If the firm's cost of capital is 12%, what is the modified internal rate of return?

  • were you c which of the geometric average. The Actual Returns of Company A for the...

    were you c which of the geometric average. The Actual Returns of Company A for the Past 3 months were IS20 25% and 5 ro company B 18%, 24% and -1%. In case of portfolio, there will be equal investment a) calculate the expected return of company A using arithmetic average b) Calculate the expected standard deviation Company B 2 companies will invest in? d) Find the covariance between the rates of return. e find the correlation coefficient between the...

  • 4. A. Six years ago, the Zircon company purchased a long-term asset for $3,875,500. The asset...

    4. A. Six years ago, the Zircon company purchased a long-term asset for $3,875,500. The asset has a 20% CCA rate. Recently, at the end of year six, Zircon sold the asset for 850,000. Given this information, determine the value of the terminal loss or recapture at the end of year six. B. Zircon Company's effective tax rate is 26%. Calculate the value of the CCA tax shield for the third year (year 3). btw, what are "effective tax rate"...

  • 1) A. Six years ago, the Zircon company purchased a long-term asset for $3,875,500. The asset...

    1) A. Six years ago, the Zircon company purchased a long-term asset for $3,875,500. The asset has a 20% CCA rate. Recently, at the end of year six, Zircon sold the asset for 850,000. Given this information, determine the value of the terminal loss or recapture at the end of year six. B. Zircon Company's effective tax rate is 26%. Calculate the value of the CCA tax shield for the third year (year 3).

  • You estimate the following free-cash-flow data for a company (in millions). The firm's long term FCF...

    You estimate the following free-cash-flow data for a company (in millions). The firm's long term FCF growth rate will be 3% per year after year three and the firm's cost of capital is 9%. The company has no debt and 8 million shares outstanding. Using the corporate valuation model, what is the intrinsic price of one share of LipCo? Free Cash Flows: Year 1: $5 Year 2: $10 Year 3: $12

  • Annual and Average Returns for Stocks, Bonds, and T-Bills, 1950 to 2017 Long-Term Treasury Bonds 6.6%...

    Annual and Average Returns for Stocks, Bonds, and T-Bills, 1950 to 2017 Long-Term Treasury Bonds 6.6% 0.0 1.6 1950 to 2017 Average 1950 to 1959 Average 1960 to 1969 Average 1970 to 1979 Average 1980 to 1989 Average 1990 to 1999 Average 2000 to 2009 Average Annual Return 2011 Annual Return 2012 Annual Return 2013 Annual Return 2014 Annual Return 2015 Annual Return 2016 Annual Return 2017 Annual Return 2010 to 2017 Average Stocks 12.7% 20.9 8.7 7.5 18.2 19.0...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT