ADM 3351 Lecture 5: Ch03

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amethystalpaca520

16 Jan 2016

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Computing the yield or internal rate of return on. The yield on any investment is the interest rate that will make the present value of the cash flows from the investment equal to the price (or cost) of the investment. Mathematically, the yield on any investment, y, is the interest rate that satisfies the equation. )y + (1 where cft = cash flow in year t, p = price of the investment, n = number of years. The yield calculated from this relationship is also called the internal rate of return. Solving for the yield (y) requires a trial-and-error (iterative) procedure. The objective is to find the yield that will make the present value of the cash flows equal to the price. Keep in mind that the yield computed is the yield for the period. That is, if the cash flows are semiannual, the yield is a semiannual yield.

Related Questions

Reizenstein Technologies (RT) has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, RT is expected to experience a 17% annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology, and RT's growth rate will slow to 8% per year indefinitely. Stockholders require a return of 13% on RT's stock. The most recent annual dividend (D0), which was paid yesterday, was $2.70 per share. Calculate RT's expected dividends for t = 1, t = 2, t = 3, t = 4, and t = 5. Round your answers to the nearest cent. Do not round intermediate calculations. D1 = $ D2 = $ D3 = $ D4 = $ D5 = $ Calculate the estimated intrinsic value of the stock today, . Proceed by finding the present value of the dividends expected at t = 1, t = 2, t = 3, t = 4, and t = 5 plus the present value of the stock price that should exist at t = 5, . The stock price can be found by using the constant growth equation. Note that to find you use the dividend expected at t = 6, which is 8% greater than the t = 5 dividend. Round your answer to the nearest cent. Do not round your intermediate computations. $ Calculate the expected dividend yield (D1/ ), the capital gains yield expected during the first year, and the expected total return (dividend yield plus capital gains yield) during the first year. (Assume that = P0, and recognize that the capital gains yield is equal to the total return minus the dividend yield.). Round your answers to two decimal places. Do not round your intermediate computations. Expected dividend yield % Capital gains yield % Expected total return % Also calculate these same three yields for t = 5 (e.g., D6/ ). Round your answers to two decimal places. Do not round your intermediate computations. Expected dividend yield % Capital gains yield % Expected total return %

cyanalligator307

The yield to maturity on a bond is __________________ .

	a.	below the coupon rate when the bond sells at a discount, and above the coupon rate when the bond sells at a premium.
	b.	the discount rate that will set the present value of the future cash payments of interest and principal equal to the bond price.
	c.	based on the assumption that any payments received are reinvested at the coupon rate.
	d.	none of the above.

indigooyster495

A deposit in a bank yields a simple yearly interest rateofr. This means that, if youdepositx dollars in it.aftert years (tcantake any positive real value, of course: forinstance,t = .25 means 3 months), yourcapital hasbecome y = x (1+rt)

Question Part 1: Suppose an alternate,andriskier, investment would yield a rate of return (that's justthesame as what the interest rate is, for a bank deposit)ofR = .15 (i.e. 15%). Suppose youdeposit$100 in the bank, and $50 in the risky investment. At whattime willthe risky investment have grown equal to your bankdeposit? Rememberthat both are growing, just at a differentrate.

Also Question Part 2: Answer the samequestionas part 1, when you still put $100 in the bank, but only$10 in therisky investment.

ADM 3351 Lecture 5: Ch03

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