ACFI1003 Study Guide - Final Guide: London Stock Exchange, Capital Asset Pricing Model, Capital Market

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olivecaribou938

31 Jul 2018

School

University of Newcastle

Department

Accounting

Course

ACFI1003

Professor

All

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Document Summary

Economic determinants of rates of return 23. Rate of returns on financial instruments 24. Rate of return on risky assets 24. Calculating holding period return and capital gain 29. Transmission of monetary policy to economy 31. Decision rules as a deficit unit 35. A life cycle model of saving 38. Deferring taxes through voluntary retirement plans 43. The (cid:396)elatio(cid:374) (cid:271)et(cid:449)ee(cid:374) a(cid:374) asset(cid:859)s value a(cid:374)d p(cid:396)i(cid:272)e 46. The law of one price and arbitrage 46. Arbitrage and the prices of financial assets 46. Interest rates and the law of one price 46. Valuation of know cash flows: bonds 50. Using pv factors to value known cash flows 50. Coupon bonds, current yield and yield to maturity 52. Yield for the same maturity may differ 54. The effect of the coupon rate 54. Finance: the study of how people allocate scarce resources over time, different as, cost and benefits are spread over time, cost and benefits are usually not known in advance.

Related Questions

Nine Dragons Ltd is a company trading in China. The company hasappointed ER Sun, an auditing firm, at its auditor. Nine DragonsLtd wishes to borrow $1 million dollars from Quick-Finance Ltd, acompany trading in Australia. Before lending the money, thedirectors of Quick-Finance Ltd viewed the auditorâs report of NineDragons Ltd posted at their web-site and which was prepared by ERSun. Based on the positive financial information contained in thatauditorâs report, the directors of Quick-Finance Ltd were happy tolend the money to Nine Dragons Ltd. Six months after the loan wasadvanced. Nine Dragons Ltd experience financial difficulties andthe company collapsed. The directors of Quick-Finance Ltd areshocked by these sudden events and are furious at the financialloss they are facing. They wish to sue ER Sun, the auditing firm,to recover their financial loss.

Advise the directors of Quick-Finance Ltd of their chances ofsuccess in successfully suing ER Sun to recover the $1 milliondollars loaned to Nine Dragons Ltd on the basis of the contents ofthe auditorâs report which they viewed on the world wide web.

You work for a small, local telecommunications company. In five years, the company plans to undertake a major upgrade to its servers and other IT infrastructure. Management estimates that it will need up to $450,000 to cover all related costs; however, as a fairly young company, the goal is to pay for the upgrade with cash and not to take out loans. Right now, you have $300,000 in a bank account established for Capital Investments. This account pays 5% interest, compounded annually. A member of the finance department has approached you with an investment opportunity for the $300,000 that covers a five-year period and has the following projected after-tax cash flows: Year Projected Cash Flow 1 $94,000 2 $114,000 3 $134,000 4 $114,000 5 $94,000 Based on this information, answer the following questions: 1) How much money will be in the bank account if you leave the $300,000 alone until you need it in five years? 2) If you undertake the investment opportunity, what is the Nominal Payback Period? 3) Using the Present Value factors for 6% (which can be found on any PV Factor table), what is the discounted Payback Period of the investment opportunity? 4) What is the Net Present Value at 6% of the investment opportunity? 5) Which option (make the investment or leave the money in a savings account) would you recommend to your CEO? Why? What additional factors/information might make you change your point of view?

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________1. Randy Hill wants to retire in 10 years with $500,000.He can earn 6% per year on his investments. Compute how much heneeds to deposit each year to reach his goal. ________2. Joe Morriswants to start a savings fund from which his grandson couldwithdraw $3,000 a year for 10 years. The fund would earn 5%interest. Compute the amount Joe would have to deposit now to reachhis goal. ________3. Your rich aunt has offered to finance fiveyears of college for you. The annual cost will be $30,000 and theinterest rate is 5%. Compute how much money your aunt must give younow to finance the five years of college. ________4. Assume yourfather is 55 and wants to retire at age 65 with $300,000 in aretirement fund. The interest rate is 8%. Compute how much he mustdeposit at age 55 to accumulate the $300,000. ________ 5. Assumeyou want to have $25,000 for a down payment for a house in fiveyears. Compute the amount you would need to deposit today. Yourmoney will earn 5 percent. ________ 6. Jeff Renfro is planning togo to graduate school (Ph.D) in a program of study that will takesix years. Jeff wants to have $35,000 available each year forvarious school and living expenses. He can earn 5 percent on hismoney. Compute how much he must deposit at the start of his studiesto be able to withdraw $35,000 a year for six years. ________7.Angie Baden deposits $10,000 a year into her retirement account.These funds will earn 8 percent over the 10 years until herretirement. Compute what the value of her retirement account willbe when she retires. ________8. Assume you borrow $80,000 with a 7percent interest rate, to be repaid in seven equal yearly payments.Compute the amount of each payment.

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ACFI1003 Study Guide - Final Guide: London Stock Exchange, Capital Asset Pricing Model, Capital Market

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