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  • Practice Exercise 1 W1 C2

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    undoit224
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    The document contains practice questions about asset valuation and rates of return. It asks the reader to determine how much they would be willing to pay for alternative assets that promise future cash flows based on current interest rates. It also asks the reader to explain whether they would purchase assets for certain prices that will pay out fixed amounts in one year given a market rate of return, and to predict what will happen with a security priced at $200 that will pay $300 in a year when the market rate is 20%.

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    The document contains practice questions about asset valuation and rates of return. It asks the reader to determine how much they would be willing to pay for alternative assets that promise future cash flows based on current interest rates. It also asks the reader to explain whether they would purchase assets for certain prices that will pay out fixed amounts in one year given a market rate of return, and to predict what will happen with a security priced at $200 that will pay $300 in a year when the market rate is 20%.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    6 views1 page

    Practice Exercise 1 W1 C2

    Uploaded by

    undoit224
    The document contains practice questions about asset valuation and rates of return. It asks the reader to determine how much they would be willing to pay for alternative assets that promise future cash flows based on current interest rates. It also asks the reader to explain whether they would purchase assets for certain prices that will pay out fixed amounts in one year given a market rate of return, and to predict what will happen with a security priced at $200 that will pay $300 in a year when the market rate is 20%.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
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    Practice exercise - ASSET VALUATION BAFI3184 _W1_C2 ---oOo--1. If you were able to obtain a rate of return of 6.

    5% by placing funds in a bank for one year, how much would you be willing to pay for an alternative asset that promises to return $18,000 in one year?
    ANSWER

    2.

    Would you pay $100,000 today for an asset that will pay $105,000 in one year if the rate of return is currently 6% p.a.? Explain your answer.
    ANSWER

    3.

    Would you pay $98,000 today for an asset that will pay $105,000 in one year if the rate of return is currently 6% p.a.? Explain your answer.
    ANSWER

    4.

    A security exists that exists that promises to pay $300 in one years time. If the market rate of interest is 20% p.a. and the security is for sale for $200, what would you do and why? Ultimately, what would you expect to happen?
    ANSWER

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