Scribd Logo
Upload

Welcome to Scribd!

  • Financial Markets and Instruments: Assignment - 1

    Uploaded by

    Navya Mohanka
    23 views3 pages
    The document discusses Mehar's computation of a 20% annual rate of return based on a series of cash flows. However, the given cash flows do not actually indicate a 20% rate of return when discounted at 20% compounded monthly. The rate of return would equal 20% only if the monthly benefit was Rs. 920 instead of Rs. 1000. Calculating the internal rate of return implies an annualized rate of return of 39.62% based on an initial outflow of Rs. 9,100 and 12 monthly benefits of Rs. 1000 each.

    Original Description:

    Original Title

    FMI Assignment -1

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    The document discusses Mehar's computation of a 20% annual rate of return based on a series of cash flows. However, the given cash flows do not actually indicate a 20% rate of return when discounted at 20% compounded monthly. The rate of return would equal 20% only if the monthly benefit was Rs. 920 instead of Rs. 1000. Calculating the internal rate of return implies an annualized rate of return of 39.62% based on an initial outflow of Rs. 9,100 and 12 monthly benefits of Rs. 1000 each.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    23 views3 pages

    Financial Markets and Instruments: Assignment - 1

    Uploaded by

    Navya Mohanka
    The document discusses Mehar's computation of a 20% annual rate of return based on a series of cash flows. However, the given cash flows do not actually indicate a 20% rate of return when discounted at 20% compounded monthly. The rate of return would equal 20% only if the monthly benefit was Rs. 920 instead of Rs. 1000. Calculating the internal rate of return implies an annualized rate of return of 39.62% based on an initial outflow of Rs. 9,100 and 12 monthly benefits of Rs. 1000 each.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 3

    Financial Markets and

    Instruments

    Assignment -1

    Group 8
    Devendra Tayade
    Kshitija Polge
    Navya Mohanka
    Rahul Arora
    Q1-
    A Is Mehar’s computation of 20% p.a. rate of return indicated in the cashflows?

    Assuming that the benefit of Rs.1000 can be availed at the beginning of the month.

    Date Cashflow Particulars Figures


    01-01-2021 -10,100 Rate of return 20%
    01-01-2021 1,000 Period 12
    01-02-2021 1,000 PV annuity factor 10.98
    01-03-2021 1,000 Monthly cashflow 1000
    01-04-2021 1,000 PV of cashflows 10,975
    01-05-2021 1,000
    01-06-2021 1,000 Since the PV of cashflows discounted at
    01-07-2021 1,000 20% p.a compounded monthly is not equal
    01-08-2021 1,000 to the present value of the outflow, the
    01-09-2021 1,000 rate of return of 20% p.a. is not indicated
    01-10-2021 1,000 in the cashflows.
    01-11-2021 1,000
    01-12-2021 1,000

    Q1-B Under what conditions will be the rate of return equals 20%?

    Assuming benefit is availed at the beginning of the month.


    Particulars Figures
    Rate of return 20%
    Period 12
    Initial outflow 10,100
    Monthly benefit 920

    So the rate of return will be equal to 20%, when the monthly benefit is Rs. 920

    Q2 What is the annualized rate of return implied by the cashflows?

    Assuming that the benefit of Rs.1000 can be availed at the beginning of the month.

    Date Cashflow Particulars Percentage


    01-01-2021 -9,100 IRR 3.30%
    01-02-2021 1,000 Annualized rate of return 39.62%
    01-03-2021 1,000 Effective Annual Rate 47.67%
    01-04-2021 1,000
    01-05-2021 1,000
    01-06-2021 1,000
    01-07-2021 1,000
    01-08-2021 1,000
    01-09-2021 1,000
    01-10-2021 1,000
    01-11-2021 1,000
    01-12-2021 1,000

    You might also like