Which of the following statements is TRUE? A) for all investments regardless of

Question

Which of the following statements is TRUE? A) for all investments regardless of scale, timing and risk to compare use IRR, invesmens oppontunities we can B) when projects are not mutually exclusive, the project with the highest NPV aways (straightorwad) should be chosen C)inthe case when payback period is higher than a peespecified leng th of time,you should acept the ) accept any investment E) if the firm has comect answer opportunity whose IRR is less than cost of capital an objective to maximize thek shareholders wealth, the IRR rule always gives the so (2 POINTS) 7. The current one-year interest rate is 19%. If it is known with certainty that the one-year interest rate next year and 496 the following year, what will the interest rates r1, r2. and r3 of the yield curve be today? Is the yield curve flat, increasing, or inverted? A) r,m 1,0%, ri-1.499%, r,-2.326% B) r?1.0302%, n-1,04%, r,-2.326% C) r,-1,2030%, n-2.326%, r,-3, 6% D) r," 1,0%, r-1.89996, r,-2. 526% (2 POINTS) 8. The "BTA Bank" JSC's zero-coupon bond with the maturity term of 1 year and the face value of 1000 tenge has a probability of default in the amount of 10%. If the risk-free rate is 5%, determine the yield to maturity (YTM) of the bond A) 15% B) 16% C) 59% E) 18% 9. Do (the dividend at period 0)0.125, (the current market price) Po-1.75 D) 17% (2 POINT (growth rate of dividend)-5%. Calculate the equity cost of capital? A) 12.2% B) 12.6% C) 12.4% D) 12.12% E) 13% (2 Po 10. Based on the latest decision of the general meeting of shareholders, the company's management has paid dividends in the amount of 1000 teng share. The growth rate of dividends-5% per year. The required size of the 13.2%. According to Morgan and Stanley analysts the share price in 2 years equal to 1412 tenge. Calculate the current market price of the share? A) 2221.29 B) 2889.83 C) 2287.29 D) 2233.32 E) 2213.29

Explanation / Answer

6 option (a) since IRR is a relative measure

7. option (a) r1 = 1% (already given); r2 = [(1+1%)*(1+2%)]1/2 - 1 = 1.499%; r3 = [(1+1%)*(1+2%)*(1+4%)]1/3 - 1 = 2.326%

8. option (a) 15%

9. D0 = 0.12 ; P0 = 1.75 and g = 5%; As per Div Discount Model : 1.75 = [0.12 * (1+5%)] / (r - 5%) where r is the cost of equity. SOlving we get r = 12.2% option (a)

10. information not clearly captured

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