Assignment on finance PDF

FINANCE
STUDENT ID:
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11-15 The given information for yesterday is summarised below.
Risk free rate = 3%
Required returns on the market portfolio = 10%
Required return on stock = 17%
Using the CAPM approach, we get (Damodaran, 2015).
17 = 3 + Beta*(10-3)
Solving the above, we get Beta of Stock K = 2
Based on the given information, it is apparent that the market risk premium has increased by
1%
Market Risk Premium = Market Returns – Risk Free Rate
New market risk premium = 7% + 1% = 8%
Hence, required return on Stock K = 3 + 2*8 = 19%
9-15 a) Nominal rate = 12% p.a.
Interest rate for six months = 12/2 or 6%
Total time = 5 years
However, since payments are made after every 6 months, hence number of payments would
be 5*2 = 10
Amount paid each time = $ 400
The required future value of the annuity can be estimated using the following formula.