1. Consider a set of constant cash inflows of 500 for ever (in perpetuity). (a) The present...
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1. Consider a set of constant cash inflows of 500 for ever (in perpetuity). (a) The present value is 5000 if the discount rate is 11% (b) The present value is 5500 if the discount rate is 10% (c) The present value is 5000 if the discount rate is 10% (d) The present value is 5000 if the discount rate is 10% and the cash flow grows by 1% each year 2. For firms quoted on the stock-market: a. Unique (unsystematic) risk cannot be diversified and must be accepted by investors b. Unique (unsystematic) risk can be diversified by investors c. Market risk is risk that is experienced by an individual firm only d. Market risk can be diversified 3. A person is indifferent between (i) a salary of 60,000 and a 10% chance of 200,000 bonus OR (ii) a certain salary of 77,000 a. The expected value of the uncertain case is 77,000 b. The individual is risk-neutral c. The certainty equivalent of the uncertain case is 77,000 d. The certainty equivalent of the uncertain case is 80,000
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