2. (i) An investment has the an initial outlay of $50,000 followed by $25,000 and $30,000...

Transcribed Image Text:

2. (i) An investment has the an initial outlay of $50,000 followed by $25,000 and $30,000 in the first and second years respectively and finally two equal payments in the last two years. Given that the IRR is 5%, determine the following: (a) The size of the payments (b) the nature of the payments (4 marks) (1 mark) (ii) Assuming a risk free rate of 5 %, show on a sketch where a stock with a beta of 1.3 would be located on the Security Market Line. Then show where that stock would be located if it is undervalued. (5 marks) (iii) What are the disadvantages of using the CAPM approach to estimating the required rate of return? (5 marks) 2. (i) An investment has the an initial outlay of $50,000 followed by $25,000 and $30,000 in the first and second years respectively and finally two equal payments in the last two years. Given that the IRR is 5%, determine the following: (a) The size of the payments (b) the nature of the payments (4 marks) (1 mark) (ii) Assuming a risk free rate of 5 %, show on a sketch where a stock with a beta of 1.3 would be located on the Security Market Line. Then show where that stock would be located if it is undervalued. (5 marks) (iii) What are the disadvantages of using the CAPM approach to estimating the required rate of return? (5 marks)

Answer rating: 100% (QA)

step... View the full answer