a) If the annual interest rate is 5%, compounded every 15 seconds, what is the effective...

  

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a) If the annual interest rate is 5%, compounded every 15 seconds, what is the effective annual interest rate? b) What is the IRR of the following investment? (1 mark) Year 0 -450,000 Year 1 45,000 Year 2 45,000 Year 3 45,000 Year 4 45,000 Year 5 495,000 c) Assuming 252 trading days per year, given 2% interest per year based on monthly compounding, calculate the continuously compounding interest rate per month. (1 mark) d) The current risk-free rate is 3% and expected market rate is of 9%. Given a company with a beta of 1.1, whose dividends are estimated to be $3 per share per year (next dividend to be paid one year from now) and dividends are expected to grow at 2% per year, estimate a fair price per share for the company assuming dividends will be paid yearly forever. (2 marks) Book Value e) The company has bought an asset and there are 3 methods of calculating its book value for tax purposes (see below). The book value is $0 after 10 years for all three methods. Which method is most beneficial to the company? (1 mark) 25000 20000- 15000- 10000- 5000- 0+ 0 2 Year Method 1 Method 2 Method 3 6 8 10 a) If the annual interest rate is 5%, compounded every 15 seconds, what is the effective annual interest rate? b) What is the IRR of the following investment? (1 mark) Year 0 -450,000 Year 1 45,000 Year 2 45,000 Year 3 45,000 Year 4 45,000 Year 5 495,000 c) Assuming 252 trading days per year, given 2% interest per year based on monthly compounding, calculate the continuously compounding interest rate per month. (1 mark) d) The current risk-free rate is 3% and expected market rate is of 9%. Given a company with a beta of 1.1, whose dividends are estimated to be $3 per share per year (next dividend to be paid one year from now) and dividends are expected to grow at 2% per year, estimate a fair price per share for the company assuming dividends will be paid yearly forever. (2 marks) Book Value e) The company has bought an asset and there are 3 methods of calculating its book value for tax purposes (see below). The book value is $0 after 10 years for all three methods. Which method is most beneficial to the company? (1 mark) 25000 20000- 15000- 10000- 5000- 0+ 0 2 Year Method 1 Method 2 Method 3 6 8 10