Daphne has recently won a small local lottery and has decided to invest a portion of her winnings. She has
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a) Draw a cash flow diagram representing the purchase of a single share in Nervosa Cafes. (2 marks)
b) Write down an equation that could be solved (by computer) to determine the yield, expressed as an effective annual rate, for purchasing a share in Nervosa Cafes. (2 marks)
c) After conducting a risk analysis on this share, you determine that Daphne should get a return of at least 12% p.a. effective on this share. Based on this conclusion, calculate the maximum price Daphne should pay for this share. (1 mark)
The second investment you plan to present to Daphne is a corporate bond issued by KACL industries. These are $1,000 25-year semi-annual bonds with a coupon rate of 7.40%.
d) Daphne is aware you plan to present the shares in Nirvosa Cafes and the KACL corporate bonds her investment options. She asked you about the difference between shares and bonds. List 3 differences between shares and bonds (that you could use in the introduction for your report to Daphne). (2 marks)
e) Draw a cash flow diagram to represent the purchase of a KACL bond
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Chapter # 7
Section: Review Questions
Posted Date: September 24, 2023 23:57:24