Topic 5: The Time Value of Money
Eva’s opportunity cost of capital is 12% compounded monthly. She invested US\$200 at the beginning of the year and she is expected to receive the stream of cash flows depicted below (where t denotes time in months). Which of the following is closest to the net present value (NPV) of this project? *
1 point
Alfred would like to borrow some US\$200 and he has two options. Either to borrow from a bank at 5.60% (compounded monthly) or to borrow from a crowdfunding platform that requires him to repay the stream of cash flows depicted below, where t is time in years. What is the cheapest option for Alfred? *
1 point
Rob is the CEO of Alfa LLP. Alfa LLP is a major European retailer. Company’s weighted cost of capital is 6.20%. Rob decides to invest from his own portfolio in a mining company which provides a Return on Investment of 6.75%, should he undertake the investment? *
1 point
Asset 1 provides a perpetual payment of US\$10 starting 5 years from now. The first payment will occur at the end of 5’th year. Asset 2 provides a perpetual payment of US\$10 starting from the end of the 101’th year. What will be the approximate price of an asset that provides payments of US\$10 from the end of the 5’th year until the year 100 if the required rate of return on all investments mentioned above is 5.00%? *
1 point
Karlis took a loan of US\$100,000 on which he pays an interest of 5% p.a. on a monthly basis. The loan is supposed to be paid off in 10 years and the first payment takes place 1 month after he borrows the funds. After 3 years the interest rate increases to 7% per annum and the loan is renegotiated at the new level of interest rates. What will be the approximate principal payment during the 37’th month? *
1 point
An investor has 2 streams of cash flows, let’s call them CF1 and CF2. It is known that CF1 has an IRR of 15%, while CF2 has an IRR of 20%, what will be the IRR if both these cash flows are combined? *
1 point
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