Finance help.

 

Question 1

 

Please use the information below to answer questions 1 through 4. There are two periods of time, t₀ and t₁. Michael has a wealth of $100 million. Michael has three potential investment opportunities. The first investment opportunity is building a shopping center; the cost is $60 million at t₀ and pays off $72 million at t₁. The second investment opportunity is building a parking garage, which would cost $40 million at t₀ and pays off $55 million at t₁. The third project is building a club for $5 million at t₀ which pays off $15 million at t₁. The local bank lets Michael lend and borrow at the same rate, which is 15% per period. Michael does not value future consumption, and instead only cares about consumption today at t₀. He does not value consumption at t₁ at all. Please give your answers in $ millions, to two decimal places. For example, if the answer is $53.247, please input 53.25.

What is the NPV (net present value) of the project which has the highest NPV?

 

Question 2

 

What is the most that Michael can consume at t₀?

 

Question 3

 

 Suppose the three projects were mutually exclusive. What is the most Michael can consume at t₀?

 

Question 4

 

 The bank has now decided to charge Michael 20% when he wants to borrow, but he can only lend to the bank at 10%. What is the most that Michael can consume at t₀, given this new condition? Do not assume for Question 4 that the projects are mutually exclusive.

 

Question 5

 

Please use the information below to answer questions 5 through 8. Rahul is considering three projects which have the following cash flows.

 

Project	C0	C1	C2	C3
A	-5000	2500	1500	2100
B	-700	450	300	400
C	-400	100	150	200

 

 What is the IRR of project A?

 

Question 6

 

 What is the IRR of project B?

 

Question 7

 

 If the discount rate is 6%, would Rahul choose to do project C?

 

 

Question 14

 

 What is the 6 year nominal discount factor?

 

 

 

Question 15

 

 What is the NPV of the project? Please answer in $ thousands. For example, if the answer is $2,594,510, please enter 2595

 

Question 16

 

 What is the IRR of the project?

 

 

 

Question 17

 

Please use the information below to answer questions 17 through 19. Jonathan is allocating his portfolio between two risky stocks, A and B. Stock A has an expected return of 15% with a standard deviation of 30%. The expected return and standard deviation for Stock B are 10% and 12%, respectively. The two stocks are positively correlated, with a correlation coefficient of +0.4. Jonathan’s wealth advisor suggests allocating 30% of his wealth in A and 70% of his wealth in B. What is the expected return of Jonathan’s portfolio, if he listens to his wealth advisor?

 

Question 18

 

 What is the standard deviation of Jonathan’s portfolio, if he listens to his wealth advisor?

 

Question 19

 

 What is the standard deviation of Jonathan’s portfolio, if he instead invests 50% of his wealth in Stock A, and puts the rest in a risk-free asset which has a return of 3%?

 

Question 20

 

 Mary lives in a country whose financial markets satisfy the assumptions of the Capital Asset Pricing Model (CAPM). In this economy, there are two risky assets, Spruce Company and Walnut Corporation, along with a risk-free asset. Mary has invested 30% of her portfolio in the risk-free asset, 40% in Spruce, and the remaining 30% in Walnut. In the entire economy, the total valuation of the Spruce Company is $4 million dollars. What is the total valuation of the Walnut Corporation, in millions of dollars? For example, if the answer is $12,000,000 please enter 12

 

 

 

Question 21

 

Please use the information below to answer questions 21 and 22. Let’s assume that the CAPM assumptions are all satsified. Research analysts at your securities firm have identified four well-diversified investment funds that have no unique risk. The characteristics of the funds are as follows:

 

Fund Name	Expected Return	Beta
Alpha	34%	1.2
Beta	40%	1.5
Gamma	48%	1.7
Delta	58%	2.4

 

Three of the funds are correctly priced, and one of the funds is mispriced. Please identify the investment fund that is being mispriced by the market.

 

[removed]Alpha

 

[removed]Beta

 

[removed]Gamma

 

[removed]Delta

 

Question 22

 

 Is the expected return of the mispriced fund too high, too low, or exactly right, given its beta?

 

[removed]Too high

 

[removed]Too low

 

[removed]Exactly right

 

[removed]There is insufficient information to answer this question