FUND OF CORPORATE FINANCE LL W/ACCESS
11th Edition
ISBN: 9781260076752
Author: Ross
Publisher: MCG
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Chapter 12, Problem 20QP
Blume’s Formula [LO1] Over a 40-year period an asset had an arithmetic return of 10.4 percent and a geometric return of 8.8 percent. Using Blume’s formula, what is your best estimate of the future annual returns over 5 years? 10 years? 20 years?
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Students have asked these similar questions
Assume you invest
$5,100
today in an investment that promises to return
$6,928
in exactly
10
years.
a. Use the present-value technique to estimate the IRR on this investment.
b. If a minimum annual return of
9%
is required, would you recommend this investment?
#69
Part 1
a. The IRR of the investment is
enter your response here%.
(Round to the nearest whole percent.)
Part 2
b. If a minimum return of
9%
is required, would you recommend this investment? (Select the best choice below.)
A.
No, because this investment yields less than the minimum required return of
9%.
B.
Yes, because a minimum required return of
9%
does not compensate for an investment that lasts longer than one year.
C.
No, because a minimum required return of
9%
is an arbitrary choice for an investment of this risk level.
D.
Yes, because this investment yields more than the minimum required return of
9%
Q.15
An investment offers $6000 per year for 10 years, with the
first payment occurring one year from now. If the required
return is 7%, what is the value of the investment? What
would the value be if the payments occurred for 20 years?
And forever?
About how many years would it take for your investment to
grow if it were invested at an APR of 9 percent
compounded ?
If you invest $1 at an APR of 9 percent compounded , about
how many years would it take for your investment to grow
to $4?
Chapter 12 Solutions
FUND OF CORPORATE FINANCE LL W/ACCESS
Ch. 12.1 - Prob. 12.1ACQCh. 12.1 - Why are unrealized capital gains or losses...Ch. 12.1 - What is the difference between a dollar return and...Ch. 12.2 - Prob. 12.2ACQCh. 12.2 - Why doesnt everyone just buy small stocks as...Ch. 12.2 - What was the smallest return observed over the 88...Ch. 12.2 - About how many times did large-company stocks...Ch. 12.2 - What was the longest winning streak (years without...Ch. 12.2 - How often did the T-bill portfolio have a negative...Ch. 12.3 - Prob. 12.3ACQ
Ch. 12.3 - What was the real (as opposed to nominal) risk...Ch. 12.3 - Prob. 12.3CCQCh. 12.3 - What is the first lesson from capital market...Ch. 12.4 - In words, how do we calculate a variance? A...Ch. 12.4 - With a normal distribution, what is the...Ch. 12.4 - Prob. 12.4CCQCh. 12.4 - What is the second lesson from capital market...Ch. 12.5 - Prob. 12.5ACQCh. 12.5 - Prob. 12.5BCQCh. 12.6 - What is an efficient market?Ch. 12.6 - Prob. 12.6BCQCh. 12 - Chase Bank pays an annual dividend of 1.05 per...Ch. 12 - The risk premium is computed as the excess return...Ch. 12 - Prob. 12.4CTFCh. 12 - Prob. 12.5CTFCh. 12 - Prob. 12.6CTFCh. 12 - Investment Selection [LO4] Given that Fannie Mae...Ch. 12 - Prob. 2CRCTCh. 12 - Risk and Return [LO2, 3] We have seen that over...Ch. 12 - Market Efficiency Implications [LO4] Explain why a...Ch. 12 - Efficient Markets Hypothesis [LO4] A stock market...Ch. 12 - Semistrong Efficiency [LO4] If a market is...Ch. 12 - Efficient Markets Hypothesis [LO4] What are the...Ch. 12 - Stocks versus Gambling [LO4] Critically evaluate...Ch. 12 - Efficient Markets Hypothesis [LO4] Several...Ch. 12 - Efficient Markets Hypothesis [LO4] For each of the...Ch. 12 - Calculating Returns [LO1] Suppose a stock had an...Ch. 12 - Calculating Yields [LO1] In Problem 1, what was...Ch. 12 - Prob. 3QPCh. 12 - Prob. 4QPCh. 12 - Nominal versus Real Returns [LO2] What was the...Ch. 12 - Bond Returns [LO2] What is the historical real...Ch. 12 - Prob. 7QPCh. 12 - Risk Premiums [LO2, 3] Refer to Table 12.1 in the...Ch. 12 - Calculating Returns and Variability [LO1] Youve...Ch. 12 - Calculating Real Returns and Risk Premiums [LO1]...Ch. 12 - Calculating Real Rates [LO1] Given the information...Ch. 12 - Prob. 12QPCh. 12 - Prob. 13QPCh. 12 - Calculating Returns and Variability [LO1] You find...Ch. 12 - Arithmetic and Geometric Returns [LO1] A stock has...Ch. 12 - Arithmetic and Geometric Returns [LO1] A stock has...Ch. 12 - Using Return Distributions [LO3] Suppose the...Ch. 12 - Prob. 18QPCh. 12 - Distributions [LO3] In Problem 18, what is the...Ch. 12 - Blumes Formula [LO1] Over a 40-year period an...Ch. 12 - Prob. 21QPCh. 12 - Calculating Returns [LO2, 3] Refer to Table 12.1...Ch. 12 - Using Probability Distributions [LO3] Suppose the...Ch. 12 - Using Probability Distributions [LO3] Suppose the...Ch. 12 - Prob. 1MCh. 12 - Prob. 2MCh. 12 - Prob. 3MCh. 12 - Prob. 4MCh. 12 - A measure of risk-adjusted performance that is...Ch. 12 - Prob. 6M
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- Q # 2 : What is the present value of $1000 received in 8 years if the current opportunity rate of return is 7% ?arrow_forwardQ. # 3 : An investment of $1000 grows to $2000 in 7 years. What is the annual rate of return on the investment ?arrow_forward8. If the concern is for the value that existing money will have next year, the formula for the intertemporal value of money can be expressed as follows: Next Year's Value = Present Value (1 + r). For example, if the interest rate is 10% and the present value is $100, the $100 will increase to $110 at the end of a year. a. Using this algebraic expression, show the formula for the present value of future income and calculate what $200 received next year is worth now. b. What is the present value of $100 received 2 years from now?arrow_forward
- Solve ASAPQ # 2 : What is the present value of $1000 received in 8 years if the current opportunity rate of return is 7% ?arrow_forwardIf PV=$100, i=2%, n=5 years, and the investment compounds annually, what is the equation for Future Value?arrow_forwardApproximately, what is the value of PG (present worth of arithmetic gradient) if G=100, n=21 years, and i= 20% per year?arrow_forward
- Suppose you have an investment offer that guarantees an average investment gain of $1,000 per year. (a) What is the average rate of change (in dollars per year) of this investment? $? per year (b) If the value of the investment today is $10,000, what will be the value (in dollars) of the investment in 2 years? $?arrow_forwardOver a 25 year an asset had an arithmetic return of 3.1% and a geometric return of 12.6%. Using blume's formula, what is the best estimate of the future annual returns over the next 10 years?arrow_forwardIn one year’s time, you plan to invest a certain sum of money that will grow to R100 000 ten years after making the investment. If you can obtain a rate of return of 11% per annum, what is the present value of the investment today (rounded to the nearest Rand)? a. R31 728 b. R35 600 c. R30 000 d. R35 218 e. R33 500arrow_forward
- If annual returns for an asset are normally distributed with a mean of 8% and a standard deviation of 20%, why is the probability of achieving an average compounded annual return of at least 8% over 10 years less than 50%?arrow_forwardAn investment of P100,000 is expected to yield a regular annual net income of P25,000 per year for 10 years. Determine the conventional benefit cost ratio using present worth with an interest rate of 10%? ANSWER: Blank 1 Blank 1 Add your answerarrow_forward11. Nominal and Real Returns An investment offers a total return of 12 percent over the coming year. Alex Hamilton thinks the total real return on this investment will be only 9 percent. What does Alex believe the inflation rate will be over the next year? 12. Nominal versus Real Returns Say you own an asset that had a total returnarrow_forward
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