Unit 06 · Homework

Homework — Time Value of Money

Time Value of Money · Kenya · KSh

One required question per video, turned in to the TAs. The optional extras are on the practice problems page.

Homework for Week 6. Each set belongs to the video of the same number. One question in each set is required; answer it and turn it in to the TAs. The rest are optional practice, and worked answers to those are published alongside the set. A full set takes about twenty minutes. Work them before the case session.

Homework · 6.1

1. You are offered KSh 100,000 today or KSh 108,000 in one year. Treasury bills yield 10% and inflation is 5.5%. Which do you take, and why?

Homework · 6.2

1. Compute the future value of KSh 250,000 invested for 7 years at 9%.

Homework · 6.3

1. A project costs KSh 800,000 today and returns KSh 250,000, KSh 300,000, KSh 300,000, and KSh 200,000 over the next four years. At a 14% discount rate, compute the NPV and state your recommendation.

Homework · 6.4

1. A commercial property produces net rent of KSh 2.4M a year, expected to grow at 4% a year indefinitely. At a 13% required return, what is it worth? Recompute at 3% growth and at 5% growth, and comment on the spread.

Homework · 6.5

1. Briefly explain why a company's equity requires a higher return than its own debt, even though both are claims on the same set of assets.

Homework · 6.6

1. Rank these from lowest to highest required rate, with one sentence of justification each: (a) a 5-year Kenyan government bond; (b) a 20-year lease to a listed supermarket chain; (c) a new hotel in a town with no existing hotels; (d) a loan to a manufacturer with 20 years of trading history.