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Q1.
- MYOB will receive $538,971.43 now, after the discounted installment contract.
- The annual operating revenue after 5 years for MYOB will be $720,264,069.60
- MYOB would pick the loan option with the lowest EAR, which is option C 5.54% compounding daily @ 5.4%.
EAR- A: 5.58%
EAR- B: 5.57%
EAR- C: 5.54%
- Quarter payments are $12,699.93, the loan is amortized on monthly payments, with quarterly compounding of interest which is adjusted accordingly.
| Principal | 420,000 |
| Interest rate (monthly) - After Compounding Adjustment | 0.321% |
| Term (months) | 120 |
| Repayments per month: | 4,223 |
| Repayments per Quarter: | 12,699.93 |
- The Yield to Maturity on the bonds is 5.356%.
- The Coupon Payment is $35.
Q2.
Expected Return =YTM(Risk-Free Rate)+(Beta x Market Rate Premium)
Expected Return-MYOB = 1.9%+(0.36x6%)
Expected Return-HYPO = 1.9%+(-0.2x6%)
| Australian Bond-10yr-05/04/19 | 1.9% |
| Beta 5Y-MYOB | 0.36 |
| Hypothetical-Company-Beta | -0.2 |
| Market rate premium | 6% |
| Expected Return-MYOB | 4.06% |
| Expected Return-HYP | 0.70% |
b.
Weighted Average
Portfolio Return = (Return x Weightage) + (Return x Weightage)
Portfolio Return = (4.06%x 50%) + (0.70% x 50%)
Portfolio Beta= (Beta x Weightage) + (Beta x Weightage)
Portfolio Beta= (0.36x 50%) + (-0.2 x 50%)
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