On this page, you can find the recording of the Exam Training for FIN [Finance]. Feel free to ask questions in the comment section below, we will answer them 🙂
Recording
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In question 32, Isnt the risk free rate of 4 percent only for the first project, why did we add it in the next project
The risk-free rate is the same for both projects. However, due to the higher risk in project two, we have to add an additional risk premium to the risk-free rate.
In question 27 why do we use the Re and not Wacc? How do we know that the cost of equity is the appropriate discount rate here and not any other discount rate?
As mentioned in the solution to this question, we talk about stock valuation. This means we talk about equity, especially if we use the dividend discount model. Therefore the return on equity is the appropriate discount rate to use.
For question 8, why do we include the transaction cost for buying a stock when we calculate for how much we can sell it? so why do we do 16/1.12. instead of 20/1.12?
Dear Aimee,
If you buy the stock, you have to pay the stock price as well as the transaction cost to receive the stock (so overall you pay 20+4), while when you sell it, you get the 20 but you also have to pay the transaction fee to make the trade (so overall 20-4).
I hope that makes more sense, otherwise, please let me know!
In question 8,they say if you buy you have to pay a transaction fee of 4$, but they don’t say to also take this into account when selling (like the crash course exercise). why is this included now?
Dear Leon,
If you buy the stock, you have to pay the stock price as well as the transaction cost to receive the stock (so overall you pay 20+4), while when you sell it, you get the 20 but you also have to pay the transaction fee to make the trade (so overall 20-4).
I hope that makes more sense, otherwise, please let me know!
only the buyer is paying the transaction cost and the seller just receive the 20
it make no sense that he is making more money because of the transaction cost.
right?
hi 🙂
Transaction costs normally work like that! They result in sellers receiving less money and buyers paying more than the actual price of the goods or services being exchanged.