1. If the interest rate is 8% per year, what decision would you make based on the decision tree diagram in Figure below. (0.6) Introduce New Product $200,000 profit per year for six years, starting at ΕΟΥ3 -$1,000,000 at ΕΟΥ2 (0.4) $280,000 profit per year for six years, starting at EOY 3 $0 profit/yr. for 8 years Do Nothing

1. If the interest rate is 8% per year, what decision would you make based on the decision tree diagram in Figure below. (0.6) Introduce New Product $200,000 profit per year for six years, starting at ΕΟΥ3 -$1,000,000 at ΕΟΥ2 (0.4) $280,000 profit per year for six years, starting at EOY 3 $0 profit/yr. for 8 years Do Nothing

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

Using the Rule of 72, approximately how many years are needed to double a $100 investment when interest rates are 5.25 percent per year? (Round your answer to 2 declmal places.) Period years < Prev o of 10 e here to search Eゴ ( F4 F5 F7 F10 F11 F12 76 #
j. Find the PV and the FV of an investment that makes the following end-of-year payments. The interest rate is 10%. Payment $100 $300 $500 Year 1 2 3 Round your answers to the nearest cent. PV of investment: $ FV of investment: $
5. If you have an initial investment of $5,500 that you would like to grow to $12,000 over the next 7 years, then what interest rate do you need to achieve this goal assuming annual compounding? Show your work (at least the problem set up before entering numbers into calculator)
2. Effective Annual Yield (EAY) and Effective Annual Rate (EAR) A. You plan to invest $10,000 for one year and you have the opportunity to invest it at a 12 percent APR, compounded monthly. Alternatively, you could invest the funds at an annual rate of 12.25 percent compounded semiannually. What is the EAY of each alternative? Which investment should be chosen? B. A car loan offered by Bank One requires quarterly payments and has an APR of 5.8 percent, whereas the same loan amount may be obtained from Bank Two at an APR of 6 percent with monthly payments. Which loan would you ch0oose and why?
A company has two investment opportunities. Alternative 1 (Alt. 1) pays $10,000 (inflow) two years from now, and $20,000 (inflow) four years from now. Alternative 2 (Alt. 2) pays $6,500 (inflow) at the end of every year for five years. Interest is 8.14% compounded annually. Which is the preferable alternative? Round the values for PV to the nearest cent. TWO YEARS P/Y C/Y N I/Y PV PMT FV $ Alt. 1 = $ % Alt. 2 = $ $ FOUR YEARS % GA SA FIVE YEARS Write the Discounted Cash Flow (DCF) for Alt. 1 and Alt. 2. Enter positive values for Alt. 1, and Alt. 2, rounded to the nearest dollar. % Choice Select an answer →
Q4. A business has two investment choices. Alternative A requires an immediate outlay of $2500 and offers a return of $7500 after 5 years. Alternative B requires an immediate outlay of $1850 and offers a return of $1500 at the end of every year for the next 5 years. If the rate of interest is 16 % compounded semiannually, which alternative is better ?(Hint: Use EAR or Effective Annual Rate ( use all decimal numbers) when using CF function) I
Q3. You borrow $5000 today. The loan is due in 5 years, with interest at ji = 7%. It is agreed that you can instead pay $1000 one year from now, $X two years from now and $2000 three years from now. If money is worth j4= 8%, what is the value of X?
Mike Derr Company expects to earn 6% per year on an investment that will pay $616,000 seven years from now. (PV of $1. FV of $1. PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round "Table Factor" to 4 decimal places.) Compute the present value of this investment. Future Value Table Factor Present Value
How much must be invested now at 6% interest in order to have $75,000 in ten years? TVM Tables link (will open in a new window) Select one: O a. $70,755 O b. $134,854 c. $43,268 O d. $39,509 e. $41,879
An investment offers $3,850 per year for 15 years, with the first payment occurring one year from now. a. If the required return is 6 percent, what is the value of the investment? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What would the value be if the payments occurred for 40 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What would the value be if the payments occurred for 75 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What would the value be if the payments occurred forever? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Present value of 15 annual payments b. Present value of 40 annual payments c. Present value of 75 annual payments d. Present value of annual payments forever
Suppose that you have the opportunity to receive $24,000 per year for the next 6 years. Over this time period, the APR is 7% per year. Interest is compounded on a monthly basis. How much are you willing to pay for this investment today? Round your answer to the nearest dollar. a. PVA = $113,739 b. PVA = $118,309 c. PVA = $117,309 d. PVA = $118,903
If you have $1,000,000 but you have to use it in the next 6 months. SPOT RATE 1S =30.50-31 B 6MTH SPOT RATE 15 = 32-33 B 6MTH FORWARD RATE 1$ -31.50-32 B Thai Interest Rate =3% US Interest Rate = 1% 2.1 What should you do to gain the profit? 2.2 What should be the 6' month spot rate?

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