11. (a) A man organizes to reimburse a $1,000 advance in 15 equivalent yearly portions. Interest is 4%. After his 10th instalment, he wishes to pay the equilibrium in a single amount. Accepting he can do this without an extra punishment premium, how much does he owe? (b) You are considering the purchase of a machine which will give you an annual return of $1,000 a year for 20 years. The return will be received uniformly and continuously over the years. How much can you pay for the machine and still obtain at least a 10 percent effective annual return on your investment in the machine?
11. (a) A man organizes to reimburse a $1,000 advance in 15 equivalent yearly portions. Interest is 4%. After his 10th instalment, he wishes to pay the equilibrium in a single amount. Accepting he can do this without an extra punishment premium, how much does he owe? (b) You are considering the purchase of a machine which will give you an annual return of $1,000 a year for 20 years. The return will be received uniformly and continuously over the years. How much can you pay for the machine and still obtain at least a 10 percent effective annual return on your investment in the machine?
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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Transcribed Image Text:11. (a) A man organizes to reimburse a $1,000 advance in 15 equivalent yearly portions.
Interest is 4%. After his 10th instalment, he wishes to pay the equilibrium in a single
amount. Accepting he can do this without an extra punishment premium, how much does
he owe?
(b) You are considering the purchase of a machine which will give you an annual return of
$1,000 a year for 20 years. The return will be received uniformly and continuously over the
years. How much can you pay for the machine and still obtain at least a 10 percent effective
annual return on your investment in the machine?
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