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
icon
Related questions
Question
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?
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?
Expert Solution
steps

Step by step

Solved in 5 steps with 2 images

Blurred answer
Knowledge Booster
Effective Annual Rate Of Return
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education