12. Pam promises to pay Sandy $4,000 in year 4 and another $6,000 in year 8 for a loan of $4,000 from Sandy today. What is the ROR (Rate of Return) that Sandy is getting? Assume interest is compounded monthly.

For Sandy the cost = 4,000. It can also be said to be her initial cash outflow. Sandy's benefits or later cash inflows are 4,000 in year 4 and 6,000 in year 8. We can say that present worth of cost = present worth of benefits Now as compounding is monthly 4 years = 4*12 = 48 months and 8 years = 8*12 = 96 months Hence 4,000 = 4,000*(P/F, i, 48) + 6,000 * (P/F, i, 96) We also know that P/F = 1/(1+i)^n Hence 4,000 = 4,000/(1+i)^48 + 6,000/(1+i)^n We can now solve the above equation using the goal seek function in solver. The setting up of that can be seen in the image below:The goal seek function in excel gives a value of i = 0.0125872 (or 1.26%) This is the monthly rate. Thus the annual rate is = 0.0125872 * 12 = 15.10% Thus the monthly rate is 1.26% The annual rate of return is 15.10%

Answered: 12. Pam promises to pay Sandy $4,000 in…

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12. Pam promises to pay Sandy $4,000 in year 4 and another $6,000 in year 8 for a loan of $4,000 from Sandy today. What is the ROR that Sandy is getting? Assume interest is compounded monthly

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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Emma plans to loan $1,000 to her friend, who will pay a simple interest rate of 5.8% every year for the loan. If no payments are made and no further borrowing occurs between them for 13 years, then how much money will Emma' s friend owe her? $1,061.36 $1,754.00 $2,081.20 $158.00 Now, assume that Emma's friend volunteers to pay compound interest instead of simple interest for her loan. If interest is accrued at 5.8% compounded annually, all other things being equal, how much money will Emma's friend owe her in 13 years? $2,081.20 $1,058.00 $120.71 $ 1,754.00 Emma has another investment option in the market that pays 5.8% nominal interest, but it's compounded quarterly. Keeping everything else constant, how much money will Emma have in 13 years if she invests $1,000 in this fund? $158.00 $129.72 $2,114.01 $1,059.27
Please show full steps along with concept.
Please help with e and f
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