3. Time Value of Money Assume that ten years from now, you will need $10,000 and that your bank compounds interest at a 4 percent annual rate. A. How much do you need to deposit today in order to have a balance of $10,000 in 10 years? Explain and show your work. B. Suppose instead that you want to make equal payments in years 1 through 9 to accumulate $10,000 in year 10, how large must each of the 9 payments be? Explain. C. If your (very reliable) uncle were to offer to make the payments found in part (B) for you or to give you $7,000 one year from now, which would you choose?
3. Time Value of Money Assume that ten years from now, you will need $10,000 and that your bank compounds interest at a 4 percent annual rate. A. How much do you need to deposit today in order to have a balance of $10,000 in 10 years? Explain and show your work. B. Suppose instead that you want to make equal payments in years 1 through 9 to accumulate $10,000 in year 10, how large must each of the 9 payments be? Explain. C. If your (very reliable) uncle were to offer to make the payments found in part (B) for you or to give you $7,000 one year from now, which would you choose?
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
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Transcribed Image Text:3. Time Value of Money
Assume that ten years from now, you will need $10,000 and that your bank compounds
interest at a 4 percent annual rate.
A. How much do you need to deposit today in order to have a balance of $10,000 in
10 years? Explain and show your work.
B. Suppose instead that you want to make equal payments in years 1 through 9 to
accumulate $10,000 in year 10, how large must each of the 9 payments be?
Explain.
C. If your (very reliable) uncle were to offer to make the payments found in part (B)
for you or to give you $7,000 one year from now, which would you choose?
Explain. (Even if you could not solve for the answer in part B, please explain
what criterion you would use to make the choice.)4. Capital Asset Pricing Model
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