4. Frontier Airlines hedged the cost of the jet fuel by purchasing options that allowed the airline to buy fuel at a fixed price for 2 years. The savings in fuel costs were $140,000 in month 1, $141,000 in month 2, and amounts increasing by 1% per month through the 2-year option period. What was the present worth of the savings at an interest rate of 18% per year, compounded monthly?

4. Frontier Airlines hedged the cost of the jet fuel by purchasing options that allowed the airline to buy fuel at a fixed price for 2 years. The savings in fuel costs were $140,000 in month 1, $141,000 in month 2, and amounts increasing by 1% per month through the 2-year option period. What was the present worth of the savings at an interest rate of 18% per year, 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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Jackson wants to buy a Corolla Cross 1.8 Hybrid by means of a financing plan. The price is R481 700. GL Finance, a vehicle finance company, will finance 70% of the purchase price over a period of three years at a nominal interest rate of 14% per year (NACM). Instalments are payable in advance. What is the monthly instalment (Report answer in absolute terms)?
Consider a firm A that wishes to acquire an equipment. The equipment is expected to reduce costs by $5700 per year. The equipment costs $29000 and has a useful life of 7 years. If the firm buys the equipment, they will depreciate it straight-line to zero over 7 years and dispose of it for nothing. They can lease it for 7 years with an annual lease payment of $8000. If the after-tax interest rate on secured debt issued by company A is 7% and tax rate is 25%, what is the Net Advantage to Leasing (NAL)?(keep two decimal places) Answer: -18233.59
a. Renting a machine will need monthly payments of $6,000 for the next 5 years (i.e., at t = 1, 2, …, 60). However,if we choose to buy the machine today,which is (t = 0) will cost $320,000. Assume the machine's value is zero after 5 years. It is possible to borrow and lend at a semi-annually compounded interest rate of 6% (APR). Would it be better to buy or to lease? Explain. b.We are currently at year 0. It is worthy to note that there is a perpetuity that pays $250 at the end of each odd year and $150 at the end of each even year. The term structure is flat at 10% per year. Evaluate the present value of this perpetuity. c.Assume the CAPM is valid.The return on asset ABC is perfectly correlated with the return on market portfolio. Your friend makes the following statetment: a portfolio that had a dollar invested and at the same time,shorting one dollar of the market portfolio will have no systematic risk. Comment on this and whether it is feasible.
3) You are purchasing a car and have the option to pay $25,000 in cash (upfront) OR assume a lease with end of the month payments of $399 for five years. By purchasing, you will receive an estimated residual value (or scrap value) by selling the car for $2,500 at the end of the 5 years. If interest is 2.7% compounded annually, which financing option would you prefer? (16.1 DCF)
Use Table 12-2 to solve. Analysts at Sky West Airlines did a 3 year projection of expenses. They calculated that the company will need $15,200 at the beginning of each 6 month period to buy fuel, oil, lube, and parts for aircraft operations and maintenance. Sky West can get 4% interest compounded semiannually from its bank. How much (in $) should Sky West deposit now to support the next 3 years of operations and maintenance expenses? (Round your answer to the nearest cent.) $
When purchasing a $100,000 house, a borrower is comparing two loan alternatives. The first loan is an 80% loan at 4% with monthly payments of $591.75 for 15 years. The second loan is 90% loan at 5% with monthly payments of $526.13 over 25 years. What is the incremental cost of borrowing the extra money assuming the loan will be held for the full term? O 6.50% O 13.21% O 7.20% O 13.70%
An asset was issued 11 months ago. The asset promised to make semi-annual payments (one payment every six months) of $80 each, from the date of issuance, for two years. All payments are equally risky and thus they have the same discount rate. You've decided that the discount rate is 12%. According to these numbers, how much is the asset worth to you today? Round your answer to the NEAREST DOLLAR.

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