4. Solve problem 3, assuming that 50% of theinitial investment is borrowed at an annualinterest rate of 8% to be paid back in threeequal installments.Good investmentO Not a good investment 3. A project requires an initial investment of$1,000,000 and generates annual income of$300,000 for the next 4 years with a salvagevalue of $200,000. At MARR of 10% determineif this is a good investment. Use MACRS withthe depreciation life of 3 years. Effective taxrate is 40%. Use PW.Not a good investmentO Good investment

PW method: It is the method that is utilized to compare mutually exclusive alternatives that have…

Answered: 4. Solve problem 3, assuming that 50%…

4. Solve problem 3, assuming that 50% of the initial investment is borrowed at an annual interest rate of 8% to be paid back in three equal installments.

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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2. A payment of £30 will be made in 10 years. The annual effective interest rate is 7 % p.a. Compute the convexity of this payment
3. *A savings plan requires an investor to pay 10 installments, each one of $500, due at the end of every year for 10 years. One year after the last of such installments the bank will start making annual payments to the investor, each one for a fixed amount P, for n years. Assume an effective interest rate of 5% p.a. (a) If n = 7 determine the value of P. (b) If n = ∞o, i.e. payments from the bank continue indefinitely, determine the value of P.
Example 2.14: Calculating the present value of an annuity due at 12% An investor wants to buy an annuity of R100 for the next three years, each instalment being paid at the beginning of the year. If a bank is prepared to pay interest at 12%, how much must be invested today? It can be seen that the amount will be invested and the first instalment will immediately be repaid. It can be illustrated as shown in Table 2.6. value of an annuity due at 12%
Task: Assume that at time 0 a sum L is lent for a series of n yearly payments. The rth payment, of amount x, is due at the end of the rth year. Let the effective annual interest rate for the rth year be i,. Give an identity which expresses L in terms of the x, and i,. Answer: The identity is [ Select ] [ Select ] L = x_1 (1+i_1)^(-1) + x_2 (1+i_1)^(-1) (1+i_2)^(-2) + .. + x_n (1+i_1)^(-1) (1+i_2)^(-2) ... (1+i_n)^(-n) L = x_1 (1+i_1) + x_2 (1+i_1) (1+i_2) + ... + x_n (1+i_1) (1+i_2) ... (1+i_n) L = x_1 (1+i_1)^(-1) + x_2 (1+i_1)^(-1) (1+i_2)^(-1) + .. + x_n (1+i_1)^(-1) (1+i_2)^(-1) ... (1+i_n)^(-1) Question 3 L = x_1 (1+i_1) + x_2 (1+i_1) (1+i_2)^2 + ... + x_n (1+i_1) (1+i_2)^2 ... (1+i_n)^n
V5.
Which of the following statements is CORRECT? Question 2 options: a) The proportion of the payment that goes toward interest on a fully amortized loan increases over time. b) An investment that has a nomiral rate of 6% with semiannual payments will have an effective rate that is smaller than 6%. c) If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different. d) The present value of a 3-year, $150 ordinary annuity will exceed the present value of a 3-year, $150 annuity due. e) if a loan has a nominal annual rate of 7%, then the effective rate will never be less than 7%.
Consider a loan of 1,000,000 which is to be amortized by 60 monthly payments. The interest rate is 10% converted monthly. Construct the first 5 rows (t=0 to t=4) of the amortization schedule
ch 3. A fully amortizing mortgage is made for $100,000 at 6.5% interest. If the monthly payments are $1000 per month, then when will the loan be repaid? 4. A partially amortizing mortgage loan is made for $60,000 for a term of 10 years. The borrower and lender agree that a balance of $20,000 will remain and be repaid as a lump sum at that a. If the interest rate is 7%, what must monthly payments be over the 10 year term? b. If the borrower chooses to repay the loan after five years instead of at the end of year 10, then what will the loan balance be at the end of year 5? 5. A fully amortizing CAM loan is made for $125,000 at 11 percent interest for 20 years. a. What will be the monthly payments and remaining loan balances for the first six months? b. c. What would monthly payments be if the loan were CPM instead? If both loans (the CAM and CPM) are repaid at the end of year 5, would the lender earn a higher rate of interest on either loan? Which one and why? Use Excel. 6. A $100,000…
Construct an amortization schedule for a £2,000 loan that has a 10% annual interest rate that is repaid in three equal installments.
4. If you deposit $1000 in one year, $2000 in two years, and $3000 in three years, how much will you have in three years? Assume a 7 percent annum interest rate. NPV FV
(Ch 11 #9) There is a loan obligation to pay $1000 one year from today and another $1000 two years from today. Assuming the annual effective rate of interest is 10%, find the following: a) Macaulay duration of the loan. b) Modified duration of the loan. c) Convexity of the loan.
Question 3 (1 point) An investment is expected to result in equal payments of $ 14300.00 at the end of each semi-annual period for the next 6 years (ordinary annuity). Compounding: 2 times per year. If the appropriate required rate of return (discount rate) is 12 %, what is the present value of the annuity stream?

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