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
Related questions
Question
Transcribed Image Text:I. Case Study:
One day, the Master was going on a trip and decided to entrust his wealth to three of his
most trusted servants. The wealth shall be given to each servant based on the Master's
assessment of their talents. To his first servant, he entrusted PHP500,000. To his second
servant, believing that he can make wise choices as well, he also gave an amount of
PHP500,000. Finally, he called on his third servant and gave him PHP500,000. The Master
then went on his journey and told the servants he will not be back for a long time. Since
the first servant was a very smart person, he decided to invest the PHP500,000 given to
him. He was very pleased that he was quoted a long-term investment for 5 years at 8%
per annum compounded annually, and decided to invest the money in that institution.
The second servant saw what the first servant did and also decided to invest the money.
However, when given the choice by the investment firm, he did not understand simple
and compound interest. In the end, he accepted the quote at 8% per annum simple
interest. The third servant saw them and thought that they were being too much of a risk-
taker and decided just to keep the money locked in a vault in his home. '
Which servant will make the Master most pleased? Support your answer with
computation.
Transcribed Image Text:4. Why does interest applicable to the succeeding period increase using a
compound interest assumption?
Educating the Minds, Cuttivating the Hearts
Page 20
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WEEK 4_Lesson 4
5. What is the general formula in getting the FVIF? The PVIF?
6. How do yOU use the FVIF table and PVIF table based on a given time period and
interest rate?
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