e. Apays o pedallyay per year basis).6.32 Effective annual interest rate: You are considering three alternative investments: (1) athree-year bank CD paying 7.5 percent compounded quarterly; (2) a three-year bank CD paying7.3 percent compounded monthly; and (3) a three-year bank CD paying 7.75 percent compoundedannually. Which investment has the highest effective annual interest rate (EAR)?Advanced6.33 You have been offered the opportunity to invest in a project which that is expected to provideVOUJwith the following 000Elowe: CA 000 inOvoor ¢13 000 in two voond C o o00 in three

EAR is the effective annual rate that is the real rate of return that is earned on a particular…

Answered: 6.32 Effective annual interest rate:…

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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Suppose you just bought an annuity with 10 annual payments of $16,500 at a discount rate of 13.75 percent per year. a. What is the value of the investment at the current interest rate of 13.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What happens to the value of your investment if interest rates suddenly drop to 8.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What happens to the value of your investment if interest rates suddenly rise to 18.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
Problem 6. Including loan The following investment alternatives are being evaluated. Assuming that there is only $30,000 available and the surplus will be acquired through a loan at 5.5% annual effective interest payable in annual payments over 4 years. Determine which alternative should be selected. Perform the analysis using the Present Value, Equivalent Annuity and IRR Methods. Use a MARR = 7% Year A B 0 -25000 -46000 1 7460 16640 2 7460 16640 3 7460 16640 4 6500 12600 5 6000 10600
Problem 1: You can choose between two different investments: (A) an annuity that pays $10,000 each year for the next 6 years; (B) a perpetuity that pays $10,000 forever, starting 11 years from now. 1. Which investment do you choose, A or B, if the interest rate is 5%? What if it is 10%? Explain in words the reason behind your choices.
Suppose that an investment promises to pay a real 9% annual rate of interest and inflation rate is 3%. What is the effective annual interest rate on this investment assuming that interest is compounded quarterly?
(Present value of an uneven stream of payments) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows: Investment B A $ 1,000 2,000 3,000 (4,000) 1,000 4,000 3,000 (Click on the icon in order to copy its contents into a spreadsheet.) What is the present value of each of these three investments if the appropriate discount rate is 9 percent? $ End of Year 1 SA NM CO 2 3 4 5 $ 1,000 1,000 1,000 C $ 5,000 a. What is the present value of investment A at an annual discount rate of 9 percent? (Round to the nearest cent.) b. What is the present value of investment B at an annual discount rate of 9 percent? (Round to the nearest cent.) c. What is the present value of investment C at an annual discount rate of 9 percent? (Round to the nearest cent.) 5,000 (5,000) (5,000) 15.000
5. Present value of annuities and annuity payments The present value of an annuity is the sum of the discounted value of all future cash flows. You have the opportunity to invest in several annuities. Which of the following 10-year annuities has the greatest present value (PV)? Assume that all annuities earn the same positive interest rate. An annuity that pays $500 at the beginning of every six months An annuity that pays $1,000 at the end of each year An annuity that pays $500 at the end of every six months An annuity that pays $1,000 at the beginning of each year You bought an annuity selling at $2,867.74 today that promises to make equal payments at the beginning of each year for the next twelve years (N). If the annuity's appropriate interest rate (1) remains at 9.50% during this time, then the value of the annual annuity payment (PMT) is $375.00 You just won the lottery. Congratulations! The jackpot is $35,000,000, paid in twelve equal annual payments. The first payment on the…
An investment will pay $21,600 at the end of the first year, $31,600 at the end of the second year, and $51,600 at the end of the third year. (FV of $1. PV of $1. EVA of $1, and PVA of $1) Note: Use the appropriate factor(s) from the tables provided. Required: Determine the present value of this investment using a 9 percent annual interest rate. Note: Round your intermediate calculations and final answer to nearest whole dollar. Present value of investment
Which of the given interest rates and compounding periods would provide the best investment? (a) 8 percent per year, compounded semiannually; (b) 8 percent per year, compounded quarterly; (c) 8 percent per year, compounded continuously. Your answer is (input a, b, or c)
For each of the following cases, indicate (a) what interest rate columns and (b) what number of periods you would refer to in looking up the future value factor. (1) In Table 1 (future value of 1): Number of Annual Rate Years Invested Compounded Case A 5% 5 Annually Case B 8% 6 Semiannually Case A Case B . (a) % % (2) In Table 2 (future value of an annuity of 1): Annual Rate Number of Years Invested Compounded Case A 6% 9 Annually Case B 8% 5 Semiannually Case A Case B (b) periods periods (a) (b) % periods % periods
What is the effective annual rate on an investment that pays an interest rate of 8.25% continuously?
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?
3.8 The following table shows the spot rates of interest over a number of horizons: (b) What is the effective rate of interest earned by this annuity-immediate if it were constant through the whole investment period? [Hint: Use the Excel function Rate to compute the rate of interest.] Period of investment (in years) Spot rate (in %) 1 6.00 2 7.00 3 7.75 4 8.25

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