(a)Consider the following two savings plans that you can make at the age of 21:• Option 1: Save RM3,000 a year for 10 years. At the end of 10 years, makeno further investments, but invest the total amount accumulated at the end of10 years until you reach the age of 65.• Option 2 : Do nothing for the initial 10 years, start saving RM3,600 a yearevery year thereafter until you reach the age of 65.If you were able to invest your money at 8% over the planning horizon, whichsaving option will you choose? Explain why?(b)Mr Jet Lee borrowed a personal loan of RM21,061.82 from May FinanceBhd to finance his education expenses studying at a local university. The loancarries an interest rate of 6% per year and is to be repaid in equal installmentsover the next five years. Assume that the money was borrowed at the beginningof the first year and that the first installment will be due a year later.(i)Calculate the amount of the annual installments.(ii) What is the amount of interest charged and the ending balance for the loanin the second year?(ii) Mr. Jet Lee successfully negotiate with May Finance Bhd to defer payingfor the first loan installment until the end of year two but he will still makefive equal installments at 6% interest.What will be the new amount of annual installments?

Due to power of compounding the future value of money increases very much over a longer period of…

(a) Consider the following two savings plans that you can make at the age of 21: Option 1: Save RM3,000 a year for 10 years. At the end of 10 years, make no further investments, but invest the total amount accumulated at the end of 10 years until you reach the age of 65. Option 2: Do nothing for the initial 10 years, start saving RM3,600 a year every year thereafter until you reach the age of 65. If you were able to invest your money at 8% over the planning horizon, which saving option will you choose? Explain why?

(a) Consider the following two savings plans that you can make at the age of 21: Option 1: Save RM3,000 a year for 10 years. At the end of 10 years, make no further investments, but invest the total amount accumulated at the end of 10 years until you reach the age of 65. Option 2: Do nothing for the initial 10 years, start saving RM3,600 a year every year thereafter until you reach the age of 65. If you were able to invest your money at 8% over the planning horizon, which saving option will you choose? Explain why?

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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You are considering two investment options. In option A, you have to invest $4,500 now and $700 three years from now. In option B, you have to invest $3,700 now, $1,900 a year from now, and $900 three years from now. In both options, you will receive four annual payments of $1,800 each. (You will get the first payment a year from now.) Which of these options would you choose based on (a) the conventional payback criterion, and (b) the present worth criterion, assuming 8% interest? Assume that all cash flows occur at the end of a year. Click the icon to view the interest factors for discrete compounding when i = 8% per year. ..... (a) The conventional payback period for option A is 3 years. (Round to the nearest whole number place.) The conventional payback period for option B is 4 years. (Round to the nearest whole number place.) Which of these options would you choose based on the conventional payback criterion? Choose the correct answer below. O A. Option B O B. Both options are…
A new investment opportunity for you is an annuity that pays $560 at the beginning of each year for 3 years. You could earn 5.4% on your money in other investments with equal risk. What is the most you should pay for the annuity? Group of answer choices $1,595.40 $1,756.86 $1,517.12 $1,442.76 $1,696.61
4) Retirement: You have just retired from your company after working for twenty years. Your company provides a retirement package and gives you the option of i) receiving $250,000 today, or ii) receiving $350,000 in five years (T=5). What option would you select if the interest rate is R=5%? What option would you select if the interest rate is R=10%? What interest rate would make the present value of both options equal? (Hint: use Excel’s Data-What If - Goal Seek to solve for the interest rate T).
2. Your parents are planning to give you a lump sum amount. They can give you P20,000 now, or P25,000 two years from now. If you can put your money in an investment that gives you a rate of return of 7% annually and computes interest semi- annually, which option would you choose? Explain.
Aa.37.
Use the savings plan formula to answer the following question. You put $300 per month in an investment plan that pays an APR of 4.5%. How much money will you have after 28 years? Compare this amount to the total deposits made over the time period. After 28 years the investment plan will contain S (Do not round until the final answer. Then round to the nearest cent as needed.) The total deposits made over the time period is $ (Type a whole number.)
Suppose you are offered the alternative of receiving either $3,000 at the end of 8 years or $2,000 today. What interest would make you indifferent to your choice between $2,000 and the promise of $3,000 at the end of eight years?
Based on the framework in the previous two problems, you have found that you need to have a total of $1,529,499 in savings at the time you retire, in 40 years. You currently only have $28,118 saved up in your retirement accounts. If you anticipate that your 80/20 investment portfolio will return an average of 8.31% per year, how much extra must you save every year to reach your goal? Assume that you'll be saving the extra amount by the end of each year.
You have an investment account that started with $3,000 10 years ago and which now has grown to $8,000. a. What annual rate of return have you earned (you have made no additional contributions to the account)? b. If the savings bond earns 16% per year from now on, what will the account's value be 10 years from now?
You are considering two savings options. Both options offer a rate of return of 8.2 percent. The first option is to save $1,500, $1,500, and $2,000 at the end of each year for the next three years, respectively. The other option is to save one lump sum amount today. You want to have the same balance in your savings account at the end of the three years, regardless of the savings method you select. If you select the lump sum method, how much do you need to save today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
suppose you are given an option to invest in two annuity schemes scheme A and scheme B which of the options would you choose? scheme A scheme B Neither Both
It has been proposed that in order to retire with the same lifestyle you currently have, you will need to have at least 1.5 million dollars saved by retirement. How much would you have to invest right now in order to achieve your goal? Assume you can find an investment that pays 5.6% compounded monthly. You're current age is 30 and youwould like to retire in 35 years. 2. What interest rate would you need in order to reach this goal if you had $8000 to invest?

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