a. If starting at t≥ 1, increasing t by one year multiplies the present value by b. Set the initial deposit to $10k, the annual interest rate to 5%, and years to compound to 10. Increasing the present value from $10k to $12k will increase the future value in 10 years by: $ LA a larger present value an additional 1+r 1+r r

a. If starting at t≥ 1, increasing t by one year multiplies the present value by b. Set the initial deposit to $10k, the annual interest rate to 5%, and years to compound to 10. Increasing the present value from $10k to $12k will increase the future value in 10 years by: $ LA a larger present value an additional 1+r 1+r r

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

See similar textbooks

Similar questions

Suppose you inherit $100,000 at age 25 and immediately invested in a growth fund who’s annual rate of return average is 13%. Five years later, you transfer all proceeds from the scrubs fun into a long-term IRA that pays an average annual rate of 8%. Immediately you start making additional contributions of $7000 per year to the same IRA. Assuming continuous interest, steady interest rates, and a perfect record of making annualcontributions, how much is this IRA worth when you reach the age of 65? The formula that will need to be used is A = P e^r*t + D/r (e^r*t - 1). Hint: use the continuous interest formula to find the accumulated amount for the first five years, which is then the annual investment, P, into the IRA.
In this problem: How much is the present value of monthly deposits of 500 in 8 years if the interest rate is 8% compounded monthly? What is the value of n that you will use in the formula?
b. Suppose that you are given two options to choose. Offer A offers you a monthly payment of $10,000 per year for 10 years (paid annually at the beginning of each year) or a lump sum of $x now. Determine the minimum value of x that would induce you to accept the lump sum given the current market interest rate of 5%.
Determine the present value, P, you must invest to have the future value, A, at simple interest rate r after time t. Round answer to the nearest dollar. A=$5,000, r=8.2%, t=5 years
4) Someone invests a constant stream of $1,000 per year at a continuously compounding interest rate of 8%. What is the present value of this stream id it continues for 10 years. Round your answer to the nearest dollar. C
Suppose you wish to have $17,250 in 5 years. Use the present value formula to find how much you should invest now at 5% interest, compounded semiannually in order to have $17,250, 5 years from now. Then calculate the amount of interest. O $3,774.33 $4,312.50 $12,937.50 $13,475.67
Calculate the present values at t = 0 (now) of the following cash flows: j. The first cash flow at t = 1 is $100. Every year thereafter, the payment increases by 3% over the previous year’s payment. This continues for 9 years past the first payment (for a total of 10 payments). What is the present value of this growing annuity if the effective annual discount rate is .02 (2%)? k. $50 every year and a half forever, with the first payment after 1.5 years, where the effective annual rate is .05 (i.e., 5%).
Determine the present value P you must invest to have the future value A at simple interest rate r after time t. A = $14,000, r = 7.5%, t = 8 years
Present Value of Amounts Due Assume that you are going to receive $380,000 in 10 years. The current market rate of interest is 11%. a. Using the present value of $1 table in Exhibit 5, determine the present value of this amount compounded annually. Round to the nearest whole dollar. $ b. Why is the present value less than the $380,000 to be received in the future? The present value is less due to over the 10 years.
Consider a five-year annuity, with an annual cash flow of $2,500 and a 2.5% rate of discount/yield. If the maturity is raised to six years, all else the same, its price: decreases increases does not change
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
Now it's time to practice what you've learned. Consider a future value of $2,000, 9 years in the future. Assume that the nominal interest rate is 24.00%. Assume that there is semiannual compounding. Entering PMT=0 and a FV=$2,000 into a financial calculator, along with the appropriate periodic interest rate and value of N, yields a present value of approximately $ with semiannual compounding. Assume that there is quarterly compounding. Entering PMT=0 and a FV=$2,000 into a financial calculator, along with the appropriate periodic interest rate and value of N, yields a present value of approximately $ with quarterly compounding. Suppose now that the cash flow of $2,000 occurs only 1 year in the future. Assume that there is monthly compounding. Entering PMT=0 and a FV $2,000 into a financial calculator, along with the appropriate periodic interest rate and value of N, yields a present value of approximately $ with monthly compounding.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS