Live Forever Life Insurance Company is selling a perpetuity contract that pays $1,550monthly. The contract currently sells for $116,000.a. What is the monthly return on this investment vehicle? (Do not round intermediatecalculations and enter your answer as a percent rounded to 2 decimal places, e.g.,32.16.)b. What is the APR? (Do not round intermediate calculations and enter your answer asa percent rounded to 2 decimal places, e.g., 32.16.)c. What is the effective annual return? (Do not round intermediate calculations andenter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)a. Monthly returnb. APRc. EAR%%%

The effective annual interest rate is a crucial concept in finance that is used to describe the true…

Answered: a. What is the monthly return on this…

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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The principal of the time value of money is probably the single most important concept in financial management. One of the most frequently encountered applications involves the calculation of a future value. The process for converting present values into future values is called four time-value-of-money variables. Which of the following is not one of these variables? O The present value (PV) of the amount invested O The inflation rate indicating the change in average prices O The duration of the investment (N) O The interest rate (I) that could be earned by invested funds This process requires knowledge of the values of three of All other things being equal, the numerical difference between a present and a future value corresponds to the amount of interest earned during the deposit or investment period. Each line on the following graph corresponds to an interest rate: 0%, 8%, or 16%. Identify the interest rate that corresponds with each line.
Which of the following methods should be used when the expected benefits to be received from an asset will decline each period? a. Straight-line b. Units-of-production c. Sum-of-the-years'-digits d. Compound-interest
Financial assets management decision-making often involves determination of the Present Value (PV) of the flow of money over time. If a monetary PV is given by: PV = Gt/(1+m)t (i) Identify and explain each of the variables: G, m, and t. (ii) Explain how an increase in m would impact the PV of this financial asset. (iii) Find how much would be required to generate a PV of 890, over a 5 years period, at a constant annual interest rate of 4 percent.
What is the NPV of the following cash flows if the required rate of return is 0.13? Year 0 1 2 3 4 CF -3,241 2,952 1,242 3,310 1,616 Enter the answer with 2 decimals (e.g. 1000.23).
Consider that you have $4,332,989 to invest across three assets using the price weighted methodology. Your analysis of these assets has provided the information in the two tables below. (Note: numbers in red are negative) Asset Price at beginning of the year (in $) Expected price at the end of the year (in $) Standard deviation (%) Correlation A B C A 1.00 0.84 0.78 c. In dollars and cents, what is the expected value of this portfolio after 12 months? d. What is the standard deviation of this portfolio, in percentage terms? A B 155.55 137.22 182.22 164.77 42.11 Required a. What is the expected compound annual growth rate of return for this portfolio, in percentage terms? b. What is the expected continuously compounded return on this portfolio in percentage terms? B 0.84 1.00 0.44 41.50 с 0.78 0.44 1.00 C 88.14 104.12 42.33
Consider an investment where the cash flows are: – $946.21 at time t = 0 (negative since this is your initial investment) $377 at time t = 1 in years $204 at time t = 2 in years $499 at time t = 3 in years (a) Use Excel's "Solver" to find the internal rate of return (IRR) of this investment. Take a screen shot showing Solver open with your entries for the function clearly visible. Paste the screen shot into an application (like Paint), and save it as a (.png) file. Upload your screenshot below. (b) What is the value of IRR found by Solver?
The future value of an investment increases as the number of periods increases True or Fase
PV = Cash Flow/Interest Rate is the present value shortcut formula for which of the following: * A perpetuity A single cash flow in the future A growing perpetuity An annuity
Calculate the APR of the following investment, entered as a percentage (Example: if your answer is 14.5%, enter 14.5 and not 0.145) Year Number Cashflow 0 -11000 1 3000 2 3500 3 2900 4 2800
Find the internal rate of return (IRR) for the following cash flows. Enter your answer as a percent and include at least two decimal points, e.g., 8.35 for 8.35 %, not 0.08. Year Cash Flow 0 750 1 200 2 375 3 250 4 100 5 75
H1. Account
Consider two assets with the following cash flow streams: Asset A generates $4 at t=1, $3 at t=2, and $10 at t=3. Asset B generates $2 at t=1, $X at t=2, and $10 at t=3. Suppose X=6 and the interest rate r is constant. For r=0.1, calculate the present value of the two assets. Determine the set of all interest rates {r} such that asset A is more valuable than asset Draw the present value of the assets as a function of the interest rate. Suppose r=0.2. Find the value X such that the present value of asset B is 12. Suppose the (one-period) interest rates are variable and given as follows: r01=0.1,r12=0.2, r23=0.3. Calculate the yield to maturity of asset A. (You can use Excel or ascientific calculator to find the solution numerically.)

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