How much would you be willing to pay for this investment if you required a 8 percent rate of return? $ If the payments were received at the beginning of each year, what would you be willing to pay for this investment?
How much would you be willing to pay for this investment if you required a 8 percent rate of return? $ If the payments were received at the beginning of each year, what would you be willing to pay for this investment?
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
Mitchell Investments has offered you the following investment opportunity:
- $7,000 at the end of each year for the first 7 years, plus
- $6,000 at the end of each year from years 8 through 14, plus
- $3,000 at the end of each year from years 15 through 21.
Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest dollar.
-
How much would you be willing to pay for this investment if you required a 8 percent
rate of return ?
$ -
If the payments were received at the beginning of each year, what would you be willing to pay for this investment?
$
![### Educational Explanation of Time Value Formulas
#### Overview:
This Excel sheet demonstrates formulas related to the Time Value of Money, specifically focusing on the Present Value Interest Factor (PVIF) and the Present Value Interest Factor of Annuity (PVIFA).
#### Table II: Present Value Interest Factor (PVIF)
- **Formula**:
\[
\text{PVIF} = \frac{1}{(1+i)^n}
\]
- **Columns**:
- **Interest**: The interest rate denoted as \( i \).
- **Periods**: The number of periods denoted as \( n \).
- **Factor**: The result of the PVIF calculation. Currently set to "1".
#### Table IV: Present Value Interest Factor of Annuity (PVIFA)
- **Formula**:
\[
\text{PVIFA} = \frac{1 - \frac{1}{(1+i)^n}}{i}
\]
- **Columns**:
- **Interest**: The interest rate \( i \).
- **Periods**: The number of periods \( n \).
- **Num**: The numerator part of the formula.
- **Denom**: The denominator which is the interest rate \( i \).
- **Factor**: Shows "#DIV/0!" error indicating a division by zero, as the interest rate field is not populated.
### Notes:
1. **PVIF**: Helps in determining the current value of a sum that will be received in the future.
2. **PVIFA**: Useful for calculating the present value of a series of annuities.
3. **Data Entry**: Users must input the interest rate and the number of periods to calculate the factors accurately.
4. **Error Handling**: Ensure interest rate is not zero to avoid "#DIV/0!" errors in PVIFA calculations.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9ca15b92-a639-402e-aac1-d62856d44bb4%2F918b885e-3795-4f5d-b5e7-62158de2884d%2Fslsjfl8_processed.png&w=3840&q=75)
Transcribed Image Text:### Educational Explanation of Time Value Formulas
#### Overview:
This Excel sheet demonstrates formulas related to the Time Value of Money, specifically focusing on the Present Value Interest Factor (PVIF) and the Present Value Interest Factor of Annuity (PVIFA).
#### Table II: Present Value Interest Factor (PVIF)
- **Formula**:
\[
\text{PVIF} = \frac{1}{(1+i)^n}
\]
- **Columns**:
- **Interest**: The interest rate denoted as \( i \).
- **Periods**: The number of periods denoted as \( n \).
- **Factor**: The result of the PVIF calculation. Currently set to "1".
#### Table IV: Present Value Interest Factor of Annuity (PVIFA)
- **Formula**:
\[
\text{PVIFA} = \frac{1 - \frac{1}{(1+i)^n}}{i}
\]
- **Columns**:
- **Interest**: The interest rate \( i \).
- **Periods**: The number of periods \( n \).
- **Num**: The numerator part of the formula.
- **Denom**: The denominator which is the interest rate \( i \).
- **Factor**: Shows "#DIV/0!" error indicating a division by zero, as the interest rate field is not populated.
### Notes:
1. **PVIF**: Helps in determining the current value of a sum that will be received in the future.
2. **PVIFA**: Useful for calculating the present value of a series of annuities.
3. **Data Entry**: Users must input the interest rate and the number of periods to calculate the factors accurately.
4. **Error Handling**: Ensure interest rate is not zero to avoid "#DIV/0!" errors in PVIFA calculations.
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