In Problem 4, you investigated the length of time for an investment to double in value when interest is compounded annually. The Rule of 72 is a rule of thumb, often used by bankers and investors, that gives an easy way to estimate the doubling time of an exponentially growing quantity like an investment with a fixed annual rate that is compounded annually. If r% is the fixed annual that: growth rate of a quantity, the Rule of 72 tells you doubling time 72 a. Test the Rule of 72 by completing a copy of the table below for a $1,000 investment that grows at the indicated fixed rates compounded annually. Then check your estimates using the appropriate exponential model and base-10 logarithms for the first three estimates. Use NOW-NEXT reasoning

In Problem 4, you investigated the length of time for an investment to double in value when interest is compounded annually. The Rule of 72 is a rule of thumb, often used by bankers and investors, that gives an easy way to estimate the doubling time of an exponentially growing quantity like an investment with a fixed annual rate that is compounded annually. If r% is the fixed annual that: growth rate of a quantity, the Rule of 72 tells you doubling time 72 a. Test the Rule of 72 by completing a copy of the table below for a $1,000 investment that grows at the indicated fixed rates compounded annually. Then check your estimates using the appropriate exponential model and base-10 logarithms for the first three estimates. Use NOW-NEXT reasoning

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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If an investment of $2,000 grew to $2,520 in three periods, what is the interest rate at which the investment grew? Solve using both present and future value tables.
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The term structure of interest rates has been well documented over the years. The curve shows that as investment maturation increases in time, in other words, say from 1 year to 10 years until maturation, interest rates normally increase. In 1981 however, the term structure of interest rates showed a downward slope, not it's usual upward slope. In other words, the curve suggested that the further in the future we went interest rates would go down. What do you believe was the historical cause for this?
10
It is given that dP/dt = rP (r being the annually compounded interest rate and P is the amount in the account at any given time). Suppose that an account earns at an annual rate of r percent compounded continuously and a person is drawing an income of H dollars per year withdrawn continuously (impossible, but a modeling assumption). Use phase line analysis to analyze the behavior of the account. Discuss the meaning of any equilibrium points and their stability. If r = 10% (a reasonable rate for long-term stock investments), and H = $10,000, how long should an initial investment of $50,000 be left untouched so that when withdrawals begin the capital is not depleted?
4. Present value Finding a present value is the reverse of finding a future value. is the process of calculating the present value of a cash flow or a series of cash flows to be received in the future. Which of the following investments that pay will $19,000 in 14 years will have a higher price today? The security that earns an interest rate of 7.00%. The security that earns an interest rate of 10.50%. Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 9.60%. Assuming that both investments have equal risk and Eric’s investment time horizon is flexible, which of the following investment options will exhibit the lower price? An investment that matures in five years An investment that matures in six years Which of the following is true about present value calculations? Other things remaining equal, the present value of a…
After a 1 year investment you receive 7.5% interest (nominal) from your bank. However, looking at how prices have changed, you soon realize that the real rate of interest was actually 1.6%. How much was inflation during that year? Enter your answer as a percentage, rounded to 2 decimals, and without the percentage sign ('%'). For example, if your answer is 0.02345, then enter 2.35
Using the Rule of 72 concept please explain about how many years would it take to double your money if you found 3 banks that paid 3%, 6%, and 9% annual rate of return respectively?
In a few sentences, answer the following question as completely as you can. The notion that money has time value is based on the existence of a non–zero opportunity rate (i.e., a rate of return at which it is possible to invest). Why is the opportunity rate so important? Construct an example that shows, with an opportunity rate of 0%, that the value of $1 received today will be $1 in the future.
Optimizing economic agents use the real interest rate when thinking about the economic costs and returns of a loan. Suppose the average rate paid by banks on savings accounts is 0.45% at a time when infialion is around 0 9% For the average saver, the real rate of interest on his or her savings is % (Round your response to two decimal places and use a minus sign if necessay.) Il banks expect that the rate of inflation in the coming year will be 3.9% and they want a real return of 8% on a certain category of loans, then the nominal rate they should charge borrowers on those loans is %. (Round your response to two decimal places) 11 the economy experiences an unexpectedly high rate of inflation, the group that would tend to benefit is O A. creditors (people or institutions that are owed money). O B. deblors (pcople or businesses who owe moncy). OC. both would benefit cgqually O D. neilher bencfits.
Personal finance advisors sometimes use the "Rule of 72" to estimate how long it will take for an investment to double if it earns a certain percent per year. The Rule of 72 says that the amount of time for an investment to double, in years, can be estiimated by taking the number 72 and dividing by the percent it earns per year. For example, if an investment earns 2% per year, 72 then it will take 2 36 years to double the investment. Suppose an investment earns 3% per year. It starts with $7200 in the account in 2012. In what year will the investment be expected to double?

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