Instruction: Solve the following problems on a piece of paper. Show your solution. 1. A man buys a television set from a merchant who asks P1,250 at the end of 60 days (cash in 60 days). He wishes to pay immediately and the merchant offers to compute the cash price on the assumption that money is worth 8% simple interest. What is the cash price today? 2. An old boiler cost P2400 a year to maintain. What expenditures for a new boiler is justified if no maintenance will be required for the first 3 years, P600 per year for the next 7 years, and P2400 a year thereafter? Assume money to cost 4% compounded annually and no other costs to be considered. 3. To secure a return of 4%, at what price should a bond be purchased if it is redeemable at P1000 in 10 years and plays annual dividends of P35? 4. A man purchase government bonds at P750 each which mature in 10 years and have a face value of P1000 at the end of 10 years. Determine the average nominal interest rate earned by the purchase price of P750 assuming nominal compounding. 5. A businessman borrows from the bank an amount of P200,000 to be repaid at the end of 3 years by a single payment at a rate of interest of 12% compounded annually. If the rate of inflation is 7%, what is the real rate of return? 6. Because of the peso devaluation, a car costing P150,000 is to be purchased through a finance company instead of paying cash. If the buyer is required to pay P40,000 as downpayment and P4,000 each month for four years, what is the effective interest rate on the diminishing balance?
Instruction: Solve the following problems on a piece of paper. Show your solution. 1. A man buys a television set from a merchant who asks P1,250 at the end of 60 days (cash in 60 days). He wishes to pay immediately and the merchant offers to compute the cash price on the assumption that money is worth 8% simple interest. What is the cash price today? 2. An old boiler cost P2400 a year to maintain. What expenditures for a new boiler is justified if no maintenance will be required for the first 3 years, P600 per year for the next 7 years, and P2400 a year thereafter? Assume money to cost 4% compounded annually and no other costs to be considered. 3. To secure a return of 4%, at what price should a bond be purchased if it is redeemable at P1000 in 10 years and plays annual dividends of P35? 4. A man purchase government bonds at P750 each which mature in 10 years and have a face value of P1000 at the end of 10 years. Determine the average nominal interest rate earned by the purchase price of P750 assuming nominal compounding. 5. A businessman borrows from the bank an amount of P200,000 to be repaid at the end of 3 years by a single payment at a rate of interest of 12% compounded annually. If the rate of inflation is 7%, what is the real rate of return? 6. Because of the peso devaluation, a car costing P150,000 is to be purchased through a finance company instead of paying cash. If the buyer is required to pay P40,000 as downpayment and P4,000 each month for four years, what is the effective interest rate on the diminishing balance?
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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Answer #6 step by step with olution thank you
Transcribed Image Text:Instruction: Solve the following problems on a piece of paper. Show your solution.
1. A man buys a television set from a merchant who asks P1,250 at the end of 60 days (cash in
60 days). He wishes to pay immediately and the merchant offers to compute the cash price on
the assumption that money is worth 8% simple interest, What is the cash price today?
2. An old boiler cost P2400 a year to maintain. What expenditures for a new boiler is justified if
no maintenance will be required for the first 3 years, P600 per year for the next 7 years, and
P2400 a year thereafter? Assume money to cost 4% compounded annually and no other costs
to be considered.
3. To secure a return of 4%, at what price should a bond be purchased if it is redeemable at
P1000 in 10 years and plays annual dividends of P35?
4. A man purchase government bonds at P750 each which mature in 10 years and have a face
value of P1000 at the end of 10 years. Determine the average nominal interest rate earned by
the purchase price of P750 assuming nominal compounding.
5. A businessman borrows from the bank an amount of P200,000 to be repaid at the end of 3
years by a single payment at a rate of interest of 12% compounded annually. If the rate of
inflation is 7%, what is the real rate of return?
6. Because of the peso devaluation, a car costing P150,000 is to be purchased through a finance
company instead of paying cash. If the buyer is required to pay P40,000 as downpayment and
P4,000 each month for four years, what is the effective interest rate on the diminishing
balance?
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