James loves buying antique and sells it out someday. He loves so because he believes that it will give him more wealth. But James wants to maximize his profit by any mean. Given an antique that costs $2,000,000, and it inflates 6%, the bank rate is 12%, loan period is 20 years, payments and rates are considered annually. James has two plans: (i) He borrows $2,000,000 to buy the antique. (ii) Instead of buying the antique, James would use the annual payment to do investment in the stock market. Suppose it gives 12% annual return. Which plan will James choose if he wants to maximize his wealth after 20 years?
James loves buying antique and sells it out someday. He loves so because he believes that it will give him more wealth. But James wants to maximize his profit by any mean. Given an antique that costs $2,000,000, and it inflates 6%, the bank rate is 12%, loan period is 20 years, payments and rates are considered annually. James has two plans: (i) He borrows $2,000,000 to buy the antique. (ii) Instead of buying the antique, James would use the annual payment to do investment in the stock market. Suppose it gives 12% annual return. Which plan will James choose if he wants to maximize his wealth after 20 years?
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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James loves buying antique and sells it out someday. He loves so because he
believes that it will give him more wealth. But James wants to maximize his
profit by any mean. Given an antique that costs $2,000,000, and it inflates 6%,
the bank rate is 12%, loan period is 20 years, payments and rates are considered
annually. James has two plans:
(i)
He borrows $2,000,000 to buy the antique.
(ii)
Instead of buying the antique, James would use the annual payment to
do investment in the stock market. Suppose it gives 12% annual return.
Which plan will James choose if he wants to maximize his wealth after 20
years?
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