Mark is planning to buy a high-end laptap. The market price of the laptap is $2000. While making the purchase, along with the regular replacement warranty for a year, he is also offered an extended warranty for two more years at a price of $300. The probability of the laptap malfunctioning each year is 20%. It is also expected that a similar laptap will cost $1500 after the end of the first year, and $1000 after the end of the second year. The current market rate of interest is 10%. (a) What is the present value of having the extended warranty during the third year of ownership? (b) What is the net present value of buying the warranty?

Mark is planning to buy a high-end laptap. The market price of the laptap is $2000. While making the purchase, along with the regular replacement warranty for a year, he is also offered an extended warranty for two more years at a price of $300. The probability of the laptap malfunctioning each year is 20%. It is also expected that a similar laptap will cost $1500 after the end of the first year, and $1000 after the end of the second year. The current market rate of interest is 10%. (a) What is the present value of having the extended warranty during the third year of ownership? (b) What is the net present value of buying the warranty?

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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Jordan has $6000 to invest in an annuity from which he plans to make regular withdrawals over the next 3 years. he is considering tow options: Option A: Withdrawals are made every quarter and interest is earned at a rate of 8% compounded quarterly. Option B: Withdrawals are made every month and interest is earned at a rate of 7.75%, compounded monthly. (a) Determine the regular withdrawal for each option. (b) Determine the total interest earned for each option.
Suppose you are offered the alternative of receiving either $3,000 at the end of 8 years or $2,000 today. What interest would make you indifferent to your choice between $2,000 and the promise of $3,000 at the end of eight years?
Marie and Danny Would like to buy a house for $220,000. The down payment for the mortgage is 30% of the price of the house. To earn the down payment, they invest $2500 a quarter at 6.2% compounded quarterly. They take a 30-year home mortgage for the rest of the price of the house at 7.3% compounded monthly. They make their regular monthly payments for 5 years, then decide to pay $2000 per month. How much is the down payment? How long will it take Marie and Danny to earn the down payment if they invest $2500 a quarter at 6.2% compounded quarterly? How much is the loan for the mortgage? What is the regular monthly payment? What is the unpaid balance when they begin paying the $2000? How many payments of $2000 will it take to pay off the loan? Give the answer correct to wo decimal places. How much interest will they save by paying the loan this way? Use your answer from #6 to find.
A businessman plans to purchase a new house costing P 500 000. He can raise the building by issuing a 10%, 25-year-old bond that would pay P 150 000 interest per year and repay the face amount at maturity. Instead of buying the new house, he has the option of leasing it for P 140 000 per year, the first payment due one year from now. The building has an expected life for 25 years. If the interest charge for leasing is 8%, which is more favorable for the businessman, borrow and buy or lease?
If you buy a home with less than 20% down, you will pay an additional monthly fee, PMI (private mortgage insurance), until you reach 20% equity. Keep track of when you reach 20% equity so you can request to have your PMI removed. Ken Buckmiller’s home recently appraised at $307,000. His mortgage was for $292,000 at 5% for 30 years with PMI of $299.17 per month. What is his monthly payment plus PMI? His mortgage balance is currently $184,200. Has he reached 20% equity? (Use Table 15.1.) Note: Round your intermediate calculations and final answer to the nearest cent. The answer is NOT $1,866.63 Monthly payment:????
You have a loan outstanding. It requires making nine annual payments of $7,000 each at the end of the next nine years. Your bank has offered to allow you to skip making the next eight payments in lieu of making one large payment at the end of the loan's term in nine years. If the interest rate on the loan is 8%, what final payment will the bank require you to make so that it is indifferent to the two forms of payment?
The cost to purchase the house that Bainters are considering is $195,000, but the Bainters plan to make a $40,000 down payment. The Bainters have been approved for a fixed-rate, 30-year mortgage with a 4.2% annual interest rate for the remaining costs. They want to know how much they would pay on their loan each year as well as how much they would pay on their loan after 5 years, 10 years, 15 years, and 30 years. They also want to determine how much they would pay in interest on their loan when they repay the entire loan. What are the amounts? remember to show or explain your calculations) the total amount paid in loan payments after 1year the total amount paid in loan payments after 5years the total amount paid in loan payments after 10 years the total amount paid in loan payments after 15 years the total amount paid in loan payments after 30 years
ABC would like to hire two loan collectors to speed up its collection process. Each of the loan collectors will be given total annual benefits of P150,000 per year.The entity earns P30,000,000 in sales, 10% of which are cash. The entity has a 365-day year and a minimum required rate of return of 10%.The current average age of receivables is 70 days but with the loan collectors, it is forecasted to decrease by 30 days. How much is the net benefit or (cost) of this option?
Aaliyah Calderon must pay a $36000 obligation 5 years from now. What end-of-Months payments for the entire time, until the obligation is due, would put the creditor in an equivalent financial position if the creditor can earn 4% compounded Weekly? Payment Amounts Aaliyah wanted to only make payments for 1 year and then let the interest accrue. What end-of-Months payments for 12 Months would put the creditor in an equivalent financial position if the creditor can earn 8% compounded Weekly? Value After 1 Year Needed(USE A TIMELINE) S Payments Needed To Achieve That Amount$
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The Claussens are considering the purchase of a hardware store. The Claussens anticipate that the store will generate cash flows of $83,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $530,000. The Claussens will finance the investment with a variable rate mortgage. Interest rates will increase twice during the 20-year life of the mortgage. Accordingly, the Claussens' desired rate of return on this investment varies as follows: Years 1-5 Years 6-10 Years 11-20 Required: 8% 10% 12% What is the maximum amount the Claussens should pay for the hardware store? (Assume that all cash flows occur at the end of the year.) Note: Do not round intermediate calculations. Round your final answers to nearest whole dollar amount. Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) PV of $83,000 cash flow PV of $530,000 selling price Maximum paid for store Years 1-5 Years 6-10 $ 331,395…
Cal Lury owes $10,000 now. A lender will carry the debt for five more years at 10 percent interest. That is, in this particular case, the amount owed will go up by 10 percent per year for five years. The lender then will require that Cal pay off the loan over the next 12 years at 11 percent interest. What will his annual payment be? Use Appendix A and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. Note: Do not round intermediate calculations. Round your final answer to 2 decimal places.

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