Mitchell Investments has offered you the following investment opportunity: $7,000 at the end of each year for the first 7 years, plus $5,000 at the end of each year from years 8 through 13, plus $3,000 at the end of each year from years 14 through 25. 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? $
Mitchell Investments has offered you the following investment opportunity: $7,000 at the end of each year for the first 7 years, plus $5,000 at the end of each year from years 8 through 13, plus $3,000 at the end of each year from years 14 through 25. 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? $
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
100%
Mitchell Investments has offered you the following investment opportunity:
- $7,000 at the end of each year for the first 7 years, plus
- $5,000 at the end of each year from years 8 through 13, plus
- $3,000 at the end of each year from years 14 through 25.
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?
$
Transcribed Image Text:TABLE M
Present Value of an Annuity Interest Factor (PVIFA) ($1 per period at Po per period for n periods);
PVIFA
; PVAN, = PMT (PVIFA;,n)
Period, n
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
0.901
12%
0.893
13%
1
0.990
0.980
0.971
0.962
0.952
0.943
0.935
0.926
0.917
0.909
0.885
1.970
1.942
1.913
1.886
1.859
1.833
1.808
1.783
1.759
2.531
1.736
1.713
1.690
1.668
2.941
2.884
2.829
2.775
2.723
2.673
2.624
2.577
2.487
2.444
2.402
2.361
3.902
3.808
3.717
3.387
3.037
3.630
4.452
3.546
3.465
3.312
3.240
3.170
3.791
3.102
2.974
4.853
4.713
4.580
4.329
4.212
4.100
3.993
3.890
3.696
3.605
3.517
5.795
5.601
5.417
5.242
5.076
4.917
4.766
4.623
4.486
4.355
4.231
4.111
3.998
5.033
5.535
5.995
6.418
6.805
7.161
7.487
6.728
6.472 6.230
6.002
5.786
5.582
5.389
5.206
4.868
4.712
4.564
4.423
7.652
7.325 7.020
6.733
6.463
6.210
5.971
5.747
6.247
5.335
5.759
6.145
6.495
5.146
4.968
5.328
4.799
8.162 7.786
5.132
5.426
8.566
7.435
7.108
6.802
6.515
5.537
10
9.471
8.983 8.530
8.111
7.722
7.360
7.024
7.499
6.710
5.889
5.650
11
10.368
9.787
9.253
8.760
8.306
7.887
7.139
6.207
5.938
5.687
12
11.255
10.575 9.954
9.385
8.863
8.384
7.943
7.536
6.814
6.492
6.750
6.194
5.918
13
12.134 11.348 10.635
9.986
9.394
8.853
8.358
7.904
7.103
6.424
6.122
14
13.004
12.106 11.296
10.563
9.899
9.295
7.786
8.745
9.108
8.244
8.559
7.367
6.982
6.628
6.302
6.462
15
13.865
12.849 11.938
11.118
10.380
9.712
8.061
7.606
7.191
6.811
16
14.718 13.578 12.561
11.652 10.838
10.106
9.447
8.851
8.312
7.824
7.379
6.974
6.604
11.274
9.763
8.544
8.756
8.950
17
15.562 14.292 13.166
12.166
10.477
9.122
8.022
7.549
7.120
6.729
18
16.398
14.992 13.754
12.659
11.690
10.828
10.059
9.372
8.201
7.702
7.250
6.840
7.839
7.963
19
17.226 15.678 14.324
13.134 12.085
11.158
10.336
9.604
8.365
7.366
6.938
7.469
7.784
20
18.046 16.351 14.877
13.590
12.462
11.470
10.594
9.818
9.128
8.514
7.025
24
21.243
18.914 16.936
15.247 13.799
12.550
11.469
10.529
9.707
8.985
8.348
7.283
25
22.023
19.523 17.413
15.622 14.094
12.783
11.654
10.675
8.422
9.823
10.274
9.077
7.843
7.330
30
25.808
22.397 19.600
17.292
15.373
13.765
12.409
11.258
9.427
8.694
8.055
7.496
10.757
10.962
40
32.835
27.355 23.115
19.793
17.159
15.046
13.332
11.925
9.779
8.951
8.244
7.634
50
39.196 31.424 25.730
21.482 18.256
15.762
13.801
12.233
9.915
9.042
8.304
7.675
60
44.955
34.761 27.676
22.623 18.929
16.161
14.039
12.377
11.048
9.967
9.074
8.324
7.687
Period, n
14%
15%
16%
17%
18%
19%
20%
24%
28%
32%
36%
40%
0.870
1.626
2.283
0.840
0.758
1.332
1.766
2.096
0.877
0.862
0.855
0.847
0.833
0.806
0.781
0.735
0.714
1.605
2.246
1.585
2.210
2.743
2
1.647
2.322
1.566
1.547
1.528
1.457
1.981
1.392
1.868
1.276
1.674
1.966
1.224
2.174
2.690
3.127
3
2.140
2.106
2.589
2.991
1.589
4
2.914
2.855
2.798
2.639
3.058
2.404
2.241
1.849
3.433
3.352
3.274
3.199
2.745
2.532
2.345
2.181
2.035
6
2.534
2.168
3.889
4.288
3.784
3.685
3.589
3.498
3.410
3.326
3.020
3.242
2.759
2.399
7
4.160
4.039
3.922
3.812
3.706
3.605
2.937
2.678
2.455
2.263
8.
4.639
4.487
4.344
4.207
4.078
3.954
3.837
3.421
3.076
2.786
2.540
2.331
9.
4.946
4.772
4.607
4.451
4.303
4.163
4.031
2.868
3.566
3.682
3.184
2.603
2.379
2.650
2.683
10
5.216
5.019
4.833
5.029
4.659
4.494
4.339
4.193
3.269
2.930
2.414
11
5.453
5.234
4.836
4.656
4.486
4.327
3.776
3.335
2.978
2.438
5.421
5.583
12
5.660
5.197
4.988
4.793
4.611
4.439
3.851
3.387
3.013
2.708
2.456
2.469
13
5.842
6.002
6.142
5.342
5.118
4.910
4.715
4.533
3.912
3.427
3.040
2.727
5.229
5.324
5.008
3.061
3.076
14
5.724
2.478
5.468
5.575
4.802
4.611
3.962
3.459
2.740
3.483
3.503
15
5.847
5.092
4.876
4.675
4.001
2.750
2.484
16
6.265
4.938
4.033
5.954
6.047
5.669
5.405
5.162
4.730
3.088
2.758
2.489
17
6.373
5.749
5.475
5.534
5.584
5.628
5.746
5.222
4.990
4.775
4.059
3.518
3.097
2.763
2.492
18
6.467
6.128
5.818
5.273
3.529
5.033
5.070
4.812
4.080
3.104
2.767
2.494
19
6.550
6.198
5.877
5.316
4.844
4.097
3.539
3.109
2.770
2.496
20
6.623
6.259
5.929
5.353
5.101
4.870
4.110
3.546
3.113
2.772
2.497
24
6.835
6.434
6.073
5.451
5.182
4.937
4.143
3.562
3.121
2.776
2.499
25
6.873
6.464
6.097
5.766
5.467
5.195
4.948
4.147
3.564
2.776
3.122
3.124
2.499
30
7.003
6.566
6.177
5.829
5.517
5.235
4.979
4.160
3.569
2.778
2.778
2.500
40
7.105
6.642
6.233
5.871
5.548
5.258
4.997
4.166
3.571
3.125
2.500
50
7.133
6.661
6.246
5.880
5.554
5.262
4.999
4.167
3.571
3.125
2.500
2.778
2.778
60
7.140
6.665
6.249
5.882
5.555
5.263
5.000
4.167
3.571
3.125
2.500
234 567 090
Transcribed Image Text:TABLE I
Present Value Interest Factor (PVIF) ($1 at i % per period for n periods);
PVIF =
(1+ i"
; PVo = FV,(PVIF;a)
%3D
Period, n
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
1.000
1.000
1.000
1.000
1.000
0.962
0.925
1.000
1.000
1.000
1.000
1.000
1.000
1.000
0.893
1.000
1
0.990
0.980
0.971
0.952
0.943
0.935
0.926
0.917
0.909
0.901
0.885
0.842
0.772
0.980
0.961
0.943
0.907
0.890
0.873
0.857
0.826
0.812
0.797
0.783
3
0.971
0.942
0.915
0.889
0.864
0.840
0.792
0.747
0.705
0.816
0.794
0.751
0.731
0.712
0.693
4
0.961
0.659
0.924 0.889
0.863
0.838
0.855
0.823
0.763
0.735
0.681
0.708
0.683
0.636
0.613
0.650
0.596
0.547
0.951
0.906
0.822
0.784
0.713
0.621
0.593
0.567
0.543
0.942
0.888
0.933 0.871
0.790
0.746
0.666
0.630
0.564
0.535
0.507
0.480
7
0.813
0.760
0.711 0.665
0.623
0.583
0.513
0.482
0.452
0.425
0.731
0.703
0.676
8
0.923
0.853
0.789
0.677
0.627
0.592
0.558
0.582
0.540
0.502
0.467
0.434
0.404
0.376
0.460
0.422
0.914
0.837
0.766
0.645
0.544
0.424
0.391
0.500
0.463
0.361
0.333
10
0.905
0.820
0.744
0.614
0.508
0.386
0.352
0.322
0.295
11
0.896
0.804
0.722
0.650
0.585
0.527
0.475
0.429
0.397
0.388
0.350
0.317
0.287
0.261
0.887
0.319
0.257
0.229
12
0.788
0.701
0.625
0.557
0.497
0.444
0.356
0.286
0.231
0.415
0.388
0.362
13
0.879
0.773
0.681
0.601
0.530
0.469
0.368
0.326 0.290
0.299 0.263
0.258
0.204
0.181
0.577
0.555
0.534
0.340
0.315
0.292
0.270
0.442
0.417
14
0.870
0.758
0.661
0.505
0.232
0.205
15
0.861
0.743
0.642
0.481
0.275
0.239
0.218
0.198
0.180
0.209
0.183
0.160
16
0.853
0.728 0.623
0.458
0.394
0.339
0.252
0.188
0.163
0.141
17
0.844
0.714
0.605
0.513
0.436
0.371
0.317
0.231
0.170
0.146
0.125
18
0.836
0.700
0.587
0.494
0.416
0.350
0.296
0.250
0.212
0.153
0.130
0.111
0.116
0.104
19
0.828
0.686 0.570
0.475
0.396
0.331
0.276
0.258
0.232
0.215
0.158
0.194
0.164
0.456
0.390
0.138
0.124
0.098
0.087
0.053
20
0.820
0.673
0.554
0.377
0.312
0.178
0.149
0.622
0.610
24
0.788
0.492
0.310
0.247
0.197
0.126
0.102
0.082
0.066
0.116
0.075
25
0.780
0.478
0.375
0.295
0.233
0.184
0.146
0.092
0.074
0.059
0.047
30
0.742
0.552 0.412
0.308
0.231
0.174
0.131
0.099
0.057
0.022
0.044
0.015
0.033
0.026
40
0.672
0.453
0.307
0.208
0.142
0.097
0.067
0.046
0.032
0.011
0.008
0.003
0.001
50
0.002
0.608
0.550
0.372
0.228
0.141
0.087
0.054
0.034
0.021
0.013
0.009
0.005
60
0.305 0.170
0.095
0.054
0.030
0.017
0.010
0.006
0.003
0.002
0.001
Period, n 14%
15%
16%
17%
18%
19%
20%
24%
28%
32%
36%
40%
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
0.735
1.000
0.877
0.870
0.862
0.855
0.847
0.840
0.833
0.806
0.781
0.758
0.714
0.510
0.364
0.706
0.593
0.499
0.419
0.352
0.610
0.769
0.675
0.756
0.658
0.743
0.731
0.718
0.694
0.650
0.574
0.435
0.329
0.541
0.641
0.624
0.609
0.579
0.524
0.477
0.398
0.423
0.373
0.592
0.519
0.572
0.552
0.534
0.516
0.437
0.482
0.292
0.260
0.497
0.476
0.456
0.402
0.341
0.291
0.250
0.215
0.186
0.456
0.335
0.133
0.432
0.376
0.410
0.354
0.390
0.370
0.275
0.227
0.189
0.143
0.158
0.400
0.333
0.314
0.296
0.279
0.222
0.178
0.116
0.095
0.351
0.327
0.305
0.285
0.266
0.249
0.233
0.179
0.144
0.139
0.108
0.085
0.068
0.308
0.284
0.263
0.243
0.225
0.209
0.194
0.108
0.082
0.063
0.048
0.227
0.195
0.168
10
0.270
0.247
0.208
0.191
0.035
0.176
0.148
0.124
0.162
0.116
0.094
0.085
0.062
0.046
0.237
0.034
0.025
11
0.215
0.178
0.162
0.135
0.066
0.047
0.025
12
0.208
0.187
0.152
0.137
0.112
0.076
0.052
0.036
0,018
0.163
0.141
0.123
0.107
13
0.182
0.145
0.130
0.116
0.104
0.093
0.078
0.061
0.040
0.027
0.018
0.013
0.049
0.040
14
0.160
0.125
0.108
0.111
0.099
0.088
0.032
0.021
0.014
0.009
0.095
0.081
15
0.140
0.084
0.074
0.065
0.016
0.025
0.019
0.010
0.006
16
0.123
0.093
0.071
0.062
0.052
0.054
0.032
0.012
0.009
0.007
0.005
17
0.108
0.093
0.080
0.069
0.060
0.045
0.026
0.015
0.005
0.003
18
0.095
0.081
0.069
0.059
0.051
0.051
0.044
0.038
0.021
0.012
0.007
0.004
0.002
19
0.083
0.070
0.060
0.043
0.037
0.031
0.017
0.009
0.005
0.003
0.002
20
0.073
0.061
0.051
0.043
0.037
0.031
0.026
0.014
0.006
0.007
0.004
0.002
0.001
0.019
0.015
0.013
0.005
0.001
24
0.043
0.035
0.028
0.023
0.013
0.003
0.001
0.001
0.000
0.000
0.000
25
0.038
0.030
0.015
0.024
0.020
0.016
0.010
0.005
0.002
0.000
0.002
0.001
0.001
0.000
0.007
0.001
0.000
30
0.020
0.012
0.009
0.004
0.000
0.000
40
0.005
0.004
0.003
0.002
0.001
0.000
0.000
0.000
0.000
50
0.001
0.000
0.001
0.001
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
60
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
012 345 67009
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ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education