Pablo has an opportunity to make two investments, but he can only afford to make one of them. Each one costs $25,000. The mist investment can be sold in 15 years for $98,500 and has no periodic cash flow (use annual compounding). The second investment has a $200 per month cash flow for 6 years followed by cash flow of $400 per month for 8 years. The second investment has no resale value. Which investment is better, from the standpoint of highest IRR? Round to the nearest hundredths. (enter as a % with no % sign) Investment 1 IRR = Investment 2 IRR = 9.57 You are correct 10.67 X

Pablo has an opportunity to make two investments, but he can only afford to make one of them. Each one costs $25,000. The mist investment can be sold in 15 years for $98,500 and has no periodic cash flow (use annual compounding). The second investment has a $200 per month cash flow for 6 years followed by cash flow of $400 per month for 8 years. The second investment has no resale value. Which investment is better, from the standpoint of highest IRR? Round to the nearest hundredths. (enter as a % with no % sign) Investment 1 IRR = Investment 2 IRR = 9.57 You are correct 10.67 X

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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Darrell Frye is planning to buy an office building at a cost of $983,000. He must pay 10% down and has a choice of financing terms. He can select from a 9% 30-year loan and pay 4 discount points, a 9.25% 30-year loan and pay 3 discount points, or a 9.5% 30-year loan and pay 2 discount points. Darrell expects to hold the building for three years and then sell it. Except for the three rate and discount point combinations, all other costs of purchasing and selling are fixed and identical. (Round your answers to the nearest cent. Use this table, if necessary.) (a) What is the amount being financed? (b) If Darrell chooses the 4-point 9% loan, what will be his total outlay in points and payments after 36 months? (c) If Darrell chooses the 3-point 9.25% loan, what will be his total outlay in points and payments after 36 months? (d) If Darrell chooses the 2-point 9.5% loan, what will be his total outlay in points and payments after 36 months? (e) Of the three choices…
Tom got a 30 year fully amortizing FRM for $500,000 at 8%, with constant monthly payments. After 3 years of payments rates fall and he can get a 27 year FRM at 5%, but he must pay 7 points and $20000 in closing costs to get the new loan. Think of the refinancing decision as an investment for Tom, he pays a fee now but saves money in the future in the form of lower payments. What is the annualized IRR of refinancing for Tom assuming he stays until maturity?
Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $5,280 at the end of each of the next 3 years. The opportunity requires an initial investment of $1,320 plus an additional investment at the end of the second year of $6,600. What is the NPV of this opportunity if the interest rate is 2% per year? Should Marian take it? What is the NPV of this opportunity if the interest rate is 2% per year? The NPV of this opportunity is $ (Round to the nearest cent.) .
An investment will generate $12,000 a year for 30 years. If you can earn 12 percent on your funds and the investment costs $100,000, calculate the present value of investment. Use Appendix D to answer the question. Round your answer to the nearest dollar.$ Should you buy it?-Select-YesNoItem 2 Calculate the present value of investment, if you could earn only 9 percent. Use Appendix D to answer the question. Round your answer to the nearest dollar.$ Should you buy it in this case?
Harriet Marcus is concerned about the financing of a home. She saw a small cottage that sells for $75,000. Assuming that she puts 20% down, what will be her monthly payment and the total cost of interest over the cost of the loan for each assumption? (Use the Table 15.1) Note: Do not round intermediate calculations. Round your answers to the nearest cent. a. 25 Years, 5.00% b. 25 Years, 5.50% c. 25 Years, 5.75% d. 25 Years, 6.00% Monthly payment Total cost of interest e. What is the savings in interest cost between 5.00% and 6.00%? Note: Round your answer to the nearest dollar amount. Interest cost
Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $4,440 at the end of each of the next 3 years. The opportunity requires an initial investment of $1,110 plus an additional investment at the end of the second year of $5,550. What is the NPV of this opportunity if the interest rate is 1.5% per year? What is the NPV of this opportunity if the interest rate is 1.5% per year? The NPV of this opportunity is $_______ (Round to the nearest cent)
You have a loan outstanding. It requires making three annual payments of $8,000 each at the end of the next three years. Your bank has offered to allow you to skip making the next two payments in lieu of making one large payment at the end of the loan's term in three years. If the interest rate on the loan is 5%, what final payment will the bank require you to make so that it is indifferent to the two forms of payment? The final payment the bank will require you to make is $ (Round to the nearest dollar.)
Your group receives a phone proposal to invest in a new business. Thecaller informs you that it will take a $70,000 down payment and the investmentwill return $10,000 a year for the next 10 years. He tells you that theinvestment will return 14 percent. If current interest rates are 8 percent,what is the present value of this investment? How did the caller get14 percent?
= You would like to buy a house that costs $350,000. You have $55,000 in cash that you can put down on the house, but you need to borrow the rest of the purchase price. The bank is offering a 30-year mortgage that requires annual payments and has an interest rate of 7% per year. You can afford to pay only $23,060 per year. The bank agrees to allow you to pay this amount each year, yet still borrow $295,000. At the end of the mortgage (in 30 years), you must make a balloon payment; that is, you must repay the remaining balance on the mortgage. How much will this balloon payment be? The balloon payment is $ (Round to the nearest cent.)
Pete Morton is planning to go to graduate school in a program of study that will take three years. Pete wants to have $12 available each year for various school and living expenses. If he earns 12 percent on his money, how much must be deposited at the start of his studies to be able to withdraw $12 a year for three years? Use Exhibit 1-D (Round time value factor to 3 decimal places and final answer to the nearest whole number.) Future value
You want to buy a house that costs $170,000. You have $17,000 for a down payment, but your credit is such that mortgage companies will not lend you the required $153,000. However, the realtor persuades the seller to take a $153,000 mortgage (called no more than $17,000 per year given a seller take-back mortgage) at a rate of 10%, provided the loan is paid off in full in 3 years. You expect to inherit $170,000 in 3 years, but right now all you have is $17,000, and you can afford to make payments your salary. (The loan would call for monthly payments, but assume end-of-year annual payments to simplify things.) a. If the loan was amortized over 3 years, how large would each annual payment be? Do not round Intermediate calculations. Round your answer to the nearest cent. $ Could you afford those payments? -Select- b. If the loan was amortized over 30 years, what would each payment be? Do not round Intermediate calculations. Round your answer to the nearest cent. $ Could you afford those…
You want to buy a house that costs $280,000. You have $28,000 for a down payment, but your credit is such that mortgage companies will not lend you the required $252,000. However, the realtor persuades the seller to take a $252,000 mortgage (called a seller take-back mortgage) at a rate of 6%, provided the loan is paid off in full in 3 years. You expect to inherit $280,000 in 3 years, but right now all you have is $28,000, and you can afford to make payments of no more than $19,000 per year given your salary. (The loan would call for monthly payments, but assume end-of-year annual payments to simplify things.) a. If the loan was amortized over 3 years, how large would each annual payment be? Do not round intermediate calculations. Round your answer to the nearest cent. $ Could you afford those payments? -Select- b. If the loan was amortized over 30 years, what would each payment be? Do not round intermediate calculations. Round your answer to the nearest cent. $ Could you afford those…

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