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Problem 1: Assume the interest rate is 6%. In each of the following three cases, state which you would rather receive and briefly explain why: €200 today or €480 in two years? €205 today or €240 in one year? €1,000 in one year or €1,220 in two years?

Problem 1: Assume the interest rate is 6%. In each of the following three cases, state which you would rather receive and briefly explain why: €200 today or €480 in two years? €205 today or €240 in one year? €1,000 in one year or €1,220 in two years?

Essentials Of Investments
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
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Outline the concept of present value. The interest rate is 7%. Use the concept of present value to compare the difference between €200 to be received in ten years time and €300 to be received in 20 years time.

Problem 1: Assume the interest rate is 6%. In each of the following three cases, state which you would rather receive and briefly explain why:

  • €200 today or €480 in two years?
  • €205 today or €240 in one year?
  • €1,000 in one year or €1,220 in two years?

Problem 2: A company has an investment project that would cost €10 million today and yield a payoff of €15 million in four years.

  • Should the firm undertake the project if the interest rate is 11%? 10%? 9%? 8%?
  • Can you calculate the exact point at which the interest rate makes the difference between profitability and non-profitability? please make sure to fully explain the reasoning behind
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