Assume a firm buys a new machine this year at a cost of $12,600 that will lead tosavings of $6,600 after one year, $4,840 more after the second year and another $4,000 afterthe third year. Then the machine will become obsolete and no further savings will accrue. Isthis a worthwhile investment if we assume that there is no inflation and that the market rate of4.interest remains at i = 10% over the three year period?

We first need to calculate the present value of the savings by discounting it by an appropriate rate…

Answered: rest remains at i = 10% over the three…

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rest remains at i = 10% over the three year period?

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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21. The k-year spot rate is given by the formula s = 0.068 +0.002k - 0.001k². What is the 3-year forward rate (in)? A) 4.3% B) 4.5% C) 4.9% D) 5.5% E) 5,9%
Which of the following would provide the greatest return on $15,000 if it is invested at a nominal rate of 6% for one year? Group of answer choices quarterly compounding semi-annual compounding annual compounding monthly compounding
The n-year spot rate of interest per annum, in, is given by: b in = a(1.1)" +- n for n = 1, 2 and 3 and where a and b are constants. With time measured in years from the present, the implied one-year forward rates applicable at time 0 and at time 1 are 7.3% and 6.8%, respectively. Showing all of your workout, calculate to 5 decimal places the following: (i) the values of a and b; (ii) the implied two-year forward rate applicable at time 1; (iii) the price per £1 nominal at time t = 0 of a bond which pays annual coupons of 7% in arrears and is redeemed at 95% after 3 years.
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:1R1 = 2.62%, E(2r1) = 3.90%, E(3r1) = 4.40%, E(4r1) = 5.90%Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:1R1 = 2.50%, E(2r1) = 3.75%, E(3r1) = 4.25%, E(4r1) = 5.75% Using the unbiased expectations theory, calculate the current (long-term) rates for 1-, 2-, 3-, and 4-year-maturity Treasury securities
Finding Forward Rates Suppose the following yield curve: 1-period rate = 4.75%, 2-period rate=4.85%, 3-period rate= 4.90%, 4 period rate=5.01%. What is the 2 year forward rate in 2 years? What is 1 year rate in 2 years?
suppose that $6,300 is invested at 3.1% annual intrest rate, componded monthly. how much money will be in the account in 9 months?
What is the effective annual rate for an APR of 11.40 percent compounded quarterly? MUST USE EXCEL FORMULA!!!! NOT ALGEBRAICALLY!
What is the forward rate from 13 months to 17 months? You observe two spot rates. The 17 month spot rate is 13.50%, while the 13 month spot rate is 11.60%. All rates in this question are quoted with semi-annual compounding.
Nikul
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:1R1 = 2.62%, E(2r1) = 3.90%, E(3r1) = 4.40%, E(4r1) = 5.90%Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
In general, which rate yields the larger amount in one year? (A) 2% compounded yearly (B) 1.87% compounded semi-annually Input A or B or same here: same indicates the rates yield the same amount after one year

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