Suppose that you are considering an investment, which would require you to pay $1,000 up front (today), and you would receive a payment of $100 per year, for 5 years, beginning one year from now. One year after your fifth payment, you would then have $800 paid to you as a final payment. Assume that the interest rate is equal to 5%. Round all answers to two decimal places. 6. Calculate the Present Value (PV) of the cost and each of the payments for the investment. Adding up the costs and benefits, does this investment have a positive or negative Net Present Value? Should you make this investment? [5 points] 7. How much would the initial cost ($1,000) need to change for you to be exactly indifferent about this investment? (i.e. you receive the same return for making this investment as you do for not making this investment?) [2 points] 8. How would a decrease in interest rates increase or decrease the present value (PV) of the investment that this question is considering? Explain your answer. [3 points]
Suppose that you are considering an investment, which would require you to pay $1,000 up front (today), and you would receive a payment of $100 per year, for 5 years, beginning one year from now. One year after your fifth payment, you would then have $800 paid to you as a final payment. Assume that the interest rate is equal to 5%. Round all answers to two decimal places. 6. Calculate the Present Value (PV) of the cost and each of the payments for the investment. Adding up the costs and benefits, does this investment have a positive or negative Net Present Value? Should you make this investment? [5 points] 7. How much would the initial cost ($1,000) need to change for you to be exactly indifferent about this investment? (i.e. you receive the same return for making this investment as you do for not making this investment?) [2 points] 8. How would a decrease in interest rates increase or decrease the present value (PV) of the investment that this question is considering? Explain your answer. [3 points]
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![Suppose that you are considering an investment, which would require you to pay $1,000 up front
(today), and you would receive a payment of $100 per year, for 5 years, beginning one year from
now. One year after your fifth payment, you would then have $800 paid to you as a final payment.
Assume that the interest rate is equal to 5%. Round all answers to two decimal places.
6. Calculate the Present Value (PV) of the cost and each of the payments for the
investment. Adding up the costs and benefits, does this investment have a positive or
negative Net Present Value? Should you make this investment? [5 points]
7. How much would the initial cost ($1,000) need to change for you to be exactly
indifferent about this investment? (i.e. you receive the same return for making this
investment as you do for not making this investment?) [2 points]
8. How would a decrease in interest rates increase or decrease the present value (PV) of
the investment that this question is considering? Explain your answer. [3 points]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdbef5de1-8867-43f2-84aa-e690bf73d63a%2F8d0bae3f-e2cd-4e23-831a-1c99c397d01f%2Ftwg0u7r_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose that you are considering an investment, which would require you to pay $1,000 up front
(today), and you would receive a payment of $100 per year, for 5 years, beginning one year from
now. One year after your fifth payment, you would then have $800 paid to you as a final payment.
Assume that the interest rate is equal to 5%. Round all answers to two decimal places.
6. Calculate the Present Value (PV) of the cost and each of the payments for the
investment. Adding up the costs and benefits, does this investment have a positive or
negative Net Present Value? Should you make this investment? [5 points]
7. How much would the initial cost ($1,000) need to change for you to be exactly
indifferent about this investment? (i.e. you receive the same return for making this
investment as you do for not making this investment?) [2 points]
8. How would a decrease in interest rates increase or decrease the present value (PV) of
the investment that this question is considering? Explain your answer. [3 points]
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