Suppose you are contemplating buying a collector's edition of a John Maynard Keynes Action Figure. You would have to make a down payment today of $1,000 and then pay $1,875 at the end of two years from now (ie year 2). If you buy it today, a year from today ( ie year 1), you would sell the Action Figure for $2,750. Your minimum acceptable rate of return (MARR) is 20%. Find the positive breakeven interest rates on your potential investment. b. Determine whether this is a pure investment. (Use only one breakeven interest rate in your calculation – doesn't matter which one). C. Suppose you use the modified internal rate of return MIRR to evaluate investments. Calculate MIRR and determine if you should buy the Action Figure. (Note: use MARR when evaluating both cash inflows and cash outflows). d. Find the True IRR (You may assume that i is such that PB1 >0) and determine if you should buy the Action Figure.
Suppose you are contemplating buying a collector's edition of a John Maynard Keynes Action Figure. You would have to make a down payment today of $1,000 and then pay $1,875 at the end of two years from now (ie year 2). If you buy it today, a year from today ( ie year 1), you would sell the Action Figure for $2,750. Your minimum acceptable rate of return (MARR) is 20%. Find the positive breakeven interest rates on your potential investment. b. Determine whether this is a pure investment. (Use only one breakeven interest rate in your calculation – doesn't matter which one). C. Suppose you use the modified internal rate of return MIRR to evaluate investments. Calculate MIRR and determine if you should buy the Action Figure. (Note: use MARR when evaluating both cash inflows and cash outflows). d. Find the True IRR (You may assume that i is such that PB1 >0) and determine if you should buy the Action Figure.
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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Transcribed Image Text:Suppose you are contemplating buying a collector's edition of a John Maynard Keynes
Action Figure. You would have to make a down payment today of $1,000 and then pay
$1,875 at the end of two years from now (ie year 2). If you buy it today, a year from today (
ie year 1), you would sell the Action Figure for $2,750. Your minimum acceptable rate of
return (MARR) is 20%.
Find the positive breakeven interest rates on your potential investment.
b. Determine whether this is a pure investment. (Use only one breakeven interest rate
in your calculation – doesn't matter which one).
C. Suppose you use the modified internal rate of return MIRR to evaluate investments.
Calculate MIRR and determine if you should buy the Action Figure. (Note: use MARR
when evaluating both cash inflows and cash outflows).
d. Find the True IRR (You may assume that i is such that PB1 >0) and determine if you
should buy the Action Figure.
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