Suppose your uncle sues a manufacturer for a defective product that causes an injury. The attorney for the manufacturer offers your uncle the following stream of payments as a settlement of the suit: 40 quarterly payments (4 per year for 10 years) with the first payment of $4,800 received one quarter from now and subsequent payments growing at a rate of 1% per quarter. If an appropriate discount rate is 6.5% (EAR), what is the present value of this offer?

Suppose your uncle sues a manufacturer for a defective product that causes an injury. The attorney for the manufacturer offers your uncle the following stream of payments as a settlement of the suit: 40 quarterly payments (4 per year for 10 years) with the first payment of $4,800 received one quarter from now and subsequent payments growing at a rate of 1% per quarter. If an appropriate discount rate is 6.5% (EAR), what is the present value of this offer?

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

See similar textbooks

Similar questions

You are buying a house and will borrow $360,000 on a 25-year fixed rate mortgage with monthly payments to finance the purchase. Your loan officer has offered you a mortgage with an APR of 4.45 percent. Alternatively, she tells you that you can “buy down” the interest rate to 4.1 percent if you pay points up front on the loan. A point on a loan is 1 percent (one percentage point) of the loan value. How many points, at most, would you be willing to pay to buy down the interest rate?
You are considering the purchase of a property today for $300,000. You plan to finance it with an 80 percent loan. The appreciation rate on the property value is expected to be 4 percent annually for the next three years. Required: a. Approximate the expected annual average rate of appreciation on home equity for the next three years. b. What if you now think that a $300,000 purchase price may be somewhat high and that if you pay this price, the expected appreciation rates in your house price will be as follows: year 1 = 0%, year 2 = 2%, and year 3=3%. Approximate the expected annual average rate of appreciation on home equity for the next three years.
You are offered the following two choices. You can either receive Option I: 3 annual payments of $100 each to be received exactly 1, 2, and 3 years from now; Or, Option II: one payment of $269 to be received exactly one year from now. The annual interest rate (as an EAR) that would make you indifferent between receiving the above two options is _______%.
You are offered an add-on loan for $4,500 at 18% for 5 years. What is the monthly payment? What is the amount of interest? What is the true interest rate cost of this loan? If you could pay the same loan above at a compound rate: What would the monthly payment be? What would the amount of interest be? Prepare a monthly payment schedule for each loan above using Excel, and submit it. Suppose that you are only allowed to make a balloon payment to the principal of the compound interest loan. You have $1,000 to put down at the beginning of year three. How many payments will you save?
Please provide solutions to the following problems: You receive a cash bonus, but your employer gives you two options: receive $8,000 right now or $10,000 two years from now. Assuming an interest rate of 12% what would be the best option. Show all calculations. Find the future value of $500 in 6 years at 9%. What is the present value of an investment that will generate $300 per year for 15 years at 6%? If your grandparents decide to give you $30,000 when you complete your degree what might you offer to them today as an amount as opposed to waiting the 4 years (assume a 5% interest rate). Calculations must be shown for full credit. Also they help in awarding partial credit at the instructors discretion. If using formulas, a financial calculator, or online calculator is used, what value is entered for each variable must be given. If Excel is used the spreadsheet with the formula must be submitted.
Please see attached
You agree to purchase a car with a competitive value of $44,500 for the following loan contract: Purchase the car for $44,250 with $2,000 down and borrow the remainder over 5 years with monthly payments based on a rate of interest of 6.6%. Your market rate of return is 5.25%. How much value did you destroy with this purchase? (Round to dollars and cents; round the car payment to dollars and cents.)
You are buying a house and will borrow $325,000 on a 25-year fixed rate mortgage with monthly payments to finance the purchase. Your loan officer has offered you a mortgage with an APR of 4.10 percent. Alternatively, she tells you that you can "buy down" the interest rate to 3.75 percent if you pay points up front on the loan. A point on a loan is 1 percent (one percentage point) of the loan value. How many points, at most, would you be willing to pay to buy down the interest rate? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.
You need $15,000 to purchase a used car. Your wealthy uncle is willing to lend you the money as an amortized loan. He would like you to make annual payments for 4 years, with the first payment to be made one year from today. He requires a 8% annual return. What will be your annual loan payments? Round your answer to the nearest cent. Do not round intermediate calculations.
You are buying a house and will borrow $225,000 on a 30-year fixed rate mortgage with monthly payments to finance the purchase. Your loan officer has offered you a mortgage with an APR of 4.55 percent. Alternatively, she tells you that you can "buy down" the interest rate to 4.35 percent if you pay points up front on the loan. A point on a loan is 1 percent (one percentage point) of the loan value. How many points, at most, would you be willing to pay to buy down the interest rate? (Do not round intermediate calculations and round your answer to 3 decimal places, e. g., 32.164.)

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS