Travis Wenzel has $2000 to invest. Usually he would deposit the money in his savings account, which earns 6% interest compounded monthly. However, he is considering three alternative investment opportunities: • Option 1. Purchasing a bond for $2000. The bond has a face value of $2000 and pays $100 every six months for three years, after which time the bond matures. • Option 2. Buying and holding a stock that grows 11 % per year for three years. Option 3. Making a personal loan of $2000 to a friend and receiving $150 per year for three years. Determine the equivalent annual cash flows for each option and select the best option.

Travis Wenzel has $2000 to invest. Usually he would deposit the money in his savings account, which earns 6% interest compounded monthly. However, he is considering three alternative investment opportunities: • Option 1. Purchasing a bond for $2000. The bond has a face value of $2000 and pays $100 every six months for three years, after which time the bond matures. • Option 2. Buying and holding a stock that grows 11 % per year for three years. Option 3. Making a personal loan of $2000 to a friend and receiving $150 per year for three years. Determine the equivalent annual cash flows for each option and select the best option.

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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Fifteen years ago your grandfather purchased for you a 30-year $1,000 bond with a coupon rate of 10 percent. You now wish to sell the bond and read that yields are 8 percent. What price should you receive for the bond? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.
3. Suppose that you have a savings plan that pays 2.5% compounded monthly. You make payments of $75 at the end of each month for 15 years, and then you make monthly payments of $110 for an additional 6 years. a) What is the value of the account at the end of 21 years? b) How much did you earn in interest during those 21 years? 4. Three years after buying 200 shares of XYZ stock for $25 per share, you sell the stock for $8,500. Find the total and annual return.
An investor considers to invest 100 000 TL for the next year. This investor has 3 options. The first option is to buy a government bond that sells 100 TL. The par value of this government bond is also 100 TL and the remaining maturity is 1 year. This government bonds %20 annual coupon interest. The second option is to buy a commercial paper which sells 2200 TL discount. The par value is 10 000 TL and the maturity is 1 year. The other alternative is to invest in a common stock for a year. The current market price of the common stock is 6 TL per share and 1 year target price estimation of the market analysts is 8.2 TL on average for this share. Which option or options would you invest in and why? Show your answer mathematically.
Project X has an initial cost of $46,919, and its expected net cash inflows are $11,500 per year for 6 years. The firm has a WACC of 8 percent, and Project X's risk would be similar to that of the firm's existing assets. Calculate the discounted payback period of Project X. 5.14 years |
subject :- Account
Problem 1 An engineer planning for retirement is considering purchasing a savings bond with a face value of $50,000 and a bond interest rate (coupon rate) of 12% per year payable semiannually with a maturity date 10 years from now. The engineer's MARR is 10% per six-month period. (a) Would you recommend that the engineer purchase the bond if the purchase price is $36,000? (b) Suppose the engineer purchases the bond for $36,000 and is offered $36,000 for it five years later. Would you recommend selling the bond?
Q1. Rami deposits $60,000 today in an account that pays 4.6% p.a. interest, compounding semi-annually. How much can be withdrawn from his account in 10 years. (Show your calculations) Q2. You invest $2000 at the end of every 6 months at a rate of 7% p.a. compounding semi-annually. How much money would you have in your account after 8 years? Q3. A portfolio consists of $100,000 in share A that yield 5% and $150,000 in share B with an expected return of 8%. Share A has a variance of 2% and share B has a variance of 3%. The covariance between returns is 0.00782. What is the expected return for this $250,000 portfolio? What is the variance of the portfolio?
You are currently 25 years old and landed your first job. Your retirement plan will make monthly contributions for $1,000 for the next 40 years. Assume your portfolio puts $600 into the S&P 500 which receives an average 12% annual return and $400 into a bond fund which will give a 8% annual return. If you retire at 65 and plan to live until you’re 90, what can you withdraw monthly assuming a risk-free rate of 4%?
You intend to save for retirement over the upcoming 30 years by allocating R850 monthly to a stock account and R250 monthly to a bond account. The expected return for the stock account is 11%, while the bond account is anticipated to yield 6%. Upon retirement, you plan to merge your funds into an account with a 5% return. All interest rates are Annual Percentage Rates (APRs) compounded monthly. What would be the monthly withdrawal amount from your account over a 25-year period post - retirement?
Use Excel or Google Open Source Spreadsheet for this problem: You own a 4 year bond that has a face value of $12,000 and pays 8% a year in interest, once a year, at the end of the year. Two years after buying it, the interest rate increases to 10%. You do not want to wait 2 more years to get your principle of $12,000 back because you really need the money, so you decide to sell it on the open market. 1. How much can you sell it for? 2. Would it be a capital loss or gain and how much? How much is the capital gain or loss?
Future value (with changing interest rates). Jose has $3,000 to invest for a 6-year period. He is looking at four different investment choices. What will be the value of his investment at the end of 6 years for each of the following potential investments? a. Bank CD at 3%. b. Bond fund at 7.5%. c. Mutual stock fund at 14%. d. New venture stock at 21%. a. What will be the value of Jose's bank CD investment that offers an annual rate of return of 3% for 6 years? (Round to the nearest cent.) $
Consider a forward contract which allows you to buy/sell a non-dividend paying stock in three months. Assume the current stock price is $99.41 and the three-month risk free interest is 5.4 percent per year. What should be the forward price? Keep your answer to two decimal places.

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