u have two investment opportunities. One will have an 11.0% rate of return on an investment of $580; the other will have a 0% rate of return on principal of $870. You would like to take advantage of the higher-yielding investment but have only B0 available. quired: at is the maximum rate of interest that you would pay to borrow the $290 needed to take advantage of the higher yield?

u have two investment opportunities. One will have an 11.0% rate of return on an investment of $580; the other will have a 0% rate of return on principal of $870. You would like to take advantage of the higher-yielding investment but have only B0 available. quired: at is the maximum rate of interest that you would pay to borrow the $290 needed to take advantage of the higher yield?

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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(3) Today you have paid $275 for an investment that pays $100 in one year, $500 in two years,and $X in 4 years. Assuming the market interest rate is 100% and the net present value of theinvestment is zero, what must be true about X?(a) X is greater than $2,500(b) X is greater than or equal to $2,000 but less than $2,500(c) X is greater than or equal to $1,500 but less than $2,000(d) X is greater than $1,200 but less than $1,500(e) X is less than or equal to $1,200
A firm has the following investment alternatives (refer to image): Each investment costs $3,000; investments B and C are mutually exclusive,and the firm’s cost of capital is 8 percent. a.) According to the internal rates of return, which investment(s) should the firm make? Why? b.) According to both the net present values and internal rates of return, which investments should the firm make? c.) If the firm could reinvest the $3,600 earned in year 1 from investment B at 10 percent, what effect would that information have on your answer to part b? Would the answer be different if the rate were 14 percent?
a. What is the NPV of investing today? The NPV is $428,235.29. (Round to the nearest dollar.) b. What is the NPV of waiting and investing tomorrow? The NPV if the rate goes up is $0. (Round to the nearest dollar.) The NPV if the rate goes down is $ 563,404.25. (Round to the nearest dollar.) The PV is $444,242. (Round to the nearest dollar.) c. Verify that the hurdle rate rule of thumb gives the correct time to invest in this case. The hurdle rule is $249,887.64. (Round to the nearest dollar.) (Select from the drop-down menu.) The NPV <0, so wait
Suppose you borrow $42,121.59M when financing a gym which cost is at $90,956.02M. You expect to generate a cash flow of $47,287.93M at the end of the year if demand is weak, $87,482.45M if demand is as expected and $107,854.66M if demand is strong. Each scenario is equally likely. The current risk-free interest rate is 5.42% (risk of debt) and there's a 12.67% risk premium for the risk of the assets. What is the expected return of equity?
Finance
Suppose your firm is seeking a four year, amortizing $260,000 loan with annual payments and your bank is offering you the choice between a $268,000 loan with a $8,000 compensating balance and a $260,000 loan without a compensating balance. The interest rate on the $260,000 loan is 9.8 percent. How low would the interest rate on the loan with the compensating balance have to be for you to choose it? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Interest rate %
Suppose the risk - free interest rate is 4.2%.a. Having $200 today is equivalent to having what amount in one year?b. Having $200 in one year is equivalent to having what amount today?c. Which would you prefer, $200 today or $200 in one year? Does your answer depend on when you need the money? Why or why not?a. Having $200 today is equivalent to having what amount in one year?Having $200 today is equivalent to having Sin one year. (Round to the nearest cent.)
For my previous question: Yield to Maturity for 2 years Maturity and price is $92.45. Formula is PV = Face Value/(1 + YTM)^time. 92.45 = 100/(1 + YTM)^2. Your answer said 1.0817 = (1 + YTM)^2 is 1.04003 = 1 + YTM. What did you do to get 1.04003?
Suppose that you have the following utility function: U=E(r) – ½ Aσ2 and A=3 Suppose that you have $10 million to invest for one year and you want to invest that money into ETFs tracking the S&P 500 (US) and S&P/TSX 60 (Canada) index, which are often used as proxies for the US and Canadian stock markets, respectively, and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-bill is 0.35% per annum. You have found two ETFs that you are interested in. From a set of their historical data between 2001 and 2019, you have estimated the annual expected returns, standard deviations, and covariance as follows: ETFUS : E(r)= 0.070584 0.173687 ETFCDA : E(r)= 0.073763 0.16816 Covariance between ETFUS and ETFCDA = 0.02397 Answer the following questions using Excel: What is the optimal portfolio of ETFUS and ETFCDA? Also submit an Excel file to show your work.
Consider two 1-year loans with a principal of $1 million and a default probability of 2% each. Assume that if one loan defaults, the other does not. Assume that in the event of default, the loan leads to a loss that can take any value between $0 and $1 million with equal probability, i.e., the probability that the loss is higher than $x million is 1-x. If a loan does not default, it yields a profit equal to $0.02 million. a) Compute the 1-year 99% Value at Risk (VaR) and Expected Shortfall (ES) of a single loan. b) Compute the 1-year 99% VaR and ES for the portfolio of both loans. c) Does the VaR and the ES satisfy the subadditivity property in this case?
(Related to Checkpoint 5.6) (Solving for) You are considering investing in a security that will pay you $4,000 in 31 years. a. If the appropriate discount rate is 10 percent, what is the present value of this investment? b. Assume these investments sell for $2,062 in return for which you receive $4,000 in 31 years. What is the rate of return investors earn on this investment if they buy it for $2,062? C a. If the appropriate discount rate is 10 percent, the present value of this investment is $. (Round to the nearest cent.)
In a few sentences, answer the following question as completely as you can. The notion that money has time value is based on the existence of a non–zero opportunity rate (i.e., a rate of return at which it is possible to invest). Why is the opportunity rate so important? Construct an example that shows, with an opportunity rate of 0%, that the value of $1 received today will be $1 in the future.

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