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- You have a choice of investing in a financial instrument that either compounds interest on an annual basis or on a quarterly basis. Which would you choose? Group of answer choices I would prefer simple interest Quarterly compounding I would be indifferent; I would earn the same with either compounding. Annual compounding(Present value of an uneven stream of payments) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows: Investment B A $ 1,000 2,000 3,000 (4,000) 1,000 4,000 3,000 (Click on the icon in order to copy its contents into a spreadsheet.) What is the present value of each of these three investments if the appropriate discount rate is 9 percent? $ End of Year 1 SA NM CO 2 3 4 5 $ 1,000 1,000 1,000 C $ 5,000 a. What is the present value of investment A at an annual discount rate of 9 percent? (Round to the nearest cent.) b. What is the present value of investment B at an annual discount rate of 9 percent? (Round to the nearest cent.) c. What is the present value of investment C at an annual discount rate of 9 percent? (Round to the nearest cent.) 5,000 (5,000) (5,000) 15.000Future Value of an Annuity Find the future value of the following annuities. The first payment in these annuities is made at the end of Year 1, so they are ordinary annuities. (Notes: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in many situations, to see how changes in input variables affect the output variable. Also, note that you can leave values in the TVM register, switch to Begin Mode, press FV, and find the FV of the annuity due.) Do not round intermediate calculations. Round your answers to the nearest cent. $600 per year for 10 years at 14%. $ $300 per year for 5 years at 7%. $ $600 per year for 5 years at 0%. $ Now rework parts a, b, and c…
- In terms of an effective annual interest rate, how can the interest payment be rewritten?Consider a perpetuity with a coupon of 100. Imagine that the perpetuity is purchased at time t when the market interest rate is equal to 5%. Furthermore, imagine that the coupon income is taxed at 40% and that capital gains are taxed at 20%. What is the after tax rate of return if the perpetuity is sold at time t+1 when the market interest rate continues to be equal to 5%? 0% O 2% 5% None of the aboveSavings Plans, Part 1: Frequency of Deposits for Annuities For this problem, you will be looking at the difference that the frequency of deposits and compounding makes on annuities. For all answers given as values of money, round down to the cent. For answers in percents, round to the tenth of a percent. 1. Make a table that shows how much money each person has in their annuity after 1 year, 5 years, 10 years, and 25 years. Calculate how much money each person has invested after 25 years, and how much interest they have earned after 25 years. Then express the interest earned after 25 years as a percent of the amount invested. a. Avery invests $3120 per year in an annuity with a 3.9% APR, compounded annually. b. Britt invests $780 per quarter in an annuity with a 3.9% APR, compounded quarterly. c. Casey invests $260 per month in an annuity that earns 3.9% APR, compounded monthly. d. Devyn invests $60 per week in an annuity that earns 3.9% APR, compounded weekly. (Use 52 weeks…
- Please answer using life-cycle problem. Suppose the interest rate is 5%, the income tax rate 35%, the tax rate on investment income is 20%, and the investment horizon 40 years. (a) What is the final payoff after tax if $100 pre-tax income is invested in a regular savings account? (b) What is the final payoff after tax if $100 pre-tax income is invested in a retirement account? (c) What is the final payoff after tax if $100 pre-tax income is invested in a Roth account?1) What is the loanable funds market? 2) Calculate the following: You save $100 and want to see how much you will earn based on the following interest rates Interest Rate Value after 1 month -1% ? 0.5% ? 1% ? 2% ? 3) What supply factors affect the Loanable Funds market? 4) What demand factors affect the Loanable Funds market?1.
- 4. Present value Finding a present value is the reverse of finding a future value. is the process of calculating the present value of a cash flow or a series of cash flows to be received in the future. Which of the following investments that pay will $19,000 in 14 years will have a higher price today? The security that earns an interest rate of 7.00%. The security that earns an interest rate of 10.50%. Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 9.60%. Assuming that both investments have equal risk and Eric’s investment time horizon is flexible, which of the following investment options will exhibit the lower price? An investment that matures in five years An investment that matures in six years Which of the following is true about present value calculations? Other things remaining equal, the present value of a…Please answer this question: What is the value at the end of Year 3 of the following cash flow stream if interest is 4% compounded semiannually? (Hint: you can use the EAR and treat the cash flows as an ordinary annuity or use the periodic rate and compound the cash flows individually.) What is the PV? What would be wrong with your answer to parts I(1) and I(2) if you used the nominal rate, 4%, rather than the EAR or the periodic rate, I sow /2=4%/2=2%, to solve the problems?How did they come up with the value 619,417 for PV of Benefits for the year 2015 using the formula that I have attached?
