You are thinking about investing $5,000 in your friend's landscaping business. Even though you know the investment is risky and you can't be sure, you expect your investment to be worth $5,750 next year. You notice that the rate for one-year Treasury bills is 1%. However, you feel that other investments of equal risk to your friend's landscape business offer an expected return of 10% for the year. What should you do? The present value of the return is $. (Round to the nearest cent.) You should (Select from the drop-down menu.)

You are thinking about investing $5,000 in your friend's landscaping business. Even though you know the investment is risky and you can't be sure, you expect your investment to be worth $5,750 next year. You notice that the rate for one-year Treasury bills is 1%. However, you feel that other investments of equal risk to your friend's landscape business offer an expected return of 10% for the year. What should you do? The present value of the return is $. (Round to the nearest cent.) You should (Select from the drop-down menu.)

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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Similar questions

You are thinking about investing $4,692 in your friend's landscaping business. Even though you know the investment is risky and you can't be sure, you expect your investment to be worth $5,738 next year. You notice that the rate for one-year Treasury bills is 1%. However, you feel that other investments of equal risk to your friend's landscape business offer an expected return of 8% for the year. What should you do?.
Suppose that immediately after making the fifth payment to Joseph as described above, Wagon Financial also implements a new investment strategy which they believe will yield even higher investment returns than the original 12% per annum. Assuming this to be true, would Wagon Financial need to set aside more or less money than your answer in part f) to be sure that they can afford to make all future payments to Joseph? Justify your answer.
After completing a long and successful career as senior vice president for a large bank, you arepreparing for retirement. After visiting the human resources office, you have found that you haveseveral retirement options: (1) you can receive an immediate cash payment of $1 million, (2) youcan receive $60,000 per year for life (your remaining life expectancy is 20 years), or (3) you canreceive $50,000 per year for 10 years and then $70,000 per year for life (this option is intended togive you some protection against inflation). You have determined that you can earn 8 percent onyour investments. Which option do you prefer and why?
You are planning for a very early retirement. You would like to retire at age 40 and have enough money saved to be able to withdraw $240,000 per year for the next 40 years (based on family history, you think you will live to age 80). You plan to save by making 20 equal annual installments (from age 20 to age 40) into a fairly risky investment fund that you expect will earn 10% per year. You will leave the money in this fund until it is completely depleted when you are 80 years old. (Click the icon to view Present Value of $1 table.) ( Click the icon to view Present Value of Ordinary Annuity of $1 table.) (Click the icon to view Future Value of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) Read the requirements. Requirement 1. How much money must you accumulate by retirement to make your plan work? (Hint. Find the present value of the $240,000 withdrawals.) (Round your final answer to the nearest whole dollar.) To make the plan work, you must…
A financial instrument just paid the investor $127 last year. The cash flow is expected to last forever and increase at a rate of 1.6 percent annually. If you use a 5.2 percent discount rate for investments like this, what should be the price you are willing to pay for this financial instrument? (Round to the nearest dollar.)
David Rubin has $100,000 to invest over 5 years. David is very risk-averse and has a target average return of 4% per year for his investment over the next 5 years. He is looking at investing his money in the 3-month US Treasury Bill, which currently yields 4% per year. What are the pros and cons of David investing in this 3-month T-Bill in the context of his risk-proflle and his investment objective? If a company's beta were to double, would its expected rate of return double? Explain your answer. Using the five components of a nominal interest rate, explain why a US corporate bond's yield-to- maturity (YTM) is always greater than the YTM of a US Treasury bond of similar maturity.
Your startup has been doing well and you think you’re just a couple of years away from an M&A exit event. You assume you’ll be able to sell the company for about $50mm, the industry average. But you need to raise $3mm now to fund you until then. You’ve received three term sheets, all with the same premoney valuation of $9mm: which one is best, from the standpoint of maximizing the amount of money you will receive from the target exit, and what key reason(s) makes this most favorable? VC Firm: 1.5x participating preferred, no cap Angel Group: Convertible debt, converting at 25% discount to exit value, $18mm conversion value cap Family Office: 3x simple preferred with a $15mm cap
Based on the framework in the previous two problems, you have found that you need to have a total of $1,529,499 in savings at the time you retire, in 40 years. You currently only have $28,118 saved up in your retirement accounts. If you anticipate that your 80/20 investment portfolio will return an average of 8.31% per year, how much extra must you save every year to reach your goal? Assume that you'll be saving the extra amount by the end of each year.
A potential client comes to you and asks you to help him pick some stocks and that we wants his investments to earn at least 10% guaranteed annually. He also doesn’t understand why you want him to invest in a variety of asset classes. How would you explain the importance of diversification to him and what would you say in response to his request for a 10% guaranteed annual return on his investment?
You are thinking about investing $4,953 in your friend's landscaping business. Even though you know the investment is risky and you can't be sure, you expect your investment to be worth $5,650 next year. You notice that the rate for one-year Treasury bills is 1%. However, you feel that other investments of equal risk to your friend's landscape business offer an expected return of 10% for the year. What should you do? The present value of the return is $ (Round to the nearest cent.)
In 2003 your parents put 16 million HUF aside for you to help you buy your first apartment. They invested in a fund that promised a return 10.0% yearly, but they have not kept an eye on the fund's performance. It is 2022 today. 1. How much money do you expect your parents to give you today if they liquidate the investment? million HUF 2. You look at the account statement, and are surprised to find that only 48.93 million HUF is in the account. How much was the actual compound annual growth rate of the fund?
Let us develop a savings plan for your retirement. We will assume that you will be fin-ished with your schooling by age 25, and work for 40 years to retire at age 65. Let us (verygenerously and optimistically) imagine that you will receive a substantial graduation giftof $10,000, and will open an investment account with it that (again, quiteoptimistically) can be expected to reliably pay 8% interest, compounded continuously. Inaddition, you will plan to save a portion of your paycheck each week, for a total of D dollarsper year, every year. Determine D, i.e how much you need to add to your account from yourearnings every year, in order to retire with a princely sum of $2,000,000 in your retirementaccount.

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