You are trying to decide between two options. Option A: You can pay $50,000 this year to take a training class and earn $125,000 per year for the next two years Option B: You can start work this year and make $60,000 per year this year and each of the next two years. a. What is the Present Value of Option A assuming a 5% interest rate? b. What is the Present Value of Option B assuming a 5% interest rate? c. What is the Present Value of Option A assuming a 10% interest rate? d. What is the Present Value of Option B assuming a 10% interest rate?

You are trying to decide between two options. Option A: You can pay $50,000 this year to take a training class and earn $125,000 per year for the next two years Option B: You can start work this year and make $60,000 per year this year and each of the next two years. a. What is the Present Value of Option A assuming a 5% interest rate? b. What is the Present Value of Option B assuming a 5% interest rate? c. What is the Present Value of Option A assuming a 10% interest rate? d. What is the Present Value of Option B assuming a 10% interest rate?

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 considering purchasing an investment contract that will eventually pay you $4,000 per year at the end of each year for seven years. The appropriate interest rate for the risks involved is 6.4% The first payment begins in 6 years. What price should you pay today to purchase this contract (rounded to nearest dollar) ? (Do not round interim calculations)
Your broker has offered you an investment opportunity at a cost of $ 500. The opportunity offers $100 in 1 year, $200 in 2 years, and $300 in 3 years. If you require a 10% return on investments of similar risk, should you take the opportunity?
You are considering investing in a rental property. Market rent for similar properties is 1, 500 a month (18,000 a year). Maintenance costs, property tax and insurance add up to 4, 000 a year. You expect rent and cost to increase at 5% a year. You plan to hold the property for 10 years and expect to sell it at the end of 10 years for $250,000. How much should you pay for it now if you're asking for a return of 15% ?Question 13 options: $152, 134.01 $132, 058.94 $169, 321.37 $145, 426.88
You plan to buy a new car. The car dealer offers the following two options: Option A: Pay $12,000 each year for 3 years Option B: Pay $1,000 each month for 3 years Your friend recommends option A. Do you agree? (ps: this is the full question that without interest rate numbers; plz use present value method thx)
You are trying to convince an investor into buying a rental apartment unit that fetches a rent of 10,000/mo. If the holding period is 30 years, what is the Present Value of the Annual Rent with 10% interest rate?
Suppose a property you are seeking to purchase is valued at $200,000. You can take out a loan of 80 percent from the bank, which amortizes in 30 years. The current market interest rate is 7.35 percent. Suppose you can only afford a monthly payment of USD 900, but the seller is desperate to sell this property. The seller has already lowered the selling price to USD 180,000. What is the minimum amount of rebate that the seller should provide to you in order to make you purchase the property?
You are considering two investment options. In option A, you have to invest $4,500 now and $700 three years from now. In option B, you have to invest $3,700 now, $1,900 a year from now, and $900 three years from now. In both options, you will receive four annual payments of $1,800 each. (You will get the first payment a year from now.) Which of these options would you choose based on (a) the conventional payback criterion, and (b) the present worth criterion, assuming 8% interest? Assume that all cash flows occur at the end of a year. Click the icon to view the interest factors for discrete compounding when i = 8% per year. ..... (a) The conventional payback period for option A is 3 years. (Round to the nearest whole number place.) The conventional payback period for option B is 4 years. (Round to the nearest whole number place.) Which of these options would you choose based on the conventional payback criterion? Choose the correct answer below. O A. Option B O B. Both options are…
Adam can purchase a new car for $30,000. Alternatively, in addition to a down payment of $2,200, Adam can make lease payments of $525 at the beginning of each month for three years to lease the car. The car has a residual value of $15,000. Assume that the cost of borrowing is 3.95% compounded monthly. a. Which option is economically better for Adam? Buy Now or Lease b. In the lease option, what will be the buyback value of the vehicle at the end of two years?
Assume you won a million dollars in the Texas Lottery. You have two options: 1) collect S426,000 now or 2) receive $50,000 a year (end-of-year) for the next 20 years. Which option would you opt for assuming a 10% interest rate? Use an Excel formula to justify your choice.
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 _______%.
Suppose you are studying two hardware lease proposals. Option 1 costs $4,000, but requires that the entire amount be paid in advance. Option 2 costs $5,000, but the payments can be made $1,000 now and $1,000 per year for the next four years. If you do an NPV analysis assuming a 14% discount rate, which proposal is less expensive? What happens if you use an 8% rate?
4) Retirement: You have just retired from your company after working for twenty years. Your company provides a retirement package and gives you the option of i) receiving $250,000 today, or ii) receiving $350,000 in five years (T=5). What option would you select if the interest rate is R=5%? What option would you select if the interest rate is R=10%? What interest rate would make the present value of both options equal? (Hint: use Excel’s Data-What If - Goal Seek to solve for the interest rate T).

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