You have OMR 12,000 in cash. You can deposit it today in a mutual fund earning 8.2 percent semiannually; or you can wait, enjoy some of it, and invest OMR 11,000 in your brother's business in two years. Your brother is promising you a return of at least 10 percent on your investment. Whichever alternative you choose; you will need to cash in at the end of 10 years. Assume your brother is trustworthy and that both investments carry the same risk. Which one will you choose?

You have OMR 12,000 in cash. You can deposit it today in a mutual fund earning 8.2 percent semiannually; or you can wait, enjoy some of it, and invest OMR 11,000 in your brother's business in two years. Your brother is promising you a return of at least 10 percent on your investment. Whichever alternative you choose; you will need to cash in at the end of 10 years. Assume your brother is trustworthy and that both investments carry the same risk. Which one will you choose?

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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you want to go to Europe 4 years from now, and you can save $3300 per year, beginning one year from today. You plan to deposit the funds in a mutual fund that you think will retum 8.5% per year. Under these conditions, how much would you have in your account by the time you are ready for your trip? O a. $12, 344.53. b. $13,799.76 O c. $15, 765.34 O d. $11, 235.11 • e. $14,980.40
Ali wants to choose a better option for making investment, help him to decide which the better option is by calculating time value of money for the following: a) An investment of OMR. 49000 in a Bond which pays 4.75% interest for 10 years b) A Bank deposit of OMR. 49000 which pays 4.75% interest for 10 years but compounding is done quarterly.
You just opened an account with a mutual fund and will invest $200 each month through its automatic investment program. Assuming your earn a 6% annual rate of return, how much money will you have in 5 years?
Suppose that you have an opportunity to invest in a fund that pays 12% interest compoundedannually. Today, you invest P10,000 into this fund. Three years later, you borrow P5,000 from alocal bank at 10% effective annual interest and invest it in the fund. Two years later, you withdrawenough money from the fund to repay the bank loan and all interest due on it. Three years laterfrom this withdrawal you start taking P2,000 per year for 5 years out of the fund. After 5 years, youhave withdrawn your original P10,000. The amount remaining in the fund is earned interest. Howmuch remains?
Your grandfather would like to share some of his fortune with you. He offers to give you money under one of the following scenarios (you get to choose): 1. $8,750 a year at the end of each of the next seven years 2. $50,050 (lump sum) now 3. $98,650 (lump sum) seven years from now Calculate the present value of each scenario using a 6% interest rate. Which scenario yields the highest present value? Would your preference change if you used a 12% interest rate? (Click the icon to view the present value (Click the icon to view the present value annuity factor table.) factor table.) (Click the icon to view the future value annuity factor table.) factor table.) (Glick the icon to view the future value Using a 6% interest rate, calculate the present values for each scenario. (Round the amounts to the nearest dollar.) Present value of Scenario 1
3
You are 19 years old today. You want to have $381,507.06 in an investment account when you are 60 years old. You will start with an initial deposit in one year from now and grow it by 3% per year for a total of 15 investments. How much is the amount of that initial deposit? Assume an interest rate (a.k.a. return on your investment of 6%. Use the $ sign and a comma and round to the nearest thousand...(e.g. $8,000 would be the form of a correct answer). Hint....the correct answer should be very close to a multiple of $1,000.
Suppose you inherit $100,000 at age 25 and immediately invested in a growth fund who’s annual rate of return average is 13%. Five years later, you transfer all proceeds from the scrubs fun into a long-term IRA that pays an average annual rate of 8%. Immediately you start making additional contributions of $7000 per year to the same IRA. Assuming continuous interest, steady interest rates, and a perfect record of making annualcontributions, how much is this IRA worth when you reach the age of 65? The formula that will need to be used is A = P e^r*t + D/r (e^r*t - 1). Hint: Use the continuous interest formula to find me a cumulated amount for the first five years, which is then the initial investment, P, into the IRA
Doris plans to save $5000 per year for the next 35 years. Her money will be deposited in a stock market index fund that has a 0.5% annual management fee. If this fund earns 6% per year, how much will Doris save by investing in this fund instead of an actively managed mutual fund that has a 1% annual fee? Compute your answer as a future amount at the end of year . Assume that payments are made at the end of year. The future equivalent of savings amount at the end of year 35 is ___.
can you please explain how they got this?

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