You want to start saving for your first car which costs R300 000. You decide to save by investing in an equity index for 5years. You know that you will receive R25000 from your graduate program next year so you decide that you will invest R2500 a month into the index for 5 years. If the equity index

You want to start saving for your first car which costs R300 000. You decide to save by investing in an equity index for 5years. You know that you will receive R25000 from your graduate program next year so you decide that you will invest R2500 a month into the index for 5 years. If the equity index

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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Jenny needs to borrow from you a P500 now, and will pay you back P570 in a year. Is that a good investment when you can get 10% elsewhere?
A real estate property is on the market. You have estimated it will give you net cash flows of $5353 per month. You hope to sell it in 7 years for $334380. Your required return is 9.24%, how much should you be willing to pay for the property today? Answer:
Assume that you and your family want to go on vacation in 5 years. You are planning to save for the trip. The estimated cost of the trip will be $10,000. You have found an investment that will pay 6% annual interest for the next 5 years. Using Excel, calculate the dollar amount that will be required to invest today to reach the financial expense for your vacation.
Suppose an investor, Erik, is offered the investment opportunities described in the table below. Each investment costs $1,000 today and provides a payoff, also described below, one year from now. Option Payoff One Year from Now 1 100% chance of receiving $1,100 2 50% chance of receiving $1,000 50% chance of receiving $1,200 3 50% chance of receiving $200 50% chance of receiving $2,000 If Erik is risk averse, which investment will he prefer? The investor will choose option 1. The investor will choose option 2. The investor will choose option 3. The investor will be indifferent toward these options. In contrast to his brother Erik, Devin is a risk lover (or exhibits risk seeking behavior). Which of the following statements is true about Devin? Everything else remaining constant, Devin will prefer option 3. Everything else remaining constant, Devin will prefer option 2. Everything else remaining constant,…
David wants to invest $1,500,000 so that he will have an accumulated amount of at least $2,500,000 after some years. He has two choices of investment A and investment B. Investment A offers him an semi-annual simple interest rate of 10% while investment B offers him an effective annual interest rate of 8% convertible annually. Which investment will help him reach his goal faster? Approximate the time that each investment will reach his goal.
Assume you can earn 9.4% per year on your investments. a. If you invest $170,000 for retirement at age 30, how much will you have 35 years later for retirement? b. If you wait until age 40 to invest the $170,000, how much will you have 25 years later for retirement? c. Why is the difference so large? a. If you invest $170,000 for retirement at age 30, how much will you have 35 years later for retirement? The future value is $ (Round to the nearest dollar)
Suppose an investor, Erik, is offered the investment opportunities described in the table below. Each investment costs $1,000 today and provides a payoff, also described below, one year from now. Option Payoff One Year from Now 1 100% chance of receiving $1,100 2 50% chance of receiving $1,000; 50% chance of receiving $1,200 3 50% chance of receiving $200; 50% chance of receiving $2,000 If Erik is risk averse, which investment will he prefer? The investor will choose option 1. The investor will choose option 2. The investor will choose option 3. The investor will be indifferent toward these options. Which kind of stock is most affected by changes in risk aversion? High-beta stocks Low-beta stocks All stocks are affected the same, regardless of beta. Medium-beta stocks
You want to save for retirement. Assuming you are now 20 years old and you want to retire at age 60, you have 40 years to watch your investment grow. You decide to invest in the stock market, which has earned about 8% per year over the past 80 years and is expected to continue at this rate. You decide to invest $2,000 today.
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.
A real estate property is on the market. You have estimated it will give you net cash flows of $5136 per month. You hope to sell it in 9 years for $308182. Your required return is 9.46%, how much should you be willing to pay for the property today? Answer:
you would like to have in 5 years a total of $5000 for a trip knowing that you can invest a simple interest rate of 4%. how much should you invest today.
Suppose an Investor, Erik, is offered the Investment opportunities described in the table below. Each Investment costs $1,000 today and provides a payoff, also described below, one year from now. Option Payoff One Year from Now 1 100% chance of receiving $1,100 2 50% chance of receiving $1,000 50% chance of receiving $1,200 3 50% chance of receiving $200 50% chance of receiving $2,000 If Erik is a risk neutral investor, which investment will he prefer? O Erik will be indifferent toward these options. Erik will choose option 1. Erik will choose option 2. Erik will choose option 3. In contrast, Erik's brother, Devin, is risk averse. Which of the following statements is true about Devin? Everything else remaining constant, Devin will prefer option 1. Everything else remaining constant, Devin will prefer option 2. ○ Everything else remaining constant, Devin will prefer option 3. O None of these options is preferred.

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