ESSENTIALS OF INVESTMENTS - CONNECT ACCE
11th Edition
ISBN: 9781266077951
Author: Bodie
Publisher: INTER MCG
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Textbook Question
Chapter 12, Problem 24PS
You have
a. A
b. A two-year CD at a bank offering an interest rate of
c. A
What role does you
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You have $5000 to invest for the next year and are considering three alternatives:
a money market fund with an average maturity of 30 days offering a current yield of 6% per year.
a 1-year savings deposit at a bank offering an interest rate of 7.5%
a 20-year U.S. Treasury bond offering a yield to maturity of 9% per year
What role does your forecast of future interest rates play in your decisions?
The amount of money originally put into an investment is known as the present value P of the investment. For example, if you buy a $50 U.S. Savings Bond that matures in 10 years, the present value of the investment is the amount of money you have to pay for the bond today. The value of the investment at some future time is known as the future value F. Thus, if you buy the savings bond mentioned above, its future value is $50. If the investment pays an interest rate of r (as a decimal) compounded yearly, and if we know the future value F for t years in the future, then the present value P = P(F, r, t), the amount we have to pay today, can be calculated using the formula below.
P = F ×
1
(1 + r)t
We measure F and P in dollars. The term
1/(1 + r)t
is known as the present value factor, or the discount rate, so the formula above can also be written as the following.
P = F × discount rate
(a) Explain what information the function P(F, r, t) gives you.
The function…
You have some money to invest and you are considering purchasing unsecured notes which are a bond-type instrument that have been issued by JoJo Inc. The notes has $1,000 par value, mature in five years and have coupon rate of 10.75%, with coupon paid annually. What price(value) would you be prepared to pay for the notes if your alternative is to invest in your friends company who will guarantee you a 10% pa return?
Chapter 12 Solutions
ESSENTIALS OF INVESTMENTS - CONNECT ACCE
Ch. 12 - Prob. 1PSCh. 12 - Why does it make intuitive sense that the slope of...Ch. 12 - Which one of the following firms would be...Ch. 12 - Prob. 4PSCh. 12 - How do each of the following affect the...Ch. 12 - The present value of a firm’s projected cash flows...Ch. 12 - Prob. 7PSCh. 12 - Which of the following is consistent with a...Ch. 12 - Which of the following is not a governmental...Ch. 12 - Prob. 10PS
Ch. 12 - Prob. 11PSCh. 12 - ATech has fixed costs of 7 million and profits of...Ch. 12 - Choose an industry and identify the factors that...Ch. 12 - What monetary and fiscal policies might be...Ch. 12 - If you believe the U.S. dollar is about to...Ch. 12 - Unlike other investors, you believe the Fed is...Ch. 12 - Consider two firms producing smartphones. One uses...Ch. 12 - Prob. 18PSCh. 12 - Prob. 19PSCh. 12 - Prob. 20PSCh. 12 - In which stage of the industry life cycle would...Ch. 12 - Prob. 22PSCh. 12 - Why do you think the change in the index of labor...Ch. 12 - You have 5,000 to invest for the next year and are...Ch. 12 - General Weedkillers dominates the chemical weed...Ch. 12 - Prob. 26PSCh. 12 - Prob. 27PSCh. 12 - Prob. 28PSCh. 12 - Prob. 29PSCh. 12 - Prob. 30PSCh. 12 - Prob. 31PSCh. 12 - Prob. 32PSCh. 12 - Prob. 33CCh. 12 - Prob. 1CPCh. 12 - Prob. 2CPCh. 12 - Prob. 3CPCh. 12 - Prob. 4CPCh. 12 - Prob. 5CPCh. 12 - Prob. 1WM
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