Foundations of Finance (9th Edition) (Pearson Series in Finance)
9th Edition
ISBN: 9780134083285
Author: Arthur J. Keown, John D. Martin, J. William Petty
Publisher: PEARSON
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Chapter 2, Problem 15SP
(Unbiased expectations theory) Currently you have $50,000 that you would like to invest for 2 years and are considering buying a government security maturing in 1 year that pays 3% annually. If you do this, you will also have to purchase another 1-year security at the end of the first year. The alternative is to invest in a government security that matures in 2 years; currently, 2-year government securities are paying 3.5% annually. If you invest your money for 1 year and then after 1 year reinvest it for another year, what rate will you have to earn in order to make the two alternatives equal?
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You are considering investing in a security that will pay
you $3,000 in 30 years. a. If the appropriate discount rate
is 10 percent, what is the present value of this
investment? b. Assume these investments sell for $706 in
return for which you receive $3,000 in 30 years. What is
the rate of return investors earn on this investment if they
buy it for $706 ?
USE EXCEL TO SOLVE THIS PROBLEM AND SHOW THE FORMULA!
You are considering investing in a security that will pay you $1,000 in 30 years.
a. If the appropriate discount rate is 10 percent, what is the present value of this investment?
b. Assume these securities sell for $365, in return for which you receive $1,000 in 30 years. What is the rate of return investors earn on this security if they buy it for $365?
(Related to Checkpoint 5.6) (Solving for ) You are considering investing in a security that will pay you $4,000 in 28 years
a. If the appropriate discount rate is 12 percent, what is the present value of this investment?
b. Assume these investments sell for $2,229 in return for which you receive $4,000 in 28 years. What is the rate of return
investors earn on this investment if they buy it for $2,229?
Chapter 2 Solutions
Foundations of Finance (9th Edition) (Pearson Series in Finance)
Ch. 2 - Prob. 1RQCh. 2 - Prob. 2RQCh. 2 - Prob. 3RQCh. 2 - Prob. 4RQCh. 2 - Prob. 5RQCh. 2 - Prob. 6RQCh. 2 - Prob. 7RQCh. 2 - Prob. 8RQCh. 2 - Prob. 9RQCh. 2 - Prob. 10RQ
Ch. 2 - Prob. 11RQCh. 2 - Prob. 12RQCh. 2 - Prob. 13RQCh. 2 - Prob. 14RQCh. 2 - Prob. 15RQCh. 2 - Prob. 1SPCh. 2 - Prob. 2SPCh. 2 - Prob. 3SPCh. 2 - Prob. 4SPCh. 2 - Prob. 5SPCh. 2 - Prob. 6SPCh. 2 - Prob. 7SPCh. 2 - Prob. 8SPCh. 2 - Prob. 9SPCh. 2 - Prob. 10SPCh. 2 - Prob. 11SPCh. 2 - (Interest rate determination) Youre looking at...Ch. 2 - Prob. 13SPCh. 2 - (Yield curve) If yields on Treasury securities...Ch. 2 - (Unbiased expectations theory) Currently you have...Ch. 2 - On the first day of your summer internship, you’ve...Ch. 2 - On the first day of your summer internship, you’ve...Ch. 2 - Prob. 3MCCh. 2 - The maturity-risk premium is estimated by the...Ch. 2 - SanBlas Jewels’ bonds will be traded on the New...
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