To critically think about: The investors’ willingness to pay $24,099 in return of $100,000, after 30 years. Introduction: The time value of money implies that the cash in hand at present has a higher value than the cash receipt promised in the future. Hence, a person needs more money in the future to buy the same product at present.

Question

Want to see the full answer?

Answer 1

Question

Chapter 4, Problem 8CQ

Summary Introduction

To critically think about: The investors’ willingness to pay $24,099 in return of $100,000, after 30 years.

Introduction:

The time value of money implies that the cash in hand at present has a higher value than the cash receipt promised in the future. Hence, a person needs more money in the future to buy the same product at present.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

In March 2018, Daniela Motor Financing (DMF), offered some securities for sale to the public. Under the terms of the deal, DMF promised to repay the owner of one of these securities $5,000 in March 2053, but investors would receive nothing until then. Investors paid DMF $820 for each of these securities; so they gave up $820 in March 2018, for the promise of a $5,000 payment 35 years later. a. Assuming you purchased the bond for $820, what rate of return would you earn if you held the bond for 35 years until it matured with a value $5,000? (Do not round intermediate calculations and enter your answer as a percent, rounded to 2 decimal places, e.g., 32.16.) b. Suppose under the terms of the bond you could redeem the bond in 2028. DMF agreed to pay an annual interest rate of 1.3 percent until that date. How much would the bond be worth at that time? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. In 2028, instead of cashing in the bond…

Rust Bucket Motor Credit Corporation (RBMCC), a subsidiary of Rust Bucket Motor, offered some securities for sale to the public on March 28, 2,009. Under the terms of the deal, RBMCC promised to repay the owner of one of these securities $112,564 on March 28, 2,038, but investors would receive nothing until then. Investors paid RBMCC $28,904 for each of these securities; so they gave up $28,904 on March 28, 2,009, for the promise of a $112,564 payment in 2,038. Based on the $28,904 price, what rate was RBMCC paying to borrow money?

Rust Bucket Motor Credit Corporation (RBMCC), a subsidiary of Rust Bucket Motor, offered some securities for sale to the public on March 28, 2,002. Under the terms of the deal, RBMCC promised to repay the owner of one of these securities $86,692 on March 28, 2,034, but investors would receive nothing until then. Investors paid RBMCC $22,024 for each of these securities; so they gave up $22,024 on March 28, 2,002, for the promise of a $86,692 payment in 2,034. Suppose that, on March 28, 2,015, this security's price is $45,002. If an investor had purchased it for $22,024 at the offering and sold it on this day, what annual rate of return would she have earned? (Enter your answer as a percentage, omit the "%" sign in your response, and round your answer to 2 decimal places. For example, 0.12345 or 12.345% should be entered as 12.35.)