INVESTMENTS(LL)W/CONNECT
11th Edition
ISBN: 9781260433920
Author: Bodie
Publisher: McGraw-Hill Publishing Co.
expand_more
expand_more
format_list_bulleted
Question
Chapter 6.A, Problem 1P
Summary Introduction
To calculate: The willingness to pay insurance amount initially.
Introduction:
Utility function: When a consumer gets satisfied using some goods or services, this satisfaction will be calculated regarding satisfaction of the consumer. The result of this calculation can be termed as Utility. Utility function is a concept which measures and compares preferences of goods and services.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
You are thinking about buying a real estate property. If you buy the property, you think you will sell it for $714663 in 8 years. If your required return on investments of this risk is 10.54%, what is the most that you should be willing to pay for the property?
Round to 2 decimal places. Include a dollar sign ($) or percent (%) as appropriate.
You have the choice of two equally risky annuities, each paying $5,000 per year for 8 years. One is an annuity that pays at the beginning of the year and the other is an annuity that pays at the end of the year. If you are going to be receiving the annuity payments, which annuity would you choose to maximize your wealth?
A.
Since we don't know the interest rate, we can't find the value of the annuities and hence we cannot tell which one is better.
B.
either one because they have the same present value
C.
the annuity that pays at the beginning of the year
D.
the annuity that pays at the end of the year
You are looking at investing in undeveloped land that you expect might be worth $2138713 in 9 years. Based on the risk of the property, you require a return of 8.85%. What is the most you should be willing to pay for it today? enter only numbers and decimals in your response. Round to 2 decimal places. Use your financial calcuator.
Chapter 6 Solutions
INVESTMENTS(LL)W/CONNECT
Ch. 6.A - Prob. 1PCh. 6.A - Prob. 2PCh. 6 - Prob. 1PSCh. 6 - Prob. 2PSCh. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Prob. 5PSCh. 6 - Prob. 6PSCh. 6 - Prob. 7PSCh. 6 - Prob. 8PS
Ch. 6 - Prob. 9PSCh. 6 - Prob. 10PSCh. 6 - Prob. 11PSCh. 6 - Prob. 12PSCh. 6 - Prob. 13PSCh. 6 - Prob. 14PSCh. 6 - Prob. 15PSCh. 6 - Prob. 16PSCh. 6 - Prob. 17PSCh. 6 - Prob. 18PSCh. 6 - Prob. 19PSCh. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Prob. 23PSCh. 6 - Prob. 24PSCh. 6 - Prob. 25PSCh. 6 - Prob. 26PSCh. 6 - Prob. 27PSCh. 6 - Prob. 28PSCh. 6 - Prob. 29PSCh. 6 - Prob. 1CPCh. 6 - Prob. 2CPCh. 6 - Prob. 3CPCh. 6 - Prob. 4CPCh. 6 - Prob. 5CPCh. 6 - Prob. 6CPCh. 6 - Prob. 7CPCh. 6 - Prob. 8CPCh. 6 - Prob. 9CP
Knowledge Booster
Similar questions
- You are considering investing in a security that will pay you $4,000 in 29 years. If the appropriate discount rate is 11 percent, what is the present value of this investment? b. а. Assume these investments sell for $791 in return for which you receive $4,000 in 29 years. What is the rate of return investors earn on this investment if they buy it for $791? If the appropriate discount rate is 11 percent, the present value of this investment is $___-_(Round to the nearest cent.) а.arrow_forwardSuppose you bought a condo for $100,000 financing it with a $20,000 down payment of your own funds and an $80,000 mortgage loan from a bank. Assume that the market value of your condo has now risen to $120,000. Ignoring interest and other costs, and assuming the loan amount is still $80,000, calculate your rate of return on your asset (ROA) and your rate of return on equity (ROE).arrow_forwardNathan decided to invest 10000 CZK. He could earn either (as net yield after subtracting the principal sum) 1000 CZK or he could lose invested money. Explain how insurance cold arrange the investment more convenient for him!arrow_forward
- Suppose you bought a condo for $100,000 financing it with a $20,000 down payment of your own funds and an $80,000 mortgage loan from a bank. Now assume that, instead of (a), you only put down $10,000 and borrowed $90,000 to buy the condo. Assuming that the market value of your house has risen to $120,000 and ignoring interest and other costs, calculate your rate of return on your asset (ROA) and your rate of return on equity (ROE).arrow_forwardd. If, instead, you decide to withdraw $170000 per year in retirement (again with the first withdrawal one year after retiring), how many years will it take until you exhaust your savings? (Use trial-and-error, a financial calculator: solve for "N", or Excel: function NPER) e. Assuming the most you can afford to save is $1500 per year, but you want to retire with 1000000 in your investment account, how high of a return do you need to earn on your investments? (Use trial-and-error, a financial calculator: solve for the interest rate, or Excel: function RATE) *round to two decimal places for d) and e)*arrow_forwardYou plan to purchase a rented house which you could rent to earn you an annual income of $12,000. The expected annual expenses of the house are $3,000. You plan to sell the house for $145,000 at the end of ten years .a. Draw a cash flow diagram for this investment if you consider 18% to be a suitable interest rateb. Determine how much you could afford to pay for it now.arrow_forward
- Assume that the price of real estate is determined by P=PV(all cash flows generated by the real estate). After you have graduated you work for some years and can save some money. You decide to invest in a house which you want to rent out for a rate of 12,000 pound per month. Assume that the rental rate will increase with 1.2% per year (which is 0.1% per month). (For the sake of simplicity, also assume that there are no further costs involved e.g. renovating or repair). a) As the market risk of renting out the house is low, you think that a discount rate of 5.5% (APR with monthly compounding) would be appropriate. What is the price of the house under the assumption that the cash flows from rent will last forever? b) If discount rate is 1% lower than 5.5% what is the price of the house? c) You want to make the valuation of the house more realistic by assuming that the time horizon for the valuation should be 50 years. Again, you assume that the house will generate SEK 12,000 rental…arrow_forwardYou can buy property today for $3.9 million and sell it in 5 years for $4.9 million. (you have no rental income on the property). 1. If the interest rate is 8% what is the present value of the sales price? 2. Is the property investment attractive to you? 3. What is the present value of the future cash flows if you are could earn $290000 per year rent on the property? The rent is paid at the end of each year. 4. Is the property investment attractive to you now?arrow_forwardYour 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. $8,000 a year at the end of each of the next eight years 2. $50,250 (lump sum) now 3. $100,050 (lump sum) eight 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 annuity factor table.) (Click the icon to view the future value annuity factor table.) (Click the icon to view the present value factor table.) (Click the icon to view the future value factor table.) Using a 6% interest rate, calculate the present values for each scenario. (Round the amounts to the nearest dollar.) Present value of Scenario 1arrow_forward
- Assume that you just inherited an annuity that will pay you $10,000 per year for 10 years, with the first payment being made today. A friend of your mother offers to give you $60,000 for the annuity. If you sell it, what rate of return would your mother’s friend earn on his investment? If you think a “fair” return would be 6%, how much should you ask for the annuity? What keys do I need to enter in a financial calculator to get the answers of (13.70%, $78,016.92)/ only show me the keys to enter in a financial calculaotr. not excel and not algebraarrow_forwardYou are considering investing in a real estate project. Your one ownership unit would cost $ 30,000. The project is expected to generate annual cash flows for you of $4,500 in year 1, $5.000 in years 2-5. $8,000 in year 6 and $19,000 in year 7. With a discount rate of 5.0%, what is the net present value (NPV) of this investment? Should you invest in this deal? Whyor why not? Please provide the proper keystrokes for the BAIIPlus and the Qualifier Plus IIIfx calculators. Thank you!arrow_forwardSuppose that Raphael is 35 years old and has no retirement savings. He wants to begin saving for retirement, with the first payment coming one year from now. He can save $20,000 per year and will invest that amount in the stock market, where it is expected to yield an average annual return of 10.00% return. Assume that this rate will be constant for the rest of his's life. In short, this scenario fits all the criteria of an ordinary annuity. Raphael would like to calculate how much money he will have at age 60. Use the following table to indicate which values you should enter on your financial calculator. For example, if you are using the value of 1 for N, use the selection list above N in the table to select that value. Input Keystroke Output N I/Y Input Keystroke Output 0 PV N Using a financial calculator yields a future value of this ordinary annuity to be approximately PMT Raphael would now like to calculate how much money he will have at age 65. I/Y FV 0 PV ? Use the following…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
