ASSIGNMENT 2 SQ2024
.docx
keyboard_arrow_up
School
DePaul University *
*We aren’t endorsed by this school
Course
320
Subject
Finance
Date
May 2, 2024
Type
docx
Pages
1
Uploaded by MagistrateBoulderElk7
Assignment 2
Session 5 and 6
Question
1: Given a choice of two investments, would you choose one that pays a total return of 30 percent over five years or one that pays 0.5 percent per month for five years? Question
2: A financial institution offers you a one-year certificate of deposit with an expected
nominal interest rate of 5 percent. You desire an expected real return of 2% for letting someone
else use your current purchasing power for one year. What is the expected rate inflation implied
in the expected nominal interest rate?
Question
3: Consider two scenarios. In the first, the nominal interest rate is 6 percent and the
expected rate of inflation is 4 percent. In the second, the nominal interest rate is 5 percent and the
expected rate of inflation is 2 percent. In which situation would you rather be a lender? In which
would you rather be a borrower? Question
4: You are considering going to graduate school for a one-year master’s program. You
have done some research and believe that the master’s degree will add $5,000 per year to your
salary for the next 10 years of your working life, starting at the end of this year. From then on,
after the next 10 years, it makes no difference. Completing the master’s program will cost you
$35,000, which you would have to borrow at an interest rate of 6 percent. How would you decide
if this investment in your education were profitable?
Discover more documents: Sign up today!
Unlock a world of knowledge! Explore tailored content for a richer learning experience. Here's what you'll get:
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Related Questions
Can u also answer part 2
arrow_forward
Question 1:
Part A.
The current 10 year treasury note is approaching the important threshold of:
a) 2.75%
b) 2.95%
c) 3.25%
d) 2.0%
Part B.
In a real estate investment, you may want to obtain a mortgage. In so doing, which year would you expect to see the highest amount of principal pay-down (in a payment mix of principal and interest)?
a) year 15
b) year 20
c) year 10
d) year 25Part C.
In a Fast Market, you would rather sell a stock using a:
a) Market Order
b) Market On Close Order
c) Limit Order
d) Market On Open OrderPart D.
Given that equity markets are asymmetric in their respective moves, markets are said to take________________________
a) the slow grind higher into perpetuity
b) the stairs down and the elevator up
c) the stairs up and your mom home
d) the stairs up and the elevator down
Part E.
It is said that traders have come to employ the use of technical analysis potentially for all of the following reasons except:…
arrow_forward
Question 3
A deposit of $330 earns the following interest rates:
8 percent in the first year.
6 percent in the second year.
5 percent in the third year.
What would be the third year future value? (Round your answer to 2 decimal places.
Future Value
arrow_forward
Present Value of $1
n/i
3.0%
1
0.97087
2
0.94260
3 0.91514
4
0.88849
5
0.86261
6
0.83748
7 0.81309
8
0.78941
0.76642
0.74409
0.55368
0.41199
10
20
30
Present Value of An Ordinary Annuity
n/i
5.0%
6.0%
8.0%
3.0%
0.97087
4.0%
0.96154
1
0.95238
0.94340
0.92593
2
1.91347
1.88609
1.85941
1.83339
1.78326
3
2.77509
2.72325
2.67301 2.57710 2.48685
4
3.62990
3.54595
3.46511 3.31213 3.16987
5 4.57971
4.45182
4.32948
3.79079
4.21236 3.99271
5.07569 4.91732 4.62288
6
5.41719
5.24214
4.35526
7
6.23028
6.00205
5.78637 5.58238
5.20637
4.86842
8
7.01969
6.73274
6.46321
6.20979
5.74664
5.33493
9
7.78611
7.43533
7,10782
6.80169 6.24689 5.75902
10
8.53020
8.11090
7.72173
7.36009 6.71008 6.14457
11.46992 9.81815 8.51356
20
14.87747 3.59033
12.46221
30 19.60044 17.29203 15.37245 13.76483 11.25778 9.42691
2.82861
3.71710
4.0%
5.0%
6.0%
8.0%
10.0%
12.0%
0.94340
0.90909
0.89286
0.96154 0.95238
0.92593
0.92456 0.90703 0.89000 0.85734
0.82645 0.79719
0.88900
0.83962 0.79383
0.75131 0.71178
0.86384
0.82270…
arrow_forward
A Question 11
You deposit $5000 each year into your retirement account, starting in one year. If
these funds earn an average of 5% per year over the 27 years until your retirement,
what will be the value of your retirement account upon retirement?
Your Answer:
Answer
Hide hint for Question 11
NOTICE THAT THE ONLINE FINANCIAL CALCULATOR HAS THE BUTTON FOR
PAYMENTS MADE AT THE END OF THE PERIOD. THIS IS THE DEFAULT OF THE
CALCULATOR, AND THE WORDS 'STARTING IN ONE YEAR' ARE JUST
CONFIRMATION THAT YOU WANT THAT END OF THE PERIOD BUTTON
SELECTED.
arrow_forward
Question 11
arrow_forward
Question 9
Suppose you need to accumulate GHȼ100,000 in 10 years. You plan to make a deposit in a bank now, at Time 0, and then make 9 more deposits at the beginning of each of the following 9 years, for a total of 10 deposits. The bank pays 6% interest, you expect inflation to be 2% per year, and you plan to increase your annual deposits at the inflation rate. How much must you deposit initially?
arrow_forward
QUESTION 16
Your financial advisor tells you that if you earn the historical rate of retum on a certain mutual fund, then in three
years your $20,000 will grow to $23,152.50. What rate of interest does your financial advisor expect you to earn?
a. 6 percent
O b.5 percent
OC. 8 percent
O d. 7 percent
arrow_forward
Question 2
The following interest rate structures are on offer by three independent banks:
Tree Bank: 16% compounded annually;
Branch Bank: 15% compounded monthly;
Leaf Bank: 15% compounded quarterly.
Note: Assume 365 days in a year.
Q.2.2 Rank the three options from most preferable to least preferable to a borrower, with
a reason why.
arrow_forward
Question list
Question 31
Question 32
K
a. Use the appropriate formula to determine the periodic deposit.
b. How much of the financial goal comes from deposits and how much comes from interest?
Periodic Deposit
Rate
$? at the end of each month 5.5% compounded monthly
Time
12 years
Financial Goal
$220,000
Click the icon to view some finance formulas.
a. The periodic deposit is $
Question 33
○ Question 34
(Do not round until the final answer. Then round up to the nearest dollar as needed.)
b. $ of the $220,000 comes from deposits and $
comes from interest.
(Use the answer from part (a) to find these answers. Round to the nearest dollar as needed.)
Question 35
arrow_forward
QUESTION 3
Suppose you deposit $2.500 in a CD paying 8% interest, compounded every other month. How much will you have in the account after
15 years? Round your answer to the nearest cent.
below is an example how to do problem
mple 4
A certificate of deposit (CD) is a savings instrument that many banks offer. It usually gives a
higher interest rate, but you cannot access your investment for a specified length of ime.
Suppose you deposit $3000 in a CD paying 6% interest, compounded monthly. How much
will you have in the accbunt after 20 years?
In this example,
Pa-$3000
1=0.06
-12
the initial deposit
6% annual rate
12 months in 1 year
since we're looking for how much well have after 20
N=20
years
0.06
So P 3000 1+
12
3D%2993061(round your answer to the nearest penny)
%3D
Let us compare the amount of money earned from compounding against the amount you
would carn from simple interest
Yars
Simple Interest
6% compounded
(S15 per month)monthly 0.5%
each month
33900
$4800
$5700
$4046 55…
arrow_forward
V1
arrow_forward
Question 4
John makes an Investment of 10900 Into an account that pays Interest compounded annually. In addition,
he makes a yearly deposit of $170. At the end of 3 years, his balance is 15900. Determine the Interest he
earned on the savings account.
John annual percentage rate on his investment was
Time Value of Money Solver
Enter the given values.
N: =
0
Number of Payment Periods
1:%=
0
Annual Interest Rate as a Percent
PV: =
Present Value
0
PMT: = 0
Payment
FV: =
in
Solve
Solve
Solve
Solve
Salve
3
31
arrow_forward
Determinants of Interest Rates
Problem Illustration:
(1 + nominal)
1
Solving for the Real Rate of Interest real
(1 + inflation)
You have managed to build up your savings over the three years
following your graduation from college to a respectable P100,000
and are wondering how to invest it. Your banker says they could
pay you 5% on your account for the next year. However, you
recently saw on the news that the expected rate of inflation for
next year is 3.5%. If you are earning a 5% annual rate of return
but the prices of goods and services are rising at a rate of 3.5%,
just how much additional buying power would you gain each
year? Stated somewhat differently, what real rate of interest
would you earn if you made the investment?
arrow_forward
Question 4
A deposit of $730 earns interest rates of 9 percent in the first year and 12 percent in the second year.
What would be the second year future value? (Round your answer to 2 decimal places.)
Future Value
arrow_forward
Quantitative Problem 1: You plan to deposit $2,300 per year for 5 years into a money market account with an annual return of 2%. You plan to make your first deposit one year from today.
What amount will be in your account at the end of 5 years? Do not round intermediate calculations. Round your answer to the nearest cent.
$
Assume that your deposits will begin today. What amount will be in your account after 5 years? Do not round intermediate calculations. Round your answer to the nearest cent.
$
arrow_forward
Question 7
Consider the two investments shown in the table. Find the present value of each at Year 0
assuming an interest rate of 5%. What is the percentage difference in the present values (with
Investment 1 as the base of the percentage)?
Year
0
1
2
3
Investment #1 Investment #2
$0
$100.
$100
$1,100
$0
$100
$1,100
$0
arrow_forward
solve this practice problem
arrow_forward
Question 5
An insurance firm agrees to pay you $5,089 at the end of 25 years if you
pay
premiums of $123 per year at the end of each year for 25 years. Find the
internal
rate of return to the nearest whole percentage point. Assuming you
normally earn a
return of 7 percent on your investments, is this a good deal or a bad deal?
3.95%; bad deal
4.05%; good deal
4.05%; bad deal
○ 4.15%; good deal
O 4.15%; bad deal
arrow_forward
Help mw eoth formulas of both parts i will rate
arrow_forward
None
arrow_forward
Financila Management
1. PV of an ordinary annuity Suppose you have an opportunity to buy an annuity that pays $1,000 at the end of each year for 5 years, at a 6% interest rate. What is the most you should pay for the annuity?
2. FV of an ordinary annuity Suppose Sandra opens a bank account with 20 000 at the beginning of the year at an interest rate of 8%. If the first deposit is made today and then 3 additional payments, how much would be accumulated after 5 years?
3. FV of an ordinary annuity due An annuity makes 20 annual payments of $3,000 with the first payment coming today. What is the future value of this as of 20 years from now if the interest rate is 8%?
4. PV of a perpetuity What’s the present value of a perpetuity that pays $1500 per year if the appropriate interest rate is 15%? 5. PV of an uneven cash flow stream At a rate of 5%, what is the present value of the following cash flow stream? $0 at Time 0; $250 at the end of Year…
arrow_forward
Question 7
Suppose XYZ Bank Ltd has made 300 identical mortgage loans today. Each loan is for $350,000 to be repaid each month over the next 30 years. The interest rate on each loan is 7.5% per annum nominal.
(a) Calculate the expected monthly cash flows to the bank from this mortgage pool and the principal amount owing to the bank at the end of five years. Assume no prepayments in your calculation.
(b) Carefully describe the risks to the bank from making this pool of loans.
(c) Suppose XYZ Bank Ltd has decided to issue a series of mortgage backed securities to pass on these risks. They issue 100 CMO contracts. Your manager is a bond fund manager and asks you, an analyst, to write down the advantages and disadvantages of investing in these CMO contracts. Writedown your response.
arrow_forward
Question 4 of 10
Moving to another question will save this response.
Question 4
Your bank is offering a term deposit that will earn investors an EAR of 12.00%. Your manager asks you to quote this as an APR with monthly compounding. What is the correct APR?
11.66%
11.49%
12.00%
11.39%
arrow_forward
MC algo 5-9 Calculating Future Values
Retirement Investment Advisors Incorporated, has just offered you an annual interest rate of 4.1 percent until you retire in 45 years. You believe that interest rates will increase over the next year and you would be offered 4.7 percent per year one year from today. If you plan to deposit $11,500 into the account either this year or next year, how much more will you have when you retire if you wait one year to make your deposit?
Multiple Choice
$21,849.41
$15,052.44
$3,296.69
$16,624.04
$23,019.70
arrow_forward
QUESTION 3
If you deposit today 11,445.85 in an account earning 8% compound interest, for how long should you invest the money in
order to earn 12,488.36 (profit)?
arrow_forward
Question content area top
Part 1
(Comprehensive problem) You would like to have
$57,000
in
14
years. To accumulate this amount, you plan to deposit an equal sum in the bank each year that will earn
6
percent interest compounded annually. Your first payment will be made at the end of the year.
a. How much must you deposit annually to accumulate this amount?
b. If you decide to make a large lump-sum deposit today instead of the annual deposits, how large should this lump-sum deposit be? (Assume you can earn
6
percent on this deposit.)
c. At the end of five years, you will receive
$15,000
and deposit this in the bank toward your goal of
$57,000
at the end of year
14.
In addition to the lump-sum deposit, how much must you deposit in equal annual amounts, beginning in year 1 to reach your goal? (Again, assume you can earn
6
percent on your deposits.)
Question content area bottom
Part 1
a. How much must you deposit annually to accumulate this amount?…
arrow_forward
QUESTION 5
You own two investments, A and B, that have a combined total value of $17,400.00. Investment A is expected to make its next payment in 1 month. A's next
payment is expected to be $93.00 and subsequent payments are expected to grow by 0.56 percent per month forever. The expected return for investment A is
0.90 percent per month. Investment B is expected to pay $142.00 each quarter forever and the next payment is expected in 3 months. What is the quarterly
expected return for investment B?
O-1.43% (plus or minus 2 bps)
O 0.82% (plus or minus 2 bps)
O 0.53% (plus or minus 2 bps)
O 0.34% (plus or minus 2 bps)
O none of the answers are within 2 bps of the correct answer
arrow_forward
Question 15
What is the present value of your investment if you deposited $100.00 into your
bank account at the beginning of each quarter for 10 years if the bank pays interest
is 6% compounded semi-annually?
a. $2,854.90
b. $3,036.46
c. $1,628.23
d. $3042.28
e. $900.17
arrow_forward
QUESTION 1
Considering the following scenario. In years 0, 2, 4, 6, and 8, you deposit $750 in your savings account. The saving
account earns 4.25% compounded anbually. What is the future value in year 10?
4,847.22
5,411.56
3,579.94
6,411.56
arrow_forward
Question content area top
Part 1
(Comprehensive problem) You would like to have $
60,000 in
14 years. To accumulate this amount, you plan to deposit an equal sum in the bank each year that will earn
6 percent interest compounded annually. Your first payment will be made at the end of the year.
a. How much must you deposit annually to accumulate this amount?
b. If you decide to make a large lump-sum deposit today instead of the annual deposits, how large should this lump-sum deposit be? (Assume you can earn
6 percent on this deposit.)
c. At the end of five years, you will receive $
10,000 and deposit this in the bank toward your goal of $
60,000 at the end of year
14. In addition to the lump-sum deposit, how much must you deposit in equal annual amounts, beginning in year 1 to reach your goal? (Again, assume you can earn
6 percent on your deposits.)
Question content area bottom
Part 1
a. How much must you deposit annually to…
arrow_forward
SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Related Questions
- Can u also answer part 2arrow_forwardQuestion 1: Part A. The current 10 year treasury note is approaching the important threshold of: a) 2.75% b) 2.95% c) 3.25% d) 2.0% Part B. In a real estate investment, you may want to obtain a mortgage. In so doing, which year would you expect to see the highest amount of principal pay-down (in a payment mix of principal and interest)? a) year 15 b) year 20 c) year 10 d) year 25Part C. In a Fast Market, you would rather sell a stock using a: a) Market Order b) Market On Close Order c) Limit Order d) Market On Open OrderPart D. Given that equity markets are asymmetric in their respective moves, markets are said to take________________________ a) the slow grind higher into perpetuity b) the stairs down and the elevator up c) the stairs up and your mom home d) the stairs up and the elevator down Part E. It is said that traders have come to employ the use of technical analysis potentially for all of the following reasons except:…arrow_forwardQuestion 3 A deposit of $330 earns the following interest rates: 8 percent in the first year. 6 percent in the second year. 5 percent in the third year. What would be the third year future value? (Round your answer to 2 decimal places. Future Valuearrow_forward
- Present Value of $1 n/i 3.0% 1 0.97087 2 0.94260 3 0.91514 4 0.88849 5 0.86261 6 0.83748 7 0.81309 8 0.78941 0.76642 0.74409 0.55368 0.41199 10 20 30 Present Value of An Ordinary Annuity n/i 5.0% 6.0% 8.0% 3.0% 0.97087 4.0% 0.96154 1 0.95238 0.94340 0.92593 2 1.91347 1.88609 1.85941 1.83339 1.78326 3 2.77509 2.72325 2.67301 2.57710 2.48685 4 3.62990 3.54595 3.46511 3.31213 3.16987 5 4.57971 4.45182 4.32948 3.79079 4.21236 3.99271 5.07569 4.91732 4.62288 6 5.41719 5.24214 4.35526 7 6.23028 6.00205 5.78637 5.58238 5.20637 4.86842 8 7.01969 6.73274 6.46321 6.20979 5.74664 5.33493 9 7.78611 7.43533 7,10782 6.80169 6.24689 5.75902 10 8.53020 8.11090 7.72173 7.36009 6.71008 6.14457 11.46992 9.81815 8.51356 20 14.87747 3.59033 12.46221 30 19.60044 17.29203 15.37245 13.76483 11.25778 9.42691 2.82861 3.71710 4.0% 5.0% 6.0% 8.0% 10.0% 12.0% 0.94340 0.90909 0.89286 0.96154 0.95238 0.92593 0.92456 0.90703 0.89000 0.85734 0.82645 0.79719 0.88900 0.83962 0.79383 0.75131 0.71178 0.86384 0.82270…arrow_forwardA Question 11 You deposit $5000 each year into your retirement account, starting in one year. If these funds earn an average of 5% per year over the 27 years until your retirement, what will be the value of your retirement account upon retirement? Your Answer: Answer Hide hint for Question 11 NOTICE THAT THE ONLINE FINANCIAL CALCULATOR HAS THE BUTTON FOR PAYMENTS MADE AT THE END OF THE PERIOD. THIS IS THE DEFAULT OF THE CALCULATOR, AND THE WORDS 'STARTING IN ONE YEAR' ARE JUST CONFIRMATION THAT YOU WANT THAT END OF THE PERIOD BUTTON SELECTED.arrow_forwardQuestion 11arrow_forward
- Question 9 Suppose you need to accumulate GHȼ100,000 in 10 years. You plan to make a deposit in a bank now, at Time 0, and then make 9 more deposits at the beginning of each of the following 9 years, for a total of 10 deposits. The bank pays 6% interest, you expect inflation to be 2% per year, and you plan to increase your annual deposits at the inflation rate. How much must you deposit initially?arrow_forwardQUESTION 16 Your financial advisor tells you that if you earn the historical rate of retum on a certain mutual fund, then in three years your $20,000 will grow to $23,152.50. What rate of interest does your financial advisor expect you to earn? a. 6 percent O b.5 percent OC. 8 percent O d. 7 percentarrow_forwardQuestion 2 The following interest rate structures are on offer by three independent banks: Tree Bank: 16% compounded annually; Branch Bank: 15% compounded monthly; Leaf Bank: 15% compounded quarterly. Note: Assume 365 days in a year. Q.2.2 Rank the three options from most preferable to least preferable to a borrower, with a reason why.arrow_forward
- Question list Question 31 Question 32 K a. Use the appropriate formula to determine the periodic deposit. b. How much of the financial goal comes from deposits and how much comes from interest? Periodic Deposit Rate $? at the end of each month 5.5% compounded monthly Time 12 years Financial Goal $220,000 Click the icon to view some finance formulas. a. The periodic deposit is $ Question 33 ○ Question 34 (Do not round until the final answer. Then round up to the nearest dollar as needed.) b. $ of the $220,000 comes from deposits and $ comes from interest. (Use the answer from part (a) to find these answers. Round to the nearest dollar as needed.) Question 35arrow_forwardQUESTION 3 Suppose you deposit $2.500 in a CD paying 8% interest, compounded every other month. How much will you have in the account after 15 years? Round your answer to the nearest cent. below is an example how to do problem mple 4 A certificate of deposit (CD) is a savings instrument that many banks offer. It usually gives a higher interest rate, but you cannot access your investment for a specified length of ime. Suppose you deposit $3000 in a CD paying 6% interest, compounded monthly. How much will you have in the accbunt after 20 years? In this example, Pa-$3000 1=0.06 -12 the initial deposit 6% annual rate 12 months in 1 year since we're looking for how much well have after 20 N=20 years 0.06 So P 3000 1+ 12 3D%2993061(round your answer to the nearest penny) %3D Let us compare the amount of money earned from compounding against the amount you would carn from simple interest Yars Simple Interest 6% compounded (S15 per month)monthly 0.5% each month 33900 $4800 $5700 $4046 55…arrow_forwardV1arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education