10. You are considering buying an asset which will give you two payments, one payment for one year later and the other for two years later. Assume that the asset pays you $8,000 (sure amount) one year later, but two years later cither $6,000 with the probability of 1/2 or $4,000 with the probability of 1/2. Then what would be the fair price of this asset assuming that į-10%? (How much are you willing to pay now for this asset?

10. You are considering buying an asset which will give you two payments, one payment for one year later and the other for two years later. Assume that the asset pays you $8,000 (sure amount) one year later, but two years later cither $6,000 with the probability of 1/2 or $4,000 with the probability of 1/2. Then what would be the fair price of this asset assuming that į-10%? (How much are you willing to pay now for this asset?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 15PROB

See similar textbooks

Similar questions

If you invest $15,000 today, how much will you have in (for further instructions on future value in Excel, see Appendix C): A. 20 years at 22% B. 12 years at 10% C. 5 years at 14% D. 2 years at 7%
If you invest $12,000 today, how much will you have in (for further Instructions on future value in Excel, see Appendix C): A. 10 years at 9% B. 8 years at 12% C. 14 years at l5% D. 19 years at 18%
Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
How much would you invest today in order to receive $30,000 in each of the following (for further Instructions on present value In Excel, see Appendix C): A. 10 years at 9% B. 8 years at 12% C. 14 years at 15% D. 19 years at 18%
Consider an asset that costs $120 today. You are going to hold it for 1 year and then sell it. Suppose that there is a 25 percent chance that it will be worth $100 in a year, a 25 percent chance that it will be worth $115 in a year, and a 50 percent chance that it will be worth $140 in a year. What is its average expected rate of return? Next, fifi gure out what the investment’s average expected rate of return would be if its current price were $130 today. Does the increase in the current price increase or decrease the asset’s average expected rate of return? At what price would the asset have a zero rate of return?
You have the opportunity to make an investment that costs $1.000,000. If you make this investment now, you will receive $250,000 one year from today, $200,000, $150,000 and $ 400,000 two and three years from today, respectively. The appropriate discount rate for thisinvestment is 11 percent. .a. Should you make the investment?b. What is the net present value (NPV) of this opportunity?c. If the discount rate is 10 percent, should you invest? Compute the NPV to support youranswer.
Consider an asset that costs $130 today. You are going to hold it for 1 year and then sell it. Suppose that there is a 25 percent chance that it will be worth $90 in a year, a 25 percent chance that it will be worth $120 in a year, and a 50 percent chance that it will be worth $160 in a year. Instructions: In parts a, b, and d round your answers to 2 decimal places. If you are entering any negative numbers, be sure to include a negative sign (-) in front of those numbers. a. What is its average expected rate of return? percent b. Next, figure out what the investment’s average expected rate of return would be if its current price were $140 today. percent c. Does the increase in the current price increase or decrease the asset’s average expected rate of return? d. At what price would the asset have a zero average expected rate of return? $
If you think you can sell an asset for $15,000 in eight (8) years and you think the appropriate discount rate is 5%, how much would you be willing to pay for the asset today?
f you think you can sell an asset for $15,000 in eight (8) years and you think the appropriate discount rate is 5%, how much would you be willing to pay for the asset today? Select one: a. $15,000 b. $10,153 c. $11,236 d. $15,771.00 e. None of the above
You are considering the purchase of real estate that will provide perpetual income that should average $54,000 per year. How much will you pay for the property if you believe its market risk is the same as the market portfolio’s? The T-bill rate is 6%, and the expected market return is 9.0%. Property Value =
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.