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- Your rich aunt is going to give you an end-of-year gift of $1,000 for each of the next 10 years. The general price inflation is expected to average 6%per year during the next 10 years, and the real interest rate is 4% per year. a. What is the equivalent value of these gifts at the present time? b. What is the current PW of the gift? c. What is the MARR?Due to the integrated nature of their capital markets, investors in both the U.S. and U.K. require the same real interest rate, 3.2%, on their lending. There is a consensus in capital markets that the annual inflation rate is likely to be 2.1% in the U.S. and 3.6% in the U.K. for the next three years. The GBP/USD rate is currently 1.3081. What is your expected future spot for GBP/USD three years from now? (X.XXXX)What is the uninflated present worth of a P 200,000 future value in two years if the average inflation rate is 6% and interest rate is 10%?
- If the real growth of money interest rate for the past year has been 4% and the general inflation has been 2.5%, the combined (market) interest rate is closest to what value? (a) 1.5% (b) 6.5% (c) 6.6% (d) 10.0%?A man borrowed P20, 000.00 from a local commercial bank which has a simple interest of 16% but the interest is to be deducted from the loan at the time that the money was borrowed, and the loan is payable at the end of one year. How much is the actual rate of interest? a.i = 0.59 or 59% (actual rate of interest) b.i = 0.39 or 39% (actual rate of interest) c.i = 0.19 or 19% (actual rate of interest) d.i = 0.79 or 79% (actual rate of interest)Consider a cash flow of payments C1,C2,...,Cn at the end of years t1,t2,...,tn. Suppose the nominal interest rate is r=0.04 and that interest is compounded monthly. Select all the correct statements. a) If all the above cash payments are the same then the effective duration is equal to the duration. b) The convexity is the same as the duration squared in this case. c) The duration and the effective duration are the same for this example. d) The effective duration is equal to 300/301 times the duration in this case. e) The effective duration is equal to 25/26 times the duration in this case.
- A recent college graduate has received the annual salaries shown in the following table over the past four years. During this time, the Consumer Price Index (CPI) has performed as indicated in the table below. Determine the annual salaries in year-zero Sterling Pound £ (b = 0), using the CPI as the indicator of general price inflation. End of Year Salary (Actual £) Consumer Price Index (CPI) 1 £34,000 2.4% 2 £36,200 1.9% 3 £38,800 3.3% 4 £41,500 3.4%A man borrowed P10,000 from a loan firm at a simple interest of 15%. If the interest is to be deducted from the loan at the time the money is borrowed and at the end of 1 year, he has to pay back P10,000. Calculate the actual rate of interest. 15.65% 16.65% 17.65% 18.65%A property owner is evaluating the following alternatives for leasing space in his office building for the next five years: Gross lease with expense stop and CPI adjustment. Rent will be $24 the first year and increase by the full amount of any change in the CPI after the first year with an expense stop at $9 per square foot. The CPI and operating expenses are followed: The CPI is expected to increase 5 percent per year. Expenses are estimated to be $9 during the first year and increase by $1 per year thereafter. Calculate the effective rent to the owner (after expenses) for the lease using a 10 percent discount rate. A) $21.60 B) $17.28 C) $22.46 D) $19.01 Give typing answer with explanation and conclusion
- Today you borrowed $90,000 from a bank at an interest rate of 10.25%, compounded monthly. You are supposed to repay the loan and its interest charges in equal monthly payments over a 15-year period, with the first payment in a month from now. The estimated annual inflation rate is 6%, compounded monthly.(a) What is the amount of your monthly payments?(b) What is the bank's real effective annual rate of return on this deal after taking inflation into account?The Tuition Prepayment Option (TPO) offered by many colleges provides savings by eliminating future tuition increases. When you enroll in the plan, you prepay all remaining undergraduate tuition and required fees at the rate in effect when you enter the plan. Tuition and fees (not including room and board) for the 2011-2012 academic year are $37,489 at Harvard University. Total undergraduate tuition for an entering freshman at this rate is $149,956. Tuition, fees, room, and board normally increase each year, but it is difficult to predict by how much, since costs depend on future economic trends and institutional priorities. The following chart lists thetuition and required fee rates since 2007: Academic Year Tuition and Fees Required Prepayment2007-2008 $31,665 $126,6602008-2009 $32,882 $131,528 2009-2010 $33,983…Your department is budgeting miscellaneous expenses for the next 5 years. Your best guess at the annual inflation rate is 3.9% and the combined MARR is 15%. Expenses currently run $14,500 per year. Assume that expenses are end-of-year payments. Solve, a. Determine the then-current dollar amounts for years 1, 2, 3, 4, and 5. b. Determine the constant-dollar amount for years 1, 2, 3, 4, and 5. c. Determine the PW of the then-current-dollar amounts. d. Determine the PW of the constant dollar amounts.