Suppose that you are considering an investment, which would require you to pay $1,000 up front (today), and you would receive a payment of $100 per year, for 5 years, beginning one year from now. One year after your fifth payment, you would then have $800 paid to you as a final payment. Assume that the interest rate is equal to 5%. Round all answers to two decimal places. 5. Calculate the Present Value (PV) of the cost and each of the payments for the investment. Does this investment have a positive or negative present value? Should you make this investment? 6. How much would the initial cost ($1,000) need to change for you to be exactly indifferent about this investment? (i.e. you receive the same return for making this investment as you do for not making this investment?)

Suppose that you are considering an investment, which would require you to pay $1,000 up front (today), and you would receive a payment of $100 per year, for 5 years, beginning one year from now. One year after your fifth payment, you would then have $800 paid to you as a final payment. Assume that the interest rate is equal to 5%. Round all answers to two decimal places. 5. Calculate the Present Value (PV) of the cost and each of the payments for the investment. Does this investment have a positive or negative present value? Should you make this investment? 6. How much would the initial cost ($1,000) need to change for you to be exactly indifferent about this investment? (i.e. you receive the same return for making this investment as you do for not making this investment?)

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance

Section: Chapter Questions

Problem 13PAE

See similar textbooks

Similar questions

Economics In 54 months time you expect a cash flow of $3 million. Calculate it’s present value (PV) given the 54-month interest rate is currently 4%, with a volatility of 120 basis points (bps). Explain, using equations with properly-defined mathematical notation, how to map this cash flow to vertices at 4 years and 5 years, in such a way that the volatility of the present value of the mapped cash flow remains at 120 bps. Suppose the 4-year rate has a volatility of 110 bps and the 5-year rate has a volatility of 150 bps, and their correlation is 0.9. How much should be mapped to each vertex. Give your answer in PV terms and round your answers to whole $ values.
Suppose an individual places his money in a bank for a year then invests in apples for a year. Suppose the bank has an annual rate of 5%, compounded continuously. During the year in which the individual's money is in the bank, the apple grows in price from $1 to $1.25. Suppose its return doubles in the second year, when the individual's money is invested in the apples. He starts the first investment period with $100. How much money does he have after two years following the investment plan given above? Group of answer choices $105.1 $124.7 $154.4 $157.7
An investment will pay $100 at the end of each of the next 3 years, $200 at the end of Year 4, $350 at the end of Year 5, and $600 at the end of Year 6. If other investments of equal risk earn 7% annually, what is its present value? Its future value? Do not round intermediate calculations. Round your answers to the nearest cent.
▼ Cash Flow Present Discounted Value Interest Rate is based on the notion that a dollar paid in the future is less valuable than a dollar paid today. Part 2 The present value of a loan in which $3000 is to be paid out a year from today with the interest rate equal to 3% is $enter your response here. (Round your response to the neareast two decimal place) Part 3 If a loan is paid after two years, and the amount $3000 is to be paid then with a corresponding 1% interest rate, the present value of the loan is $enter your response here. (Round your response to the neareast two decimal place)
10. Suppose the interest rate is 5% and that you are to receive three annual payments of $10,000, with the first payment one year from now, the second payment two years from now, and the third payment three years from now. What is the present value of this stream of payments?
Suppose schmidt owns some land and is trying to decide when to sell it for a shopping center development. Her goal is to maximize her net worth, the present value of her other income stream plus the value of the land or the value of investment made with the proceeds of selling the land. The land is now worth $100k if sold. Suppose that the value of the land is expeted to increase at a rate that will slowly decrease over time as she waits. A.) Suppose schmidt expects the land to be worth $104k next year. Should she sell it now? Why? B.) If she expects it to be worth $110k in a year, should she sell now, Why? C.) At what next year land value would Schmidt be indifferent between selling and holding a year?
Suppose a bank offers you the following two year, non-cashable GICs (i.e., withdrawals are not allowed). The first one pays a monthly rate of return 0.245%, the second one pays a semi-annual rate of return of 1.47% and the third one a return of 2.75% for the first year and 3.25% for the second year. All interest payments are reinvested.(a) Which investment would you prefer?(b) Suppose you expect that interest rates decline to 3% after the first year. How does your answer change, if the two year GIC pays out the first interest payment (but not the principal) at the end of the first year?
Suppose you expect to receive a $10,000 bonus from your employer in two years upon completing your college degree. If the interest rate is 5%, what is the present value of the $10,000? The present value is $9,070.30 $9,523.80 $11,025.00 $10,500.00
4. If a refrigerator is offered for sale at the amount of P 18,000.00 payable after 1 year. If you wish to pay immediately, what is the present value of the refrigerator if the seller offers to compute the cash price on the assumption that the money is worth 8% in the simple interest?
Question 4 The equivalent rate of interest for a discount rate of 10.5% for 60 days is 104.9825%. Hint: An interest rate r and discount rate d are said to be equivalent if these two simple rates give the same present value for an amount due in the future. Thus, r = d/(1 - dt) and d = r/(1 + rt)
The disposable income from your part-time job in 2019 was $18,800. In 2018, you borrowed $700 at 14 percent interest. You repaid your loan with interest in 2019. How much would you have available for spending in 2019? (Do not round intermediate calculations.)
Define the following: i) Simple interest. ii) Breakeven point. iii) Ordinary annuity. b) When the price of a commodity is Sh. 530 the unit demand is 55 units. The demand is 120 units when the price is Sh. 270. If the cost of production is C = 2q + 150, Calculate the profit when 5 units are produced and sold. c) The present value of an annuity due is Sh. 284,000 after 4 years at a discount rate of 10%. Calculate the annual payment. d) A man deposits Sh. 12,000 in a bank at the beginning of each year. The compound interest is 12% per year. Calculate how long it will take for an accumulated amount of Sh. 95,000.