Today you have paid $275 for an investment that pays $100 in one year, $500 in two years, and $X in 4 years. Assuming the market interest rate is 100% and the net present value of the investment is zero, what must be true about X? (a) X is greater than $2,500 (b) X is greater than or equal to $2,000 but less than $2,500 (c) X is greater than or equal to $1,500 but less than $2,000 (d) X is greater than $1,200 but less than $1,500 (e) X is less than or equal to $1,200

Today you have paid $275 for an investment that pays $100 in one year, $500 in two years, and $X in 4 years. Assuming the market interest rate is 100% and the net present value of the investment is zero, what must be true about X? (a) X is greater than $2,500 (b) X is greater than or equal to $2,000 but less than $2,500 (c) X is greater than or equal to $1,500 but less than $2,000 (d) X is greater than $1,200 but less than $1,500 (e) X is less than or equal to $1,200

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

You invest $1,400 today and expect to sell your investment for $3,200 in 10 years. a-1. Calculate the present value of the future payoff, if the interest rate is 8%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) a-2. Is this a good deal? b-1. Calculate the present value, if the interest rate is 11%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b-2. Is this a good deal?
If rate-sensitive assets equal $600 million and rate-sensitive liabilities equals $800 million, what is the expected change in net interest income if rates increase by 1%? a. Net interest income will increase by $2 million. b. Net interest income will fall by $2 million. c. Net interest income will increase by $20 million. d. Net interest income will fall by $20 million. e. Net interest income will be unchanged. its an objective question
Please only answer PART F d) Suppose the Internal Rate of Return (IRR) of this investment opportunity is 15%. Based on this information alone, should Limitless Ltd. make the investment? Why?Would this decision be consistent with that from B? Explain your reasoning.e) Suppose that, instead of paying the initial £500,000 now, Limitless Ltd. decides to pay it in equal instalments over the next 10 years. How much would the companyneed to pay each year to make all these payments equivalent to £500,000 today? f) Now assume that an alternative project would generate immediate (time zero) net profits of £500,000 upfront, but after that, it would result in annual losses of£120,000 over the next five years, and then the annual losses of £60,000 over the following five years. The cost of capital is 12% and the IRR is 15%. Should you start this project? Explain your reasoning. Would you make the same decision based on NPV and IRR? Why?
Suppose that you have $9,000 in a rather risky investment recommended by your financial advisor. During the first year, your investment decreases by 40% of its original value. During the second year, your investment at the end of year one increases by 50%. Your advisor tells you that there must have been a 10% an overall increase of your original $9,000 investment. Is your financial advisor using percentages properly? If not, what is your actual percent gain or loss of your original $9,000 investment?
You want to limit your 1% VaR to $100,000. How much can you own of an asset with 40% annualized volatility and Normal returns? Options A $1,703,273 B $5,871 C $93,200 D $107,296
An investment has a positive net present value of £7,750 at 12% and a negative NPV of £2,250 when the interest rate is increased by 6%.What is the approximate IRR for the investment (to 2 decimal places)?a. 21.30%b. 18.78%c. 16.65%d. 10.65%
Consider the following two mutually exclusive investments allernatives: Suppose that your firm needs either machine for only two years. The net proceeds from the sale of machine B are estimated to be $200. What should be the required net proceed from the sale of machine A in two years so that both machines could be considered economically indifferent at an interest rate of 10%?(a) $750(b) $780(c) $800(d) $850
Investment X offers to pay you $4,700 per year for 9 years, whereas Investment Y offers to pay you $6,400 per year for 5 years. a. If the discount rate is 8 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. If the discount rate is 20 percent, what is the present value of these cash flows?
Suppose that you have 12, 000 in a rather risky investment recommended by your financial advisor. During the first year, your investment decreases by 40% of its original value. During the second year, your investment at the end of year one increases by 50%. Your advisor tells you that there must have been a 10% overall increase of your original $12, 000 investment. Is your financial advisor using percentages properly? If not, what is your actual percent gain or loss of your original $12, 000 investment?
4.Sunrise Inc. is considering a capital investment proposal that costs $227,500 and has an estimated life of four years and no residual value. The estimated net cash flows are as follows: Year Net Cash Flow 1 $97,500 2 $80,000 3 $60,000 4 $40,000 The minimum desired rate of return for net present value analysis is 10%. The present value of $1 at compound interest rates of 10% for 1, 2, 3, and 4 years is .909, .826, .751, and .683, respectively. Determine the net present value.
13 Suppose that the Duration of Assets (DA) is 5 years and the duration of liabilities (DL) is 3 years. The current market value of assets is 100 million pounds and the market value of liabilities is 80 million pounds. What would be the effect (loss or gain) on the market value of equity (dE) if interest rates increase from 5% per annual. to 7% per annual?
The ordered pairs (0 , 5000) and (10 , 13591.41) represent the value of an investment at two different times: When the investment was made, and 10 years later. Let f(t), where t is time in years, be the linear function so that the above points lie on its graph. Then, using f(t), the value of the investment after 12 years is R_______ 1. Fill in the blank, If the interest rate for the investment is 10% per annum, compounded continuously, then the absolute error in approximating the value of the investment after 12 years with f(t) is R____ Fill in the blank