Your best friend has asked to assist him in making the best investment out of the following options. Which would you advise him to choose and why? Show your workings to justify your response. Option 1: $12,000 in 5 years’ time at 6 percent interest. Option 2: $15,000 in 2 years’ time at 9 percent interest. Option 3: $15,000 today. No strings attached. Option4: $5,000 each year for 2 years at 7 percent interest compounded semi-annually.
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Your best friend has asked to assist him in making the best investment out of the following options. Which would you advise him to choose and why? Show your workings to justify your response.
Option 1: $12,000 in 5 years’ time at 6 percent interest.
Option 2: $15,000 in 2 years’ time at 9 percent interest.
Option 3: $15,000 today. No strings attached.
Option4: $5,000 each year for 2 years at 7 percent interest compounded semi-annually.
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- Your family business has been presented with three investment options, all requiring the same initial investment: Option 1 – returns $10,000 annually for the next three years. Option 2 – returns $5,000 every six-months for the next three years. Option 3 – returns $30,000 at the end of the three years. Assuming all other conditions are the same over the three years, which option would yield the best return for your investment? Select the best option: Option 1 Option 3 All three options offer the same return hence any option is a good option Option 2Mitchell Investments has offered you the following investment opportunity: $7,000 at the end of each year for the first 7 years, plus $6,000 at the end of each year from years 8 through 14, plus $3,000 at the end of each year from years 15 through 21. Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest dollar. How much would you be willing to pay for this investment if you required a 8 percent rate of return?$ If the payments were received at the beginning of each year, what would you be willing to pay for this investment?$You have $50,000 saving and are considering a 30-year investment which is offered in two phases: Phase 1: Investing that $50,000 as a lump sum in an investment in the securities market for 20 years. Your securities broker recommends two alternative options: Option A pays interest rate of 11.87%, compounding daily. Option B pays interest rate of 12%, compounding quarterly. Phase 2: At the end of 20 years, putting the total amount accumulated in the first phase into another investment, which will pay you an equal income at the end of each year for 10 years. Required: a) Identify which option should you choose in Phase 1 by computing the effective annual interest rate (EAR)? b) Calculate the amount of money you would accumulate in Phase 1 after 20 years if you choose Option A? c) If you would like to have exactly $600,000 after 20 years, how much the investment rate of return (compounding annually) should be? d) Assume that after 20 years, you put totally $500,000…
- You have $50,000 saving and are considering a 30-year investment which is offered in two phases: Phase 1: Investing that $50,000 as a lump sum in an investment in the securities market for 20 years. Your securities broker recommends two alternative options: Option A pays interest rate of 11.87%, compounding daily. Option B pays interest rate of 12%, compounding quarterly. Phase 2: At the end of 20 years, putting the total amount accumulated in the first phase into another investment, which will pay you an equal income at the end of each year for 10 years. Required: d) Assume that after 20 years, you put totally $500,000 in the investment in Phase 2, calculate the amount of yearly income would you receive each year for 10 years if the required rate of return is 12.5%, compounding annually? e) In phase 2, assume the payment of income is changed to 74,000 per year forever. Calculate the rate of return would you get from the investment?Mitchell Investments has offered you the following investment opportunity: ■ $6,000 at the end of each year for the first 5 years, plus ■ $3,000 at the end of each year from years 6 through 10, plus ■ $2,000 at the end of each year from years 11 through 20. How much would you be willing to pay for this investment if you required a 12 percent rate of return?You would like to have $300,000 saving to retire in 25 years and considering an investment strategy with two phases: Phase 1: Contributing an identical amount of money into an investment plan at the end of each year, given the rate of return of 12% to get a total saving of $200,000 after 15 years. Phase 2: Investing that $200,000 accumulate in the first 15 years as a lump sum in an investment in the securities market for the left 10 years. Your financial adviser recommends two alternative options: Option A pays interest rate of 12.88%, compounding weekly. Option B pays interest rate of 13%, compounding annually. Required: Calculate the identical amount of money you should contribute at the end of each year in Phase 1. In phase 1, if you contribute the same amount, but at the beginning of each year, how much would you get from this investment after 15 years Identify which option should you choose in Phase 2 by computing the effective annual interest rate (EAR) Calculate the…
- You would like to have $300,000 saving to retire in 25 years and considering an investment strategy with two phases: Phase 1: Contributing an identical amount of money into an investment plan at the end of each year, given the rate of return of 12% to get a total saving of $200,000 after 15 years. Phase 2: Investing that $200,000 accumulate in the first 15 years as a lump sum in an investment in the securities market for the left 10 years. Your financial adviser recommends two alternative options: Option A pays interest rate of 12.88%, compounding weekly. Option B pays interest rate of 13%, compounding annually. Required: Calculate the identical amount of money you should contribute at the end of each year in Phase 1. In phase 1, if you contribute the same amount, but at the beginning of each year, how much would you get from this investment after 15 years? Identify which option should you choose in Phase 2 by computing the effective annual interest rate (EAR)? Calculate the…Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $16,000 at the end of each of the next 3 years. The opportunity requires an initial investment of $4,000 plus an additional investment at the end of the second year of $20,000. What is the NPV of this opportunity if the interest rate is 3% per year? Should Marian take it? The NPV of this opportunity is $____ (Round to the nearest dollar.)Your parents are interested in getting advice on what is the best outcome at the end of a six-year period for investing a sum of money in the following options, given a 9% per annum earning rate. What is the preferred option? a. Invest $8,000 as a lump sum today. b. Invest $5,000 at the end of each of the next six years. c. Invest a lump sum of $6,000 today and $1,000 at the end of each of the next six years. d. Invest $1,200 at the end of years one, three and five. Please show all the calculations step by step
- You and your friend are both 20 years of age. You decide to invest $200/month for 15 years in an investment earning 6% annually (compounded monthly) and then you stop making contributions. You then let the money sit and continue to compound for another 25 years. Your friend waits 15 years and then begins investing $350/month for the next 25 years also in an investment earning 6% annually (compounding monthly). What is the value of your portfolio at the end of the 40 year investment period? $58,163 $174,856 $242,548 $259,699A. You are offered an investment that will pay you $200 in one year, $400 the next year, $600 the next year and $800 at the end of the fourth year. You can earn 12 percent on very similar investments. What is the most you should pay for this one? B. You are offered the opportunity to put some money away for retirement. You will receive five annual payments of $25,000 each beginning in 40 years. How much would you be willing to invest today if you desire an interest rate of 12%?An investment company has presented you with four investment proposals for the next six years with a fixed 9% annual interest rate: a) invest €5,000 now; b) invest €1200 at the end of each year for the next 5 years; c) invest €3000 now and in addition €500 at the end of each year for the next 5 years; d) invest €2000 at the end of the first, third and fifth years. Assuming this is the beginning of your first year, which investment offer allows you to accrue the most?