EBK INVESTMENTS
EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 1, Problem 16PS
Summary Introduction

To Determine: The decision to buy a book or not which is shown in an advertisement to help earn money of amount $1 million without investments.

Introduction: The investor could become rich by $1 million by using a book without risk and without money down.

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  • An insurance company specializes in selling warranties for consumer electronics products. For selling these warranties they receive cash up front, but later they must pay out cash for policyholders who file claims. Suppose a particular product they sell brings in $1 million in cash right away but requires them to pay $1.2 million in claims a year later. The firm's cost of capital is 10%. Calculate the IRR that the firm earns on the product and comment on whether it is a good investment.
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