MACROECONOMICS W/CONNECT
18th Edition
ISBN: 9781307253092
Author: McConnell
Publisher: Mcgraw-Hill/Create
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Question
Chapter 17, Problem 4P
To determine
Average expected rate of return.
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What is the relationship between risk and return? What is the significance of this relationship for the investor?
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At what point in one’s life is it safest to try a risky investment? Closer to or further from retirement? Explain your logic.
Chapter 17 Solutions
MACROECONOMICS W/CONNECT
Ch. 17 - Prob. 1DQCh. 17 - Prob. 2DQCh. 17 - Prob. 3DQCh. 17 - Prob. 4DQCh. 17 - Prob. 5DQCh. 17 - Prob. 6DQCh. 17 - Prob. 7DQCh. 17 - Prob. 8DQCh. 17 - Prob. 9DQCh. 17 - Prob. 10DQ
Ch. 17 - Prob. 11DQCh. 17 - Prob. 12DQCh. 17 - Prob. 1RQCh. 17 - Prob. 2RQCh. 17 - Prob. 3RQCh. 17 - Prob. 4RQCh. 17 - Prob. 5RQCh. 17 - Prob. 6RQCh. 17 - Prob. 7RQCh. 17 - Prob. 8RQCh. 17 - Prob. 9RQCh. 17 - Prob. 10RQCh. 17 - Prob. 1PCh. 17 - Prob. 2PCh. 17 - Prob. 3PCh. 17 - Prob. 4PCh. 17 - Prob. 5PCh. 17 - Prob. 6P
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- You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years.You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardAt what point in one’s life is it safest to try a risky investment? Closer to or further from retirement?arrow_forwardYou are offered an investment that will pay you GH¢ 200 in one year, GH¢ 400 the next year, GH¢ 600 the next year and GH¢ 800 at the end of the next year. You can earn 12 percent on very similar investments. What is the most you should pay for this one?arrow_forward
- Suppose you have just inherited $10,500 and are considering different options for investing the money to maximize your return. If you are risk-neutral (that is, neither seek out or shy away from risk), which of the following options should you choose to maximize your expected return? A. Hold the money in cash and earn zero return. B. Invest the money in a corporate bond, with a stated return of 4%, but there is a chance of 9% the company could go bankrupt. C. Put the money in an interest-bearing checking account, which earns 3%. The FDIC insures the account against bank failure. D. Loan the money to one of your friends' roommates, Mike, at an agreed upon interest rate of 7%, but you believe there is a 5% chance that Mike will leave town without repaying you.arrow_forward11. Case study a. Let's say your friend offer simple investment. You are planning to buy an asset for RM 3350. This investment is very safe. You would sell off the asset in three years for RM 400. You know you could invest RM 335 elsewhere at 10 percent with very little risk. What do you think of the proposed investment?arrow_forwardwhat happens when expected profit equal total investmentarrow_forward
- How would you describe the relationship between a risky investment and the return on that investment (think stocks or retirement accounts)? a casual or limited relationship there is no relationship between the level of risk and the return you get on your investment a direct or positively correlated relationship an inverse or negatively correlated relationshiparrow_forwardYou are deciding whether to buy a bond. The bond will pay out $1,000 in 5 years. But there is uncertainty over the interest rate. Between now and year 1 (period 0 and period 1), uncertainty will be resolved immediately after time 0. There is • 50 percent chance r = 0.1 • 50 percent chance r = 0.05 Interest compounds annually. What is the expected value of the bond? Economic subjectarrow_forwardAt a military base in Texas, Corporal Stan Moneymaker has been offered a wonderful savings plan. These are the salesperson’s words: “During your 48-month tour of duty, you will invest $200 per month for the first 45 months. We will make the 46th, 47th, and 48th payments of $200 each for you. When you leave the service, we will pay you $10,000 cash.” Is this a good deal for Corporal Moneymaker? Use the IRR method in developing your answer. What assumptions are being made by Corporal Moneymaker if he enters into this contract? ( please solve the ırr method not excel solution)arrow_forward
- Compounding: the accumulation of a sum of money when the interest earned on the sum earns additional interest. Because of compounding, small differences in interest rates lead to big differences over time. Assume that instead of spending $30,000 on your wedding, you only spend $5,000. You use the remaining $25,000 to buy stocks/bonds and you hold them for 40 years. Calculate the Future Value on $25,000: If your portfolio's rate of return is 8% (i = 0.08), Future Value = If your portfolio's rate of return is 6% (i = 0.06), Future Value = In a 200-word paragraph, please summarize the results of your calculations and list three things that you learned from this exercise.arrow_forwardPlease do your own work, don't copy from the internet Q2) 2, You invest $3,000 for three years at 12 percent. a. What is the value of your investment after one year? Multiply $3,000 × 1.12. b. What is the value of your investment after two years? Multiply your answer to part a by 1.12. c. What is the value of your investment after three years? Multiply your answer to part b by 1.12. This gives your final answer. Combine these three steps by using the formula to find the future value of $3,000 in 3 years at 12 percent interest.arrow_forwardSuppose you visit with a financial adviser, and you are considering investing some of your wealth in one of three investment portfolios stocks, bonds, or commodities. Your financial adviser provides you with the following table, which gives the probabilities of possible returns from each investment To maximize your expected return, you should choose: Stocks Bonds Probability Return Probability Return 0.15 20% 0.15 16.7% 06 10% T 04 7.5% 0.25 8% 0.45 3.3% OA bonds OB stocks OC. commodities OD. All of the portfolios have the same expected return. If you are risk-averse and had to choose between the stock or the bond investments, you would choose OA the stock portfolio because there is less uncertainty over the outcome OB. the bond portfolio because there is less uncertainty over the outcome. OC. the stock portfolio because of greater expected return. OD. the bond portfolio because of greater expected return. Commodities Probability Return 02 20% 0.2 15% 0.2 8% 02 02 5% 0%arrow_forward
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