FUND. OF CORPORATE FINANCE (LL)
11th Edition
ISBN: 9781260377811
Author: Ross
Publisher: MCG
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Chapter 5, Problem 6QP
Calculating Interest Rates [LO3] Assume the total cost of a college education will be $320,000 when your child enters college in 18 years. You presently have $67,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college education?
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QUESTION ONEYou estimate that you will need about K80,000 to send your child to college in eight years. Youhave about K35,000 now. If you can earn 20 percent per year, will you make it? At what rate willyou just reach your goal? (Would you be willing to pay K1,163 today in exchange for K10,000 in 30 years? What would bethe key considerations in answering yes or no? Would your answer depend on who is making thepromise to repay? You have just made your first K2,000 contribution to your individual retirement account.Assuming you earn a 12 percent rate of return and make no additional contributions, what willyour account be worth when you retire in 45 years? What if you wait 10 years before contributing?(Does this suggest an investment strategy?) If you were an athlete negotiating a contract, would you want a big signing bonus payableimmediately and smaller payments in the future, or vice-versa? How about looking at it from theteam’s perspective?
4. Assume the total cost of a college education will be $300,000 when your child enters college in 18 years. You presently have $65,000 to invest.
What annual rate of interest must you earn on your investment to cover the cost of your child’s college education? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Annual rate of interest
%
1.Assume the total cost of a university education will be P250 000 when your child enters university in 18 years. You presently have P43 000 to invest. What rate of interest must you earn on your investment to cover the cost of your child’s university education?
Chapter 5 Solutions
FUND. OF CORPORATE FINANCE (LL)
Ch. 5.1 - Prob. 5.1ACQCh. 5.1 - Prob. 5.1BCQCh. 5.1 - Prob. 5.1CCQCh. 5.2 - Prob. 5.2ACQCh. 5.2 - Prob. 5.2BCQCh. 5.2 - What do we mean by discounted cash flow, or DCF,...Ch. 5.2 - Prob. 5.2DCQCh. 5.3 - Prob. 5.3ACQCh. 5.3 - Prob. 5.3BCQCh. 5 - You deposited 2,000 in a bank account that pays 5...
Ch. 5 - Prob. 5.2CTFCh. 5 - Charlie invested 6,200 in a stock last year....Ch. 5 - Prob. 1CRCTCh. 5 - Compounding [LO1, 2] What is compounding? What is...Ch. 5 - Prob. 3CRCTCh. 5 - Compounding and Interest Rates [LO1, 2] What...Ch. 5 - Prob. 5CRCTCh. 5 - Prob. 6CRCTCh. 5 - Prob. 7CRCTCh. 5 - Prob. 8CRCTCh. 5 - Prob. 9CRCTCh. 5 - Prob. 10CRCTCh. 5 - Prob. 1QPCh. 5 - Prob. 2QPCh. 5 - Calculating Present Values [LO2] For each of the...Ch. 5 - Calculating Interest Kates [LO3] Solve for the...Ch. 5 - Prob. 5QPCh. 5 - Calculating Interest Rates [LO3] Assume the total...Ch. 5 - Prob. 7QPCh. 5 - Calculating Interest Rates [LO3] According to the...Ch. 5 - Calculating the Number of Periods [LO4] Youre...Ch. 5 - Prob. 10QPCh. 5 - Prob. 11QPCh. 5 - Prob. 12QPCh. 5 - Calculating Interest Rates and Future Values [LO1,...Ch. 5 - Calculating Rates of Return [LO3] Although...Ch. 5 - Prob. 15QPCh. 5 - Prob. 16QPCh. 5 - Calculating Present Values [LO2] Suppose you are...Ch. 5 - Prob. 18QPCh. 5 - Calculating Future Values [LO1] You are scheduled...Ch. 5 - Prob. 20QP
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