FIn 580 Essay

For Investment B: (40 – 5)/ 30= 1.16 standard units= close to 88% to get the 40 million in

a. Calculate the expected return over the 4-year period for each of the three alternatives.

What annual interest rate is needed to produce $200,000 after five years if only $100,000 is invested?

10. An investment of $1,000 today will grow to $1,100 in one year. What is the continuously compounded rate of return?

Suppose Sara and Sam are each making $40,000 the year they turn 25 and both start out saving 5% of their salaries. They receive annual raises of 6% for the next 6 years. Sara saves 75% of each raise;

The expected return of investing in the 25 year old bond priced at 852. By investing in this bond given at a rate of 7.5%, Marlene will realize a return on investments of about $137.42.

a. Discount factor based on a required return of 20% for 8 years = .232

Angie invested $100,000 she received from her grandmother today in a fund that is expected to earn 10% per annum. To what amount should the

Part I: A. The present value of my future bank account is: 15,000 / (1+.07) = $14,019. If the rate is only 4%, then the present value of my future bank account is 15,000 / (1.04) = $14,423.

19. Suppose the interest rate is five percent, the expected growth rate of the firm is two percent, and the firm is expected to continue forever. If current profits are $1,000, what is the value of the firm?

have $2 million when he retires in 35 years, what percentage of salary should John invest in his 401K account?

How much money should be deposited in a bank paying a yearly interest rate of 6% compounded monthly so that after 3 years the accumulated amount will be $20,000?

1. If my account pays 5% and will be worth $4200 in one year, the present value of my account today is:

In the original scenario, the interest rate given is 8% and the total present value for future cash flows of years one through five equals $425.78MM. When the interest rate decreases to 5%, the total present value for the future cash flows of years one through five increases to $460.69MM. On the contrary, when the interest rate increases to 15%, the total present value for the future cash flows of years one through five decreases to $359.18MM. As a result, the conclusion can be made that there is an inverse relationship between interest rate and net present value. According to James Wilkinson (2013), “As a rule the higher the discount rate the lower the net present value with everything else being equal.” Hence, Wilkinson (2013) affirms that the investment which yields the highest net present value should always be chosen. Therefore, in this scenario and all other things being equal, Home Depot should choose the investment with the 5% interest rate, as it has the greatest net present value.

Problem #2 [5] A future amount, F, is equivalent to $1,500 now when six years separate the amounts and the annual interest rate is 12%. What is the value of F?