BUSN 379
Week 2 Homework
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Chapter 4 (4, 8, 17, 18)
4. Calculate Interest Rates. Solve for the
unknown interest rate in each of the following:
8. Calculating the Number of Periods. Calculating
Rates of Return. In 2011, an 1880-O Morgan silver dollar sold for $13,113. What
was the rate of return on this investment?
17. Calculating Present Values. Suppose you are
still committed to owning a $150,000 Ferrari (see Question 9). If you believe
your mutual fund can achieve a 10.25 percent annual rate of return, and you
want to buy the car in 10 years on the day you turn 30, how much must you
invest today?
18. Calculating Future Values. You have just made
your first $5,000 contribution to your individual retirement account. Assuming
you earn a 10.1 percent rate of return and make no additional contributions, what
will your account be worth when you retire in 45 years? What if you wait 10
years before contributing? (Does this suggest an investment strategy?)
Chapter 5 (Questions 1, 4, and 12)
Present
Value and Multiple Cash Flows. Rooster Co. has identified an investment project
with the following cash flows. If the discount rate is 10 percent, what is the
present value of these cash flows? What is the present value at 18 percent? At
24 percent?
4.
Calculating Annuity Present Values. An investment offers $6,700 per year
for 15 years, with the first payment occurring 1 year from now. If the required
return is 8 percent, what is the value of the investment? What would the value
be if the payments occurred for 40 years? For 75 years? Forever?
12. Calculate EAR. Find the EAR in each of the
following cases.
Chapter 5 (1,4,12)
•
Present
Value and Multiple Cash Flows. Rooster Co. has
identified an investment project with the following cash flows. If the discount
rate is 10 percent, what is the present value of these cash flows? What is the
present value at 18 percent? At 24 percent?
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