In four years of employment, John was able to save P250,000 after he had invested on purchasing a motorcycle and a life insurance. He is now considering the different investment opportunities to start accumulating wealth. He plans to have an island vacation in Boracay next year. He allocates P40,000 from his savings for that trip. Since he had yet another year to spend the money, what type of financial instrument should John invest in? Why?

In four years of employment, John was able to save P250,000 after he had invested on purchasing a motorcycle and a life insurance. He is now considering the different investment opportunities to start accumulating wealth. He plans to have an island vacation in Boracay next year. He allocates P40,000 from his savings for that trip. Since he had yet another year to spend the money, what type of financial instrument should John invest in? Why?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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In four years of employment, John was able to save P250,000 after he had invested on purchasing a motorcycle and a life insurance. He is now considering the different investment opportunities to start accumulating wealth. In 10 years from now, John expects to start spending for his child’s education, what type of financial instrument should he invest and why?
Cedie is saving in a bank in order to purchase a new house in six years. He anticipates that the price of the house will be PHP 1,500,000 by then. He saves his money into an account paying 5.5% effectively. At the beginning of this year, he deposited PHP 100,000. He plans to deposit PHP 200,000 at the beginning of the second year and PhP 150,000 at the beginning of each succeeding years. How much more will he need at the end of six years in order to make the purchase?
On the road to financial independence, Toby is planning to save and invest regularly. Toby decides to save $64 at the end of each month and invest the money into a financial instrument that gives him 6.3 percent per annum compounded monthly (after tax). How much will Toby receive from his investment (in $ after 10 years? Using information from previous question: If you expect to get $500,000 after 10 years investment, how much money ($) you have to set aside every end of the month?
John won a lottery. After taxes, he was able to take home his winnings worth $510000. He decides to deposit 20% of this in a separate savings account for retirement. If the savings account has a nominal interest rate of 7%, compounded monthly, how much will be in the account if he retires in 35 years?
Jennifer is planning a trip to Alaska in 5 years. She has calculated that she will need $15,000 to cover her expenses. Her bank offers money market investments at a rate of 4.5% compounded annually. What should Jennifer invest now to have the needed funds?
Sami just purchased a new sports car and wants to set aside cash for future maintenanceexpenses. The car has a bumper-to-bumper warranty for the first five years. Samiestimates that he will need approximately $2,000 per year in maintenance expenses foryears 6-10, at which time he will sell the vehicle. How much money should he depositinto an account today, at 8% per year, so that he will have sufficient funds in thataccount to cover his projected maintenance expenses?. Show detailed calculations
Adam has his eyes set on buying an apartment in New Kingston within the next 6 years. Based on investment advice, the Apartment will cost $4 Million Dollars in total payouts. Adam will however benefit from a one million dollars deposited in his bank account as a gift from his grandparents. Adam approached a mortgage bank to finance the rest of the money required. He will be given six years at an interest rate of 9 % to complete the payments. a) Calculate the annual payments to be made on the loan each year. b) Prepare the Amortization schedule for the duration of the Loan. c) Adam was given another option of paying 10 % on the same loan compounded semi annually for 6 years, show how the Amortization Schedule would look for the first three (3) payments.
Lucky Luis has just won $20,000 and wants to invest it for 12 years. There are three plans available to him. a. A savings account that pays 3¾% per year, compounded daily. b. A money market certificate that pays 6¾% per year, compounded semiannually. c. An investment account that, based on past experience, is likely to pay 8½% per year, compounded annually. If Luis did not withdraw any interest, how much would be in each of the three investment plans at the end of 12 years?
Michael is updating his estate plan for himself and his family. He would like to provide an income of $ 3000 everymonth starting 10 12years from now and continuing for the next 20 years. He has started his account with an initialdeposit of $ 10,000 and he knows his life insurance, maturing in five years, will have a cash value of $ 150,000. Tomake up the difference , Michael has decided to make monthly deposits in the account. How much should eachdeposit be if all interest is computed at 6 percent compounded monthly ?
Allan plan to go to London to visit friends in three years. The trip is expected to cost a total of RM10,000 at that time. His parents have deposited RM5,000 for him in a Certificate of Deposit paying 6% interest annually, maturing three years from now. His uncle has agreed to pay for all remaining expenses. If he is going to put his uncle’s gift in an investment earning 10% over the next three years, how much must he deposit today, so he can visit his friends three years from today.
Hanifa is planning to construct his dream house. For this, he needs to borrow $4M from a local bank. The bank’s financing terms allows Hanifa to borrow any amount for a term of 5 years, with 6% interest per annum. The said interest is to be collected in advance by the bank. How much must be the principal amount of Hanifa’s loan so that his financing needs is met?
Lastly, Hector wants to invest in a certificate of deposit (CD) to purchase a boat that costs $28,500 when he retires. Leaf Investments offers a CD with 13% compounded semiannually. How much would Hector have to put in the CD today to gain $28,500 in 30 years?

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