e choice between the two options? If the interest rate is greater than the indifference rate, which do you prefer and why? If the interest why?
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- (Related to Checkpoint 5.6) (Solving for i) You are considering investing in a security that will pay you $1,000 in 25 years. a. If the appropriate discount rate is 11 percent, what is the present value of this investment? b. Assume these investments sell for $259 in return for which you receive $1,000 in 25 years. What is the rate of return investors earn on this investment if they buy it for $259? a. If the appropriate discount rate is 11 percent, the present value of this investment is $nothing. (Round to the nearest cent.)Which is the better option if the interest rate is r=0.07 (r=7%)? Show all work used to arrive at your answer. a. Option I: Receive $510 today at time t=0. b. Option II: Receive $1000 at time t=10. Show work on both options!d. If, instead, you decide to withdraw $170000 per year in retirement (again with the first withdrawal one year after retiring), how many years will it take until you exhaust your savings? (Use trial-and-error, a financial calculator: solve for "N", or Excel: function NPER) e. Assuming the most you can afford to save is $1500 per year, but you want to retire with 1000000 in your investment account, how high of a return do you need to earn on your investments? (Use trial-and-error, a financial calculator: solve for the interest rate, or Excel: function RATE) *round to two decimal places for d) and e)*
- (Related to Checkpoint 5.6) (Solving for ) You are considering investing in a security that will pay you $4,000 in 28 years a. If the appropriate discount rate is 12 percent, what is the present value of this investment? b. Assume these investments sell for $2,229 in return for which you receive $4,000 in 28 years. What is the rate of return investors earn on this investment if they buy it for $2,229?(Related to Checkpoint 5.6) (Solving for i) You are considering investing in a security that will pay you $1,000 in 27 years. a. If the appropriate discount rate is 12 percent, what is the present value of this investment? b. Assume these investments sell for $515 in return for which you receive $1,000 in 27 years. What is the rate of return investors earn on this investment if they buy it for $515? a. If the appropriate discount rate is 12 percent, the present value of this investment is $nothing. (Round to the nearest cent.)Which is the better option if the interest rate is r=0.10 (r=10%)? Show all work used to arrive at your answer. a. Option I: Receive $1000 today at time t=0. b. Option II: Receive $1615 at time t=5.
- (Related to Checkpoint 5.6) (Solving for ) You are considering investing in a security that will pay you $3,000 in 34 years. a. If the appropriate discount rate is 8 percent, what is the present value of this investment? b. Assume these investments sell for $773 in return for which you receive $3,000 in 34 years. What is the rate of return investors earn on this investment if they buy it for $773? a. If the appropriate discount rate is 8 percent, the present value of this investment is $ 219.13. (Round to the nearest cent.) b. The rate of return investors can earn on this investment if they buy it for $773 is %. (Round to two decimal places.)Suppose someone offers to pay you $1,000 in one year. Which of the following is/are correct? Select all that apply. O If inflation goes up, the present value of that $1,000 would go down. O If your time preference goes up (i.e., you become more impatient), the present value of that $1,000 for you would go down. If interest rates go up, the present value of that $1,000 would also go up. O If uncertainty in the economy goes up, the present value of that $1,000 would also go up.(Related to Checkpoint 5.6) (Solving for ) You are considering investing in a security that will pay you $4,000 in 31 years. a. If the appropriate discount rate is 10 percent, what is the present value of this investment? b. Assume these investments sell for $1,684 in return for which you receive $4,000 in 31 years. What is the rate of return investors earn on this investment if they buy it for $1,684? (...) a. If the appropriate discount rate is 10 percent, the present value of this investment is $ (Round to the nearest cent.)
- 3. Which lottery payout scheme is better? Suppose you win a small lottery and have the choice of two ways to be paid: You can accept the money in a lump sum or in a series of payments over time. If you pick the lump sum, you get $2,950 today. If you pick payments over time, you get three payments: $1,000 today, $1,000 1 year from today, and $1,000 2 years from today. At an interest rate of 8% per year, the winner would be better off accepting the , since that choice has the greater present value. At an interest rate of 10% per year, the winner would be better off accepting , since it has the greater present value. Years after you win the lottery, a friend in another country calls to ask your advice. By wild coincidence, she has just won another lottery with the same payout schemes. She must make a quick decision about whether to collect her money under the lump sum or the payments over time. What is the best advice to give your friend? The lump sum is…(Related to Checkpoint 5.6) (Solving for) You are considering investing in a security that will pay you $4,000 in 31 years. a. If the appropriate discount rate is 10 percent, what is the present value of this investment? b. Assume these investments sell for $2,062 in return for which you receive $4,000 in 31 years. What is the rate of return investors earn on this investment if they buy it for $2,062? C a. If the appropriate discount rate is 10 percent, the present value of this investment is $. (Round to the nearest cent.)Suppose the risk - free interest rate is 4.2%.a. Having $200 today is equivalent to having what amount in one year?b. Having $200 in one year is equivalent to having what amount today?c. Which would you prefer, $200 today or $200 in one year? Does your answer depend on when you need the money? Why or why not?a. Having $200 today is equivalent to having what amount in one year?Having $200 today is equivalent to having Sin one year. (Round to the nearest cent.)