2. An brokage house employee is trying to sell you investment instrument, which for a single amount paid today will provide you with $25,000 at the end of each year for the next 19 years and $30,000 at the end of year 20. You currently earn 5% on low-risk investments comparable to the retirement annuity. Ignoring taxes, what is the most you would pay for this financial instrument?

2. An brokage house employee is trying to sell you investment instrument, which for a single amount paid today will provide you with $25,000 at the end of each year for the next 19 years and $30,000 at the end of year 20. You currently earn 5% on low-risk investments comparable to the retirement annuity. Ignoring taxes, what is the most you would pay for this financial instrument?

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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Similar questions

You win a structured settlement in a lawsuit. Assume that the settlement pays $30,000 per year for the next 25 years. Given a 7% discount rate, how much would you have to be compensated to take a cash payment today instead? (Ignore the impact of taxes and personal preferences).
You decide to purchase your own property. The estimated purchase price is $1,600,000. You obtain 90% financing from the bank, 7% fixed rate for 25 years. How much do they have to pay the bank every year? How much do you still owe the bank in 14 years?
You have to decide whether to invest $100 in a friend's enterprise, where in a year's time the money will increase to $130. You have agreed that your friend will then repay you $120, keeping $10 for himself But instead he may choose to run away with the whole $130. Any of your money that you don't invest in the enterprise you can invest elsewhere safely at the prevailing rate of interest r and get $100 (1+r) next year. For interest rate r> __A___% there is an equilibrium outcome of the infinitely repeated game in which each period you invest with your friend and he repays as agreed. If the rate of interst is 10% per year, an alternative profit-splitting agreement giving $__B___ for the friend is an equilibrium outcome of the infinitely repeated game, where each period you invest with your friend and he repays as agreed. Answer A= ? Answer B= ?
Your classmate tells you the details of the great deal he got on his mortgage: 30-year 1.1% fixed rate with a 20% down payment a.)If his new home costs $136,000, what is his down payment? b.)How much is he going to borrow to buy the house (assuming he only has the money to make the down payment from the previous part)? c.)Use Excel’s PMT function to determine how much his monthly payments would be. d.)How much will he pay in interest over the lifetime of this mortgage?
Give typing answer with explanation and conclusion
You want to make sure that you have $9,000 after 3 years to pay off for a debt. Your salary allows you to save $200 each month, what type of interest you need to ensure that you have enough money?
Question 23 You are the VP of Finance for the wine company SIPP. Your company wants to reduce the volatility of its cash flows by making its cash flows less sensitive to changes in grape prices. It will do so by buying a call option on a grape ETF with a strike price of $50 and buying a put option on a grape ETF with a strike price of $50. Both options are American and expire in one year. Saved Suppose that you sell both options and decide to purchase a put option with a strike price of $40 and a call option with a strike price of $60. All the options are American with the same maturity date as the original portfolio. What is the expected cost of this new option strategy relative to your original option strategy? Higher Equal Lower
A few years down the road you move out, buying your own home. You decide to take another look at your finances. Your outstanding loan of $250 per month only has 10 payments left on it (out of the original 60) with an interest rate of 12.75%. a. What is the finance charge “f”? b. What is the unearned interest “u”? c. How much would it cost to pay it off on payment #51?
An insurance agent just offered you a new insurance product that will provide you with $1,959.20 13 years from now if you invest $400 today. What annual rate of interest would you earn if you invested in this product?
How much do you need to save each year for 30 years in order to have $775,000, assuming you are investing the money in an account that earns 8%? How much of the $750,000 comes from principal (you’re out of pocket costs)?
You have just received a windfall from an investment you made in a friend's business. She will be paying you $13,703 at the end of this year, $27,406 at the end of next year, and $41,109 at the end of the year after that (three years from today). The interest rate is 4.2% per year. a. What is the present value of your windfall? b. What is the future value of your windfall in three years (on the date of the last payment)?
4. You are considering buying a new house. The house you want will cost you $150,000. You have $50,000 in cash to spend but will need to finance the rest. The bank has offered you a 30 year mortgage at 4%. What will be your monthly payment across those 30 years (Remember to convert to monthly rather than annual payments).

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