4. Solve problem 3, assuming that 50% of theinitial investment is borrowed at an annualinterest rate of 8% to be paid back in threeequal installments.Good investmentO Not a good investment 3. A project requires an initial investment of$1,000,000 and generates annual income of$300,000 for the next 4 years with a salvagevalue of $200,000. At MARR of 10% determineif this is a good investment. Use MACRS withthe depreciation life of 3 years. Effective taxrate is 40%. Use PW.Not a good investmentO Good investment

PW method: It is the method that is utilized to compare mutually exclusive alternatives that have…

Answered: 4. Solve problem 3, assuming that 50%…

4. Solve problem 3, assuming that 50% of the initial investment is borrowed at an annual interest rate of 8% to be paid back in three equal installments.

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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Question

4. Solve problem 3, assuming that 50% of the
initial investment is borrowed at an annual
interest rate of 8% to be paid back in three
equal installments.
Good investment
O Not a good investment

3. A project requires an initial investment of
$1,000,000 and generates annual income of
$300,000 for the next 4 years with a salvage
value of $200,000. At MARR of 10% determine
if this is a good investment. Use MACRS with
the depreciation life of 3 years. Effective tax
rate is 40%. Use PW.
Not a good investment
O Good investment

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5. Construct an amortization schedule for a four-year, RM10,000 loan at 6% interest compounded annually.
13. Determine the annual payment on a OMR15,000 loan that is to be amortized over a four-year period and carries a 10 percent interest rate. Also prepare a loan amortization schedule for this loan.
2. A payment of £30 will be made in 10 years. The annual effective interest rate is 7 % p.a. Compute the convexity of this payment
3. *A savings plan requires an investor to pay 10 installments, each one of $500, due at the end of every year for 10 years. One year after the last of such installments the bank will start making annual payments to the investor, each one for a fixed amount P, for n years. Assume an effective interest rate of 5% p.a. (a) If n = 7 determine the value of P. (b) If n = ∞o, i.e. payments from the bank continue indefinitely, determine the value of P.
Example 2.14: Calculating the present value of an annuity due at 12% An investor wants to buy an annuity of R100 for the next three years, each instalment being paid at the beginning of the year. If a bank is prepared to pay interest at 12%, how much must be invested today? It can be seen that the amount will be invested and the first instalment will immediately be repaid. It can be illustrated as shown in Table 2.6. value of an annuity due at 12%
Task: Assume that at time 0 a sum L is lent for a series of n yearly payments. The rth payment, of amount x, is due at the end of the rth year. Let the effective annual interest rate for the rth year be i,. Give an identity which expresses L in terms of the x, and i,. Answer: The identity is [ Select ] [ Select ] L = x_1 (1+i_1)^(-1) + x_2 (1+i_1)^(-1) (1+i_2)^(-2) + .. + x_n (1+i_1)^(-1) (1+i_2)^(-2) ... (1+i_n)^(-n) L = x_1 (1+i_1) + x_2 (1+i_1) (1+i_2) + ... + x_n (1+i_1) (1+i_2) ... (1+i_n) L = x_1 (1+i_1)^(-1) + x_2 (1+i_1)^(-1) (1+i_2)^(-1) + .. + x_n (1+i_1)^(-1) (1+i_2)^(-1) ... (1+i_n)^(-1) Question 3 L = x_1 (1+i_1) + x_2 (1+i_1) (1+i_2)^2 + ... + x_n (1+i_1) (1+i_2)^2 ... (1+i_n)^n
Task 3. Compute the future value of the following annuity investments: s beonemme 1. P6,000 quarterly investment at 8% interest compounded quarterly for 8 years moT 2. P4,000 monthly investment at 6% interest compounded monthly for 4 years 3. P8,000 semi-annual investment at 9% interest compounded semi-annually for 10 year
V5.
Which of the following statements is CORRECT? Question 2 options: a) The proportion of the payment that goes toward interest on a fully amortized loan increases over time. b) An investment that has a nomiral rate of 6% with semiannual payments will have an effective rate that is smaller than 6%. c) If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different. d) The present value of a 3-year, $150 ordinary annuity will exceed the present value of a 3-year, $150 annuity due. e) if a loan has a nominal annual rate of 7%, then the effective rate will never be less than 7%.
Consider a loan of 1,000,000 which is to be amortized by 60 monthly payments. The interest rate is 10% converted monthly. Construct the first 5 rows (t=0 to t=4) of the amortization schedule
1. Calculate the yield to maturity on a simple loan of $10,000 that requires the repayment of $10,600 in 1 year.
Solution give

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