A business plans to use £20,000 of cash during the forthcoming year. It holds most of its cash in a deposit account from which it costs £30 to make each withdrawal and which pays interest at 10 per cent p.a. What is the optimal size for each withdrawal?
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A business plans to use £20,000 of cash during the forthcoming year. It holds most of its
cash in a deposit account from which it costs £30 to make each withdrawal and which pays
interest at 10 per cent p.a. What is the optimal size for each withdrawal?
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Solved in 2 steps
- Attach a complete solution. Draw the cash flow diagram.Suppose that P 4500 is deposited each year into a bank account that pays 8% interest compounded quarterly. How much would be accumulated in his fund by the end of the 4th year? The first payment occurs at time zero (now).A loan for P50,000 is to be paid in 3 years at the amount of P65,000. What is the effective rate of money? Draw the cash flow diagramwith your solution.Depict the following transactions on a certain cash flow diagram: Depositing $4,000 today and withdrawing $2,000 after two years. • The rest of the money is withdrawn after 4 years. • If the interest rate is 10%, how much money will be available for the last withdrawal? • How long would it take for $200 to double if the interest rate is 12%?
- You plan to borrow $1000 from a bank. In exchange fro $1000 today, you promise to pay $1080 in one year. What does the cash flow timeline look like from your perspective? What does it look like from the bank's perspective?2. Suppose you have a bank account into which you make $100 deposits each month. You find a bank account paying r 100% (r is a decimal rate) per month. You would like to save up for a $2,000 car down payment, which you would like to have in 15 months. What must the bank account pay in order for this to be accomplished?Your firm expects to receive a $40,000 payment from a supplier in 40 days. What is the present value of this cash inflow? Assume an annual discount rate of 4%. Use simple interest.
- If you want to withdraw $20,000 at the end of two years and $55,000 at the end of four years, how much should you deposit now into an account that pays 12 % interest compounded annually? See the accompanying cash flow diagram.An electrical engincer wants to deposit an amount P now such that she can withdraw an equal annual amount of A, = $2000 per year for the first 5 years, starting 1 year after the deposit, and a different annual withdrawal of A, = $3000 per year for the following 3 years. How would the cash flow diagram appear if i = 8.5% per year?A financial planner at Faisal Bank has offered you three possible options for receiving cash flows. You must choose the option that has the highest present value. (Option 1) PKR 1,000 now and another PKR 1,000 at the beginning of each of the 11 subsequent months during the remainder of the year, to be deposited in an account paying a 12 percent nominal annual rate, but compounded monthly (to be left on deposit for the year). (Option 2) PKR 12,750 at the end of the year (assume a 12 percent nominal interest rate with semiannual compounding). (Option 3) A payment scheme of 8 quarterly payments made over the next two years. The first payment of PKR 800 is to be made at the end of the current quarter. Payments will increase by 20 percent each quarter. The money is to be deposited in an account paying a 12 percent nominal annual rate, but compounded quarterly (to be left on deposit for the entire 2-year period).
- An electrical engineer wants to deposit an amount P now such that she can withdraw an equal annual amount of A1 = $2000 per year for the first 5 years, starting 1 year after the deposit, and a different annual withdrawal of A2 = $3000 per year for the following 3 years. How would the cash flow diagram appear if i = 8.5% per year? E 3 RWhat lump sum would have to be deposited today into an account bearing interest of 10% per year to provide withdrawals of $1000 at 8,9,10,11 years from today? (provide cash flow diagram with solution) please provide the cash flow diagram and explain your answer.You open an account where you deposit $500 today. Further, you deposit $800 at the beginning of next year, withdraw $250 at the beginning of year two and deposit $450 at the beginning of year 3. The return for year 1 is 6%, for year 2 it is -8%, for year 3 it is 4.5% and for year 4 it is -2%. What is your dollar-weighted or money-weighted return (in percent) for the four-year period? Answer to two decimals. O -1.45 -6.95 -11.92