An investment opportunity has the following characteristics: payments of $10,000 will be made to you and invested into a fund at the beginning of each year, for the next 20 years. These payments will earn a 7% effective annual rate, and the interest payments (paid at the end of each year) will immediately be reinvested into a second account earning a 4% effective annual rate. Find the purchase price of this investment opportunity, given that it has an annual yield of 6% over the 20- year life of the investment.

An investment opportunity has the following characteristics: payments of $10,000 will be made to you and invested into a fund at the beginning of each year, for the next 20 years. These payments will earn a 7% effective annual rate, and the interest payments (paid at the end of each year) will immediately be reinvested into a second account earning a 4% effective annual rate. Find the purchase price of this investment opportunity, given that it has an annual yield of 6% over the 20- year life of the investment.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 16P

See similar textbooks

Similar questions

If a copy center is considering the purchase of a new copy machine with an initial investment cost of $150,000 and the center expects an annual net cash flow of $20,000 per year, what is the payback period?
An investment promises to pay $7,000 at the end of each year for the next six years and $3,000 at the end of each year for years 7 through 10. Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest cent. If you require a 15 percent rate of return on an investment of this sort, what is the maximum amount you would pay for this investment?$ Assuming that the payments are received at the beginning of each year, what is the maximum amount you would pay for this investment, given a 15 percent required rate of return?$
An investment promises to pay $6,000 at the end of each year for the next three years and $4,000 at the end of each year for years 4 through 7. Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest cent. If you require a 11 percent rate of return on an investment of this sort, what is the maximum amount you would pay for this investment?$ Assuming that the payments are received at the beginning of each year, what is the maximum amount you would pay for this investment, given a 11 percent required rate of return?$
An investment promises to pay $5,000 at the end of each year for the next four years and $3,000 at the end of each year for years 5 through 8. Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest cent. If you require a 9 percent rate of return on an investment of this sort, what is the maximum amount you would pay for this investment?$ Assuming that the payments are received at the beginning of each year, what is the maximum amount you would pay for this investment, given a 9 percent required rate of return?$
You are trying to value the following investment opportunity: The investment will cost you $5663 today. In exchange for your investment you will receive cash payments in perpetuity. The first payment will occur after one year and will be $431. Afterwards, cash payments will grow by 1.3% annually. The applicable interest rate for this investment opportunity is 7.6% (effective annual rate. Calculate the NPV of this investment opportunity.
(IRR calculation) Your investment advisor has offered you an investment that will provide you with a single cash flow of $10,000 at the end of 20 years if you make an annual payment of $200 per year in the interim period. Specifically, the annual payments begin immediately and extend through the end of year 19. You then receive the $10,000 at the end of year 20. Find the internal rate of retum on this investment This investment's internal rate of retum is%. (Round to two decimal places) C
An investment offers to pay you $8,000 a year for five years. If it costs $28,840, what will be your rate of return on the investment? Use Appendix D to answer the question. Round your answer to the nearest whole number. %
An investment offers to pay you $10,000 a year for four years. If it costs $27,980, what will be your rate of return on the investment? Use Appendix D to answer the question. Round your answer to the nearest whole number.
You are told that if you invest $11,100 per year for 19 years (all payments made at the beginning ofeach year) you will have accumulated $375,000 at the end of the period. What annual rate of return is theinvestment offering
You are considering a 10 year investment plan in which your target is $150,000. There are two options available for you: Option 1: Putting exactly an equal amount of money into an investment fund at the end of each year for 10 years with the rate of return of 8%, annually compounding. Option 2: Putting your initial investment of $50,000 in an asset that will pay you 9% rate of return, compounding quarterly for the first 6 years. The rate of return, compounding annually for the last 4 years (the period from year 7 to the end of year 10) has not been defined yet. Required: Compute the effective annual interest rate (EAR) in the first 6 years in Option 2? Compute the annually compounding rate of return you should target for your asset in the following 4 years to get $150, 000 at the end of year ten in Option 2?
You are considering a 10 year investment plan in which your target is $150,000. There are two options available for you: Option 1: Putting exactly an equal amount of money into an investment fund at the end of each year for 10 years with the rate of return of 8%, annually compounding. Option 2: Putting your initial investment of $50,000 in an asset that will pay you 9% rate of return, compounding quarterly for the first 6 years. The rate of return, compounding annually for the last 4 years (the period from year 7 to the end of year 10) has not been defined yet. Required: Calculate the amount of money you should put into your investment fund each year in Option 1?
Your investment advisor has offered you an investment that will provide you with a single cash flow of $ 10,000 at the end of 20 years if you pay premiums of $ 200 per year in the interim period. Speciifcally, the annual premiums will begin immediately and extend through the end of year 19. You will then receive the $ 10,000 at the end of year 20. Find the IRR for this investment a. 8.00% b. 7.10% c. 8.10% d. 9.10%