Consider two riskless perpetuities: (i) pays $120 every year; (ii) pays $10 every month. If the rates of returns of the two perpetuities are the same, investors must buy perpetuity (ii) because it makes more interest payments.
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- 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.). Evaluate the following statement:Consider two riskless perpetuities: (i) pays $120 every year; (ii) pays $10 every month. If the rates of returns of the two perpetuities are the same, investors must buy perpetuity (ii) because it makes more interest payments.(Solving for i) You are considering investing in a security that will pay you $5,000 in 31 years. a. If the appropriate discount rate is 11 percent, what is the present value of this investment? (Round to the nearest cent.) b. Assume these investments sell for $1,680 in return for which you receive $5,000 in 31 years. What is the rate of return investors earn on this investment if they buy it for $1,680?
- You are considering two equally risky annuities, each of which pays $5,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT? a. The present value of ORD exceeds the present value of DUE, and the future value of ORD also exceeds the future value of DUE. b. The present value of ORD must exceed the present value of DUE, but the future value of ORD may be less than the future value of DUE. c. The present value of DUE exceeds the present value of ORD, and the future value of DUE also exceeds the future value of ORD. d. The present value of DUE exceeds the present value of ORD, while the future value of DUE is less than the future value of ORD. e. If the going rate of interest decreases from 10% to 0%, the difference between the present value of ORD and the present value of DUE would remain constant.1. What is the different between an ordinary annuity and an annuity due? Which occursmore in practice? Give a common example of both. 2. Using the example of a savings account, explain the difference between the effectiveannual rate and the annual percentage rate. 3. A mortgage instrument pays $1.5 million at the end of each of the next two years. Aninvestor has an alternative investment with the same amount of risk that will payinterest at 8% compounded semiannually. what the investor should pay for themortgage instrument?Suppose the risk-free interest rate is 4.6%. Having $600 today is equivalent to having what amount in one year? (Round to the nearestcent.) Having $600 in one year is equivalent to having what amount today? (Round to the nearestcent.) Which would you prefer, $600 today or $600 in one year? Does your answer depend on when you need the money? Why or why not? (Round to the nearestcent.)
- 10. COMMWORK is considering equally risky annuities, (a) each of which pays $5,000 per year for 10 years. (b) Investment CORD is an ordinary (or deferred) annuity, while Investment RUE is an annuity due. Given the scenario above, the correct statement is: If the going rate of interest decreases from 10% to 0%, the difference between the present value of CORD and the present value of RUE would remain constant. The present value of RUE exceeds the present value of CORD, and the future value of RUE also exceeds the future value of CORD. The present value of CORD must exceed the present value of RUE, but the future value of CORD may be less than the future value of RUE. The present value of DUE exceeds the present value of CORD, while the future value of RUE is less than the future value of CORD. The present value of CORD exceeds the present value of RUE, and the future value of CORD also exceeds the future value of RUE. Group of answer choices 5 4 2 Cannot be…(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.)(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.)
- You are considering two equally risky annuities, each of which pays $5,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT? Multiple Choice The present value of ORD must exceed the present value of DUE, but the future value of ORD may be less than the future value of DUE. The present value of ORD exceeds the present value of DUE, and the future value of ORD also exceeds the future value of DUE. The present value of DUE exceeds the present value of ORD, while the future value of DUE is less than the future value of ORD. The present value of DUE exceeds the present value of ORD, and the future value of DUE also exceeds the future value of ORD.Suppose that a risk free investment will make three future payme Suppose that a risk-free investment will make three future payments of $100 in one year, $100 in two years, and $100 in three years. If the Federal Reserve has set the risk-free interest rate at 8 percent, what is the proper current price of this investment? What if the Federal Reserve raises the risk-free interest rate to 10 percent? Suppose that a risk free investment will make three future paymeSuppose you just bought an annuity with 12 annual payments of $15,700 at a discount rate of 11.75 percent per year. a. What is the value of the investment at the current interest rate of 11.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What happens to the value of your investment if interest rates suddenly drop to 6.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What happens to the value of your investment if interest rates suddenly rise to 16.75 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Present value at 11.75 percent b. Present value at 6.75 percent $ 124,187.88 153,795.59 c. Present value at 16.75 percent $ 97,472.81