Yani has $12,000 for investment purposes. His bank has offered the following three choices: Choice 1. Aspecial savings certificate that will pay $180 each month for 5 years and a lump sum payment at the end of 5 years of $13,000 Choice 2. Buy a share of a racehorse for $12,000 that will be worth $24,000 in 5 years Choice 3. Put the money in a savings account that will have an interest rate of 12% per year compounded monthly Use an annual worth analysis to make a recommendation to Yani. Click here to access the TVM Factor Table Calculator

Yani has $12,000 for investment purposes. His bank has offered the following three choices: Choice 1. Aspecial savings certificate that will pay $180 each month for 5 years and a lump sum payment at the end of 5 years of $13,000 Choice 2. Buy a share of a racehorse for $12,000 that will be worth $24,000 in 5 years Choice 3. Put the money in a savings account that will have an interest rate of 12% per year compounded monthly Use an annual worth analysis to make a recommendation to Yani. Click here to access the TVM Factor Table Calculator

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

See similar textbooks

Similar questions

Jerry wants to take the next three years off work to travel around rhe world. he estimates his annual cask needs at $35,000. Jerry believes he can invest his savings at 6% until he depletes his funds. Present value annuity at 6% for 3 years is 2.6730 (present value interest factors for a one-dollar annuity discounted) Requirements: how much money does jerome need now to fund his travels?
After completing a long and successful career as senior vice president for a large bank, you arepreparing for retirement. After visiting the human resources office, you have found that you haveseveral retirement options: (1) you can receive an immediate cash payment of $1 million, (2) youcan receive $60,000 per year for life (your remaining life expectancy is 20 years), or (3) you canreceive $50,000 per year for 10 years and then $70,000 per year for life (this option is intended togive you some protection against inflation). You have determined that you can earn 8 percent onyour investments. Which option do you prefer and why?
Marsha Stone is thinking about investing $10,000 for a period of 1 year, 1 year from now, in an interest bearing security. Jamila, at the bank, is assisting her in choosing the appropriate investment. She pulls up the current interest rate data on her computer and lets Marsha has a look at it. A review of interest rates reveals as follows: Current 1-year rate = 2% p.a.Current 2-year rate = 4% p.a. Both Jamila and Marsha are confused with the information because though the interest rates for one and 2 year investments are available, the interest rate for a 1-year investment that will commence one year from now, is not there to see. Imagine that you are Jamila’s supervisor. How can you help the two ladies out? How much money will Marsha end up with when her investment matures? Show relevant calculations to support your response.Assume that Pure Expectations theory is valid.
Akeem Joffer hopes to a new cabin on Webb Lake in Maine. Akeem has $13,000 saved today and wants to save $7,000 every year for the next nine years. Assume Akeem can earn 11% on his investments. Compute the amount Akeem expects to have available to purchase the cabin in 9 years. 5. Reggie Hammond has $300,000 in cash located in a suitcase in the trunk of his car.Reggie deposits this amount in Gibraltar Bank. The bank offers a 6.7% annual rate and pays interest quarterly. Reggie hopes to have $1,600,000 at the end of five years. Compute the quarterly savings Reggie must deposit into this account in order to achieve his goal. 6. Billy Ray Valentine promises to pay his friend Louis Winthorpe a deferred annuity of $60,000 beginning in year five and continuing through year eleven plus a three-year deferred annuity of $7,000 that begins in year 15. Interest rate is 8.2 % . Compute the amount Billy Ray needs today to fulfill his obligation to his friend
Nelson has been working for few years and earnings $42,000 per annum. He would like to save some of his money for his wedding. He has shortlisted his choices to the following fixed deposits: i) Maybank Fixed Deposit (interest rate for 12months: 1.85%, 36months: 1.90%) ii) Public Bank eFixed Deposit (interest rate for 12months: 1.85%, 36months: 1.85%) You are required to calculate his fixed deposits account balance as at 31 December 2023 in both banks and state your recommendation with justification based on the following conditions: a) he deposits $5,000 on 1 January 2021 and hold for three years until 31 December 2023. b) he deposits $2,500 on 1 January 2021 and 1 January 2022. c) he deposits $1,000 on 1 January 2021, $1,500 on 1 January 2022 and $2,500 on 1 January 2023. Note: You are required to calculate the amount in his account after three years based on the above chosen banks latest interest rate
Josh has always dreamed of opening a café by the seaside. He decides he will save to help open the café by depositing money in an ordinary annuity that earns 4.8% interest, compounded quarterly. Deposits will be made at the end of each quarter. How much money will he need to deposit into the annuity each quarter for the annuity to have a total value of $24,000 after 7 years? Do not round intermediate computations, and round your final answer to the nearest cent. If necessary, refer to the list of financial formulas. $0
The amount the bank is willing to loan you to start your business is not enough to cover the initial investment you need to make. You need an additional $10,000. You approach an investor and ask him to invest $10,000 in your business. In return, you offer to pay him $500 out of your profits at the end of years 1-4 and an amount X at the end of year 5. The investor's annual cost of funds is 10%. How big must X be to induce him to invest in your business?

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS