You are considering a safe investment opportunity that requires a $710 investment today, and will pay $750 two years from now and another $990 five years from now. 1) a. What is the IRR of this investment? b. If you are choosing between this investment and putting your money in a safe bank account that pays an EAR of per year for any horizon, can you make the decision by simply comparing this EAR with the IRR of the investment? Explain. a. What is the IRR of this investment? The IRR of thia investment le C%. (Round to two aealmal places.) b. If you are choosing between this investment and putting your money in a safe bank aocount that paya an EAR of 5% per year for any horizon, can you make the docision by simply comparing this EAR with the IRR of the invostment? Explain. (Select the beat choice below.) O A. No, because the timing of the cash lows are different. B. Yes, you can always compare IRRS of riskless projects, and an invesiment in the bank is riskless. OC. Yes, because the EAR Is the same at all horizona, Bo the two "projecta" have the aame riakiness, scale and timing. O D. No, this is like comparing the IRRa of two projects.

You are considering a safe investment opportunity that requires a $710 investment today, and will pay $750 two years from now and another $990 five years from now. 1) a. What is the IRR of this investment? b. If you are choosing between this investment and putting your money in a safe bank account that pays an EAR of per year for any horizon, can you make the decision by simply comparing this EAR with the IRR of the investment? Explain. a. What is the IRR of this investment? The IRR of thia investment le C%. (Round to two aealmal places.) b. If you are choosing between this investment and putting your money in a safe bank aocount that paya an EAR of 5% per year for any horizon, can you make the docision by simply comparing this EAR with the IRR of the invostment? Explain. (Select the beat choice below.) O A. No, because the timing of the cash lows are different. B. Yes, you can always compare IRRS of riskless projects, and an invesiment in the bank is riskless. OC. Yes, because the EAR Is the same at all horizona, Bo the two "projecta" have the aame riakiness, scale and timing. O D. No, this is like comparing the IRRa of two projects.

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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d. If, instead, you decide to withdraw $170000 per year in retirement (again with the first withdrawal one year after retiring), how many years will it take until you exhaust your savings? (Use trial-and-error, a financial calculator: solve for "N", or Excel: function NPER) e. Assuming the most you can afford to save is $1500 per year, but you want to retire with 1000000 in your investment account, how high of a return do you need to earn on your investments? (Use trial-and-error, a financial calculator: solve for the interest rate, or Excel: function RATE) *round to two decimal places for d) and e)*
Suppose you have a financial investment opportunity for which if you invest $2,000 today, you will receive $100 per year for 3 years plus $2,500 in the third year. Is this worthwhile in financial terms if the interest rate on the best alternative use of the funds is 10% How would I plug this into a finacial calculator? usin N, I/Y, PV, PMT,FV
Your broker calls you and tells you that he has this great investment opportunity. If you invest $100 today, you will receive $45 in one year and $75 in two years. lf you require a 15% return on investments of this risk, should you take the investment? Seleccione una: a. Yes, this investment yields a lower rate of return than I require. O b. No, this investment yields a higher rate of return than I require. O c. Yes, this investment yields a higher rate of return than I require. O d. No, this investment yields a lower rate of return than I require.
You are considering investing in a security that will pay you $4,000 in 29 years. If the appropriate discount rate is 11 percent, what is the present value of this investment? b. а. Assume these investments sell for $791 in return for which you receive $4,000 in 29 years. What is the rate of return investors earn on this investment if they buy it for $791? If the appropriate discount rate is 11 percent, the present value of this investment is $___-_(Round to the nearest cent.) а.
(Related to Checkpoint 5.6) (Solving for ) You are considering investing in a security that will pay you $4,000 in 28 years a. If the appropriate discount rate is 12 percent, what is the present value of this investment? b. Assume these investments sell for $2,229 in return for which you receive $4,000 in 28 years. What is the rate of return investors earn on this investment if they buy it for $2,229?
(Related to Checkpoint 5.6) (Solving for ) You are considering investing in a security that will pay you $3,000 in 34 years. a. If the appropriate discount rate is 8 percent, what is the present value of this investment? b. Assume these investments sell for $773 in return for which you receive $3,000 in 34 years. What is the rate of return investors earn on this investment if they buy it for $773? a. If the appropriate discount rate is 8 percent, the present value of this investment is $ 219.13. (Round to the nearest cent.) b. The rate of return investors can earn on this investment if they buy it for $773 is %. (Round to two decimal places.)
An investor has to decide how much he will be willing to pay for an investment that generates the following stream of future cash flows: Yr1 = 35, Yr2 = 40, Yr3 = 45, Yr4 = 50, Yr5= 55. His minimum required rate of return is 9 percent. How much should he be willing to pay for it today?
You are considering an investment manufacturing cocoa powder. This investment needs $185,000 today and expects to repay you $200,000 in a year from now. What is the IRR of this investment opportunity? Given the riskiness of the investment opportunity, your discount rate is 11%. What does the IRR rule say about whether you should invest? a. The IRR is 7.5%. The IRR rule says that you should not invest. b. The IRR is 8.11%. The IRR rule says that you should not invest. c. The IRR is 1.2%. The IRR rule says that you should not invest. d. The IRR is 16.8%. The IRR rule says that you should invest.
The present value represents the amount of money you would have to deposit today in order to match what you would get from the income stream at the future date. The formula is Time = M = i Future value represents the total amount of money you would have if you deposit the income stream until a future date. The formula is To start our problem we need to identify the variables. Rate =r= i Income Stream S(t) = i Present Value = years % M 1. 0 S (t) et dt. Future Value = Present Value* erM dollars/year
. 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.
You are thinking about investing in a project that will provide you a cash flow of $78922 in 3 years and of $88519 in 4 years. If your required return on investments of this risk is 15.14%, how much are you willing to pay for this opportunity? Round to 2 decimal places. Include a dollar sign ($) or percent (%) as appropriate. Answer:
An investor has two prototypes for invention, A and B, and needs the same amount of loan L for each. It is expected that either one of these prototypes will take a year to develop and will yield a reward of either RA or 0 for prototype A and either RB or 0 for prototype B. The probabilities of positive payoff are given by Prob(RA)=PA Prob (RB) =PB And these probabilities are known to the bank. The bank will only lend if the expected repayment at the end of the year generates a yield of i. If the prototype given a 0 reward, then the bank receive no repayment. Assuming risk neutrality on the part of the bank, explain why the repayments when either prototype is a success are given by (1+i) LPA, (1+i) LPB for A, B respectively. If the loan were granted, show that the expected payoff for the inventor after the bank has been repaid is given by PARA-(1+i) LPBRB-(1+i)L for A, B respectively. Under what conditions…

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