You are thinking of building a new machine that will save you $ 4,000 in the first year. The machine will then begin to wear out so that the savings decline at a rate of 3% per year forever. What is the present value of the savings if the interest rate is 7 % per year?

You are thinking of building a new machine that will save you $ 4,000 in the first year. The machine will then begin to wear out so that the savings decline at a rate of 3% per year forever. What is the present value of the savings if the interest rate is 7 % per year?

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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You are thinking of building a new machine that will save you $ 4,000 in the first year. The machine will then
begin to wear out so that the savings decline at a rate of 3 % per year forever. What is the present value of
the savings if the interest rate is 7 % per year?

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1. How much would $10,000 due in 100 years be worth today if the discount rate were 9%? 2. You have a chance to buy an annuity that pays $2,000 at the end of each year for 5 years. You could earn 7% on your money in other investments with equal risk. What is the most you should pay for the annuity? 3. You want to buy a condo 5 years from now, and you plan to save $3,000 per year, beginning one year from today. You will deposit the money in an account that pays 8% interest. How much will you have just after you make the 5th deposit, 5 years from now?
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Suppose that you plan to invest 400,000 baths annually for 25 years for a retirement . Your investment return rate is 4 % . a ) What is your total retirement fund ? b ) If you plan to retire with a lump sum of 25 million baths , what should be your alternative investment's return ? c ) If you cannot find any alternative investments and have to stick with the investment yields of 4 % , how much do you have to invest annually ?
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