You have just been employed as an investment analyst in an investment bank. You took over from someone who left with a number of issues that need answers. The issues are itemized below: a) A client just deposited ¢7,000,000 in one of your investment funds which is currently earning 10% return. The bank has advised the client to deposit an additional ¢4,000,000 at the end of each of the next three years. The client would like to know how much the total amount in this investment will be in three years’ time. b) A client has been offered an investment product which requires that he pays ¢200,000 in one year, ¢400,000 the next year, ¢600,000 the year after, and ¢800,000 at the end of the following year. The client could have earned 12% on similar investments being offered on the market but has decided to take your firm’s offer. How much is this investment worth today assuming the client proceeds to invest? c) Kassim has just been offered a job at ¢600,000 a year. He anticipates his salary will increase by 6% annually until his retirement in 40 years. Kassim’s required return on any investment is 9%. What is the present value of Kassim’s lifetime salary? d) This morning, TL Trucking invested $90,000 to help fund a company expansion project planned for 4 years from now. How much additional money will the firm have 4 years from now if it can earn 6 percent rather than 5 percent on its savings?
You have just been employed as an investment analyst in an investment bank. You took over from
someone who left with a number of issues that need answers. The issues are itemized below:
a) A client just deposited ¢7,000,000 in one of your investment funds which is currently earning
10% return. The bank has advised the client to deposit an additional ¢4,000,000 at the end of
each of the next three years. The client would like to know how much the total amount in this
investment will be in three years’ time.
b) A client has been offered an investment product which requires that he pays ¢200,000 in one
year, ¢400,000 the next year, ¢600,000 the year after, and ¢800,000 at the end of the following
year. The client could have earned 12% on similar investments being offered on the market
but has decided to take your firm’s offer. How much is this investment worth today assuming
the client proceeds to invest?
c) Kassim has just been offered a job at ¢600,000 a year. He anticipates his salary will increase
by 6% annually until his retirement in 40 years. Kassim’s required return on any investment
is 9%. What is the present value of Kassim’s lifetime salary?
d) This morning, TL Trucking invested $90,000 to help fund a company expansion project
planned for 4 years from now. How much additional money will the firm have 4 years from
now if it can earn 6 percent rather than 5 percent on its savings?
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