Question

You have been offered a 7-year investment at a price of $50,000. It will pay $5,000 at the end of Year 1, $10,000 at the end of Year 2, and $15,000 at the end of Year 3, plus a fixed but currently unspecified cash flow, X, at the end of Years 4 through 7. The payer is essentially riskless, so you are sure the payments will be made, and you regard 9% as an appropriate rate of return on riskless 7-year investments. What cash flow must the investment provide at the end of each of the final 4 years, that is, what is X?

Answer #1

You are negotiating to make a 7-year loan of $25,000 to Breck
Inc. To repay you, Breck will pay $2,500 at the end of Year 1,
$5,000 at the end of Year 2, and $7,500 at the end of Year 3, plus
a fixed but currently unspecified cash flow, X, at the end of each
year from Year 4 through Year 7. Breck is essentially riskless, so
you are confident the payments will be made. You regard 8% as an...

You are offered an investment opportunity that costs you
$175,000, has an NPV of ($364.86), lasts for ten years,
has an interest rate of 10% and produces the following cash flow
stream:
Year Cash Flow
0 ($175,000)
1 - 3 $10,000
4 - 6 $50,000
7 ?
8 - 10 $15,000
Required: Determine the value of the cash flow in year 7

1. You are offered an investment that will pay $100 annually for
7 years (the first payment will be made at the end of year 1) plus
$2,900 at the end of year 7. If the appropriate discount rate is
5%, assume annual compounding, what is the investment worth to you
today?
2. You are offered an investment that will pay $100 annually for
7 years (the first payment will be made at the end of year 1) plus
$2,900...

You have been offered an investment that promises to pay out
$20,000 at the end of the year, followed by payments of $30,000,
$40,000, and $50,000 at the end of the subsequent years. Yields in
the market are expected to steadily increase over the next year so
that the appropriate discount rate is 6% for the first year, 7% for
the second year, 8% for the third year, and $9% for the fourth
year. How much would you be willing...

Your professor needs a $25,000, 7-year loan. To repay you, your
professor will pay $2,500 at the end of of the first year, $5,000
at the end of the second year, and $7,500 at the end of the third
year, plus a fixed (currently unknown) cash flow, X, at the end of
each of the last four years (fourth through and including the
seventh year). Considering how much you respect this professor, you
decide to charge her an APR of...

An investment promises to pay $5,000 at the end of each year for
the next 7 years, $9,000 at the end of each year for years 8
through 20, and $3,000 at the end of each year for years 21 through
35. If you require a 10% annual rate of return on this investment,
what is the present value of these cash flows at a 10% annual rate
of return? Show time value of money equation and
work.

Question #7: Your broker called and offered you the following
investment opportunity:
• You will have to invest $1,000 today
• In 7 years the investment will end and you will be paid
$1,375
• You will receive no payments until the end of the investment
in 7 years
Required: Determine the Implied Interest rate that you will earn
on this investment.

You have been offered the opportunity to invest in a project
that will pay $2,857 per year at the end of years one through three
and $9,913 per year at the end of years four and five. These cash
flows will be placed in a saving account that pays 17.22 percent
per year. What is the future value of this cash flow pattern at the
end of year five?

You have been offered the opportunity to invest in a project
that will pay $5,943 per year at the end of years one through three
and $6,356 per year at the end of years four and five. These cash
flows will be placed in a saving account that pays 17.40 percent
per year. What is the future value of this cash flow pattern at the
end of year five?

You are offered a four-year investment opportunity costing
$100,000 today. The investment will pay $25,000 in the first year,
$27,000 in the second year, $30,000 in the third year, and $40,000
in the fourth year. Investments of comparable risk require a 10%
rate of return in the financial market. Should you accept the
investment opportunity and why?
A.
Yes, those cash payments look good to me because they add up to
$122,000.
B.
Yes, because the investment’s cash payments represent...

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