Question

In light of the impact of the coronavirus pandemic, Katherine Mutual Bank in the Northern Territory,...

In light of the impact of the coronavirus pandemic, Katherine Mutual Bank in the Northern Territory, would like to set up a reserve fund. The fund will earn an interest rate of 4.7% per annum. If the fund pays a fixed amount of $11 million to the bank annually for an infinite period, starting three years from today, how much does the bank need in the fund today?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
In this case we would calculate present value of perpetuity payment received by bank after three years and then discount it to present value
Present value of perpetuity Annuity amount/Interest rate
Present value of perpetuity $11 million/0.047
Present value of perpetuity $234.04 million
Calculate present value of $234.04 million today
Present value Future value*(1/((1+r)^n)
Present value 234.04*(1/(1.047^3))
Present value 234.04*0.871284
Present value $203.92
Thus, bank needs to have $203.92 million in the fund today
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
In light of the impact of the coronavirus pandemic, Kalbarri Mutual Bank in Western Australia, would...
In light of the impact of the coronavirus pandemic, Kalbarri Mutual Bank in Western Australia, would like to set up a reserve fund. The fund will earn an interest rate of 4% per annum. If the fund pays a fixed amount of $20 million to the bank annually for an infinite period, starting two years from today, how much does the bank need in the fund today? Select one: a. $500.0 million b. $520.0 million c. $444.5 million d. $408.8...
In light of the impact of the coronavirus pandemic, Kalbarri Mutual Bank in Western Australia, would...
In light of the impact of the coronavirus pandemic, Kalbarri Mutual Bank in Western Australia, would like to set up a reserve fund. The fund will earn an interest rate of 4% per annum. If the fund pays a fixed amount of $20 million to the bank annually for an infinite period, starting two years from today, how much does the bank need in the fund today? Select one: a. $520.0 million b. $444.5 million c. $500.0 million d. $408.8...
To make provision for the possible impact of recessions in the future, Albany Mutual Bank would...
To make provision for the possible impact of recessions in the future, Albany Mutual Bank would like to set up a reserve fund. The fund will earn an interest rate of 6% per annum. If the fund pays a fixed amount of $12 million to the bank annually for an infinite period, starting two years from today and the annual payment grows at 2.5% per annum, how much does the bank need in the fund today?
Congratulations! Today is your 20th birthday, but you are starting with nothing in the bank. You...
Congratulations! Today is your 20th birthday, but you are starting with nothing in the bank. You just started working full-time, earning $50,000 per year. Your goal is to have $2 million by your 65th birthday (i.e., 45 years from today). Your employer offers a 401(k) plan (contributions by you are tax deductible, growth is tax deferred), and within that plan you choose to invest in an extreme low-cost S&P 500 index mutual fund (like ones offered by Schwab, Fidelity, Vanguard,...
4. The Mycroft Inquiries Group has a price-earnings ratio of 17.5, net income of $194,000, a...
4. The Mycroft Inquiries Group has a price-earnings ratio of 17.5, net income of $194,000, a book value per share of $22.22, and 70,000 shares of stock outstanding. What is its market to book ratio? 5.      Moriarity Ltd has adopted a policy whereby it will maintain a constant debt-equity ratio. Given this, what is its maximum growth rate if it has net income of $9,600, total equity of $66,000, total assets of $150,000 and a 30% dividend payout ratio? 6.     ...
PLEASE ANSWER ALL, I am unable to post individually. Do NOT answer, If you are not...
PLEASE ANSWER ALL, I am unable to post individually. Do NOT answer, If you are not going to complete all, and or request to post the remaining separately. Thank you ! 4.Your birthday is next week and instead of other presents, your parents promised to give you $2,700 in cash. Since you have a part-time job and, thus, don’t need the cash immediately, you decide to invest the money in a bank CD that pays 7.80 percent, compounded quarterly, for...
Whatever It Takes: How the Fed Aims to Rescue the Economy The central bank is using...
Whatever It Takes: How the Fed Aims to Rescue the Economy The central bank is using tactics from the last financial crisis and deploying new ones to keep money flowing. Here are the basics. The Federal Reserve, under Jerome H. Powell, is moving to shore up the American economy during the coronavirus pandemic. Credit...Yuri Gripas/Reuters By Ben Casselman March 23, 2020 The Federal Reserve on Monday pledged to do, in essence, whatever it takes to keep the economy from collapsing...
Intermediate 1. Multiple compounding periods: Find the future value of an investment of $2,500 made today...
Intermediate 1. Multiple compounding periods: Find the future value of an investment of $2,500 made today for the following rates and periods: a.            6.25 percent compounded semiannually for 12 years b.            7.63 percent compounded quarterly for 6 years c.            8.9 percent compounded monthly for 10 years d.            10 percent compounded daily for 3 years 2. Multiple compounding periods: Find the present value of $3,500 under each of the following rates and periods. a.            8.9% compounded monthly for five years. b.          ...
Amazon CEO Jeff Bezos’ 2020 letter to shareholders details the company’s plans to combat the coronavirus...
Amazon CEO Jeff Bezos’ 2020 letter to shareholders details the company’s plans to combat the coronavirus Amazon CEO Jeff Bezos just published his annual letter to shareholders, and the efforts his company is taking to address the COVID-19 crisis were front and center. He outlined the company’s plans to build a lab to test employees and the social distancing measures its implemented in its facilities among other initiatives. Other than the coronavirus pandemic, Bezos also discussed the retail giant’s efforts...
PLEASE ANSWER ALL, I am unable to post individually. Dont not answer, and request to post...
PLEASE ANSWER ALL, I am unable to post individually. Dont not answer, and request to post the remaining separately. Thank you ! 2.Your aunt is planning to invest in a bank CD that will pay 7.0 percent interest semiannually. If she has $13,000 to invest, how much will she have at the end of four years? 3.Lisa Anderson received a graduation present of $1,000 that she is planning on investing in a mutual fund that earns 14.00 percent each year....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT