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6. Assume you have an option to purchase an investment that will provide a cash payment...

6. Assume you have an option to purchase an investment that will provide a cash payment of $20,000 in 10 years. If you believe the appropriate rate of return is 12% compounded semiannually, how much should you pay for this today?

7. You plan on making monthly payments of $50 to pay off a credit card that you just charged $1,000 to. If the interest rate is 24% compounded monthly, how many months will it take you to pay off the credit card balance? NOTE: State your answer in number of months.

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Answer #1
ans 6 Price to pay today = PV of future cash flow
Price to pay today = $      6,236.09
20000/(1+12%/2)^(10*2)
Answer = $      6,236.09
ans 7 We have to use financial calculator here
put in calculator
FV 0
PV -1000
I 24%/12 2.00%
PMT 50
Compute N               25.80
therefore answer = 26 month.
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