Question

3)

A) Suppose a company is contemplating investing in a project that would pay out $50,000 3 years from today. The company would finance the cost of the investment with equity. The company’s return on equity from the balance sheet has remained steady at 15% per year. What is the most the company should pay for the investment

B) What if you started investing in your retirement on the day you were born. Say your parents invested $2,000 that day in the S&P 500 index, which pays, on average, 13.6% per year. How much will you have when you retire on your 65^th birthday if the interest compounded daily?

C)Say you have a $2,000 balance on your credit card. The minimum payment is $32 a month. The current annual rate is 18%. How many years will it take to pay off the credit card if you make the minimum monthly payment

Answer 1

A

Future value = present value*(1+ rate)^time

50000 = Present value*(1+0.15)^3

Present value = 32875.812

B

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

Effective Annual Rate = ((1+13.6/365*100)^365-1)*100

Effective Annual Rate% = 14.57

Future value = present value*(1+ rate)^time

Future value = 2000*(1+0.145652873044564)^65

Future value = 13787265.92

Please ask remaining parts separately, questions are unrelated. I have done one bonus