Question

You are offered two investments:

i) You receive $500 in two months for which you need to pay $400 today.

ii) you pay $100 today, and you will receive $20 every week for six weeks.

If you must choose one of the two, which one would you choose? Assume you have no preference for when you receive the money. Fully show the analysis that informs your decision

Answer #1

Solution:

We can calculate the present value of given options to evaluate them.Lets assume interest rate of 10% per weeks

Present value of first option is:

No.of weeks in 2month=2*4=8

$500/(1+0.10)^8

=$282.24

Return on investment=($282.24/$500)*100

=56.45%

Present value of option 2 is:

=$20*PVAF(6%,6)

=$20*4.9173

=$98.35

Return on investment=($98.35/$100)*100

=98.35%

since return under option 2 is higher than return under option 1,thus I would prefer option 2(invest $100 and get $20 per weeks for 6 weeks.

You have won the State Lottery that calls for you to receive
$50,000 every six months for 20 years. The State uses a discount
rate of 5.7 percent. If you wish to receive a lump sum amount of
money today instead of the monthly payment, how much will you
receive today?
Group of answer choices
$1,175,456.84
$1,372,917.25
$1,184,283.00
$1,399,512.75
$2,000,000.00

You are to receive a sum of money, but you can choose one of two
scenarios. You can either receive $40,000 today, or receive $56,000
after 10 years at an interest rate of 13% per year compounded
annually. Which of the two scenarios would you choose and why?

You have just won the lottery. You will receive $2,000,000 today
and then receive 40 payments of $750,000. These payments will start
one year from now and will be paid every six months. A
representative from TheExpert Investment has offered to purchase
all the payments from you for $17 million. The appropriate discount
rate is 9 percent APR compounded daily. Assume there are 12 months
in a year, each with 30 days.
a)What is the effective six month rate? Show...

You have been accepted at University. You will need $15,000
every six months (beginning six months from now) for the next three
years to cover tuition and living expenses. Mom and Dad have agreed
to pay for your education. They want to make one deposit now in a
bank account earning 6% interest, compounded semiannually, so that
you can withdraw $15,000 every six months for the next three years.
How much must they deposit now?

Which of these statements is a correct reason for why I would
prefer to receive money today than in the future?
a.Because of inflation I can buy more in the future with the same
amount of money
b.Any day now paper money will be replaced with the gold
standard
c.I can invest it to make a return and it eliminates any
uncertainty that I will receive it
"I want to find the present value of $500...

You need a new car and the dealer has offered you a price of
$20,000?, with the following payment? options:
(a) pay cash and receive a $2,000 ?rebate, or? (b) pay a $5,000
down payment and finance the rest with 0% APR loan over 30 months.
But having just quit your job and started an MBA? program, you are
in debt and you expect to be in debt for at least the next 2? ½
years. You plan to use...

You are responsible to pay back the following: $400 due today,
$500 due in five months, and $618 due in one year. You are given
the option: instead of making the above 3 payments, you can pay the
same amount as a single payment 9 months from now. Assuming a 12%
per annum (p.a) interest rate, how much will the single payment
be?

.A risk-free investment promises to pay you $550 every 6 months
for the next 11 years. If you can earn 9.5% on your money, how much
would you be willing to pay for this investment?
You want to retire and have annual payments of $50,000 over a 20
year period. You plan to retire in 17 years. If you can earn 7.5%
on your funds, how much do you need to invest monthly until you
retire to reach your goal?...

Bonus Versus Stock
A. The company has offered you a $5,000 bonus, which you may
receive today, or 100 shares of the company’s stock, which has a
current stock price of $50 per share. Mathematically, what is the
best choice? Why?
B. What are the advantages and disadvantages of each option?
Be sure to support your answers.
C. What would you ultimately choose to do? What is your
financial reasoning behind this choice? Consider supporting
your answer with quantitative data.

. Blue Devil Corporation stock, of which you own 500 shares,
will pay a $2 per share dividend one year from today. Two years
from now Blue Devil will close its doors and stockholders will
receive a liquidating dividend of $17.5375 per share. The required
rate of return on Blue Devil stock is 15 percent.
(a) What is the current price of Blue Devil stock?
(b) You prefer to receive equal amounts of money in each of the
next two...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 5 minutes ago

asked 20 minutes ago

asked 41 minutes ago

asked 44 minutes ago

asked 51 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago