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Chapter 4: Question: (page 282)
You will receive \(6,800 three years from now. The discount rate is 10 percent. a. What is the value of your investment two years from now? Multiply \)6,800 3 (1/1.10) or divide by 1.10 (one year’s discount rate at 10 percent).
Answer
The value of investment after two years is $6,181.82.
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If you invest $8,500 per period for the following number of periods, how much would you have? b. 50 years at 9 percent.
What are the three adjustments that have to be made in going from annual to semi-annual bond analysis?
Question: As stated in the chapter, annuity payments are assumed to come at the end of each payment period (termed an ordinary annuity). However, an exception occurs when the annuity payments come at the beginning of each period (termed an annuity due). To find the present value of an annuity due, the annuity formula must be adjusted as to the following: PVAD 5 A 3 ( 12 1 ________ (11i) n 21 ___________ i 11) The Capital Budgeting Process blo7716x_ch09_255-294.indd 284. Likewise, the formula for the future value of an annuity due requires a modification: FVAD 5 A 3 ( (11i) n11 21 ___________ i 21). What is the future value of a 15-year annuity of $1,800 per period where payments come at the beginning of each period? The interest rate is 12 percent.
How much would you have to invest today to receive b. $20,000 in 12 years at 13 percent?
Jack Hammer invests in a stock that will pay dividends of \(2.00 at the end of the first year; \)2.20 at the end of the second year; and \(2.40 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for \)33. What is the present value of all future benefits if a discount rate of 11 percent is applied? (Round all values to two places to the right of the decimal point.)
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