Premium Essay

Submitted By Jermaine2240

Words 558

Pages 3

Words 558

Pages 3

B. Ten years at an interest rate of 5% per year. 2000x1.05^10= 3257.79

C. Five years at an interest rate of 10% per year 2000x1.1^5= 3221.02

D. Why is the amount of interest earned in part (a) less than half the amount of interest earned in part (b)? In the last 5 years you gain more interest on the interest already earned in the beginning 5 years and you get interest on the first $2,000. #4

What is the present value of $10,000 received? A. Twelve years from today when the interest rate is 4% per year? PV= 10,000/1.04^12= 6,245.97

B. Twenty years from today when the interest rate is 8% per year? PV= 10,000/1.08^20= 8,879.71

C. Six years from today when the interest rate is 2% per year? PV= 10,000/1.02^6= 8,879.71 #9

You are thinking of retiring. Your retirement plan will pay you either $250,000 immediately on retirement or $350,000 five years after the date of your retirement. Which alternative should you choose if the interest rate is: A. 0% per year? 350,000/1.0^5= 350,000

B. 8% per year? 350,000/1.08^5= 238,204

C. 20% per year? 350,000/1.2^5= 140,657 I would take the 250,000 #14

You have been offered a unique investment opportunity. If you invest $10,000 today you will receive $500 one year from now, $1500 two years from now, and $10,000 ten years from now. A. What is the NPV of the opportunity if the interest rate is 6% per year? Should you take the opportunity? TRUE Don’t take it

B. What is the NPV of the opportunity if the interest rate is 2% per year? Should you take it now? TRUE Take It #19

What is the...