Question

In: Finance

You bought 500 forever stamps just before the price went up in January of 2014 at...

You bought 500 forever stamps just before the price went up in January of 2014 at $0.46/stamp, a $0.03 savings per stamp. If you could have paid off a credit card charging 12% per year instead of investing in stamps, how fast must you use the stamps to breakeven? Assume the $0.49 price never changes before you run out of stamps. (Hint use 12% / year as your effective interest rate per year)

a. 3 months

b 6 months

c 10 months

d 12 months

e 36 months

Solutions

Expert Solution

You bought 500 forever stamps just before the price went up in January of 2014 at $0.46/stamp, a $0.03 savings per stamp.

The price of stamp after increase is $0.49/stamp

Suppose you have paid off a credit card charging 12% per year

You must use the stamps to breakeven is x (assumed)

Now we can use following formula to calculate x

PV = FV / (1+i) ^n

Where,

PV is the present value or price of stamp = $0.46/stamp

FV is the future value or price of stamp after price increase = $0.49/stamp

i is the interest rate = 12% per year

n is time period = x

Therefore,

$0.46 = $0.49/ (1+12%) ^x

Or (1+12%) ^x = $0.49/ $0.46 = 1.06522

Taking natural log (ln) from both sides

Ln (1+12%) ^x = ln 1.06522

Or x * ln (1+12%) = ln (1.06522)

Or n = ln (1.06522) / ln (1.12)  

Or n = 0.0632 /0.1133

Or n = 0.56 years or 6.67 months

6.67 months are required for break-even; therefore you must use within 6 months for break-even

Therefore best option is option b. 6 months


Related Solutions

You bought 500 Forever stamps just before the price went up in January of 2014 at...
You bought 500 Forever stamps just before the price went up in January of 2014 at $0.46/stamp, a $0.03 savings per stamp. If you could have paid off a credit card charging 12% per year instead of investing in stamps, how fast must you use the stamps to breakeven? Assume the $0.49 price never changes before you run out of stamps. (Hint use 12% /year as your effective interest rate per year) a. 3 months b. 6 months c. 10...
Karon went to the post office and spent $31.57 on 84 stamps. She bought 27¢ stamps...
Karon went to the post office and spent $31.57 on 84 stamps. She bought 27¢ stamps for all the postcards, 42¢ stamps for each letter addressed to friends in the U.S., and 94¢ stamps for each letter to England. Karon bought 7 times as many postcard stamps as those for the letters to England. How many postcard stamps did Karon buy? (Hint: Use matrices.)
On 1 January 2008, a company bought plant at a price of $500 000. The plant...
On 1 January 2008, a company bought plant at a price of $500 000. The plant was to be depreciated using the straight line method over its useful life of 5 years (after which it was estimated that it would have no residual value). For tax purposes, wear and tear is allowed on the following basis: 50% in the first year 30% in the second year 20% in the third year On 31 December 2011 the plant was sold for...
Your timing was good last year. You invested more in your portfolio right before prices went up, and you sold right before prices went down.
Your timing was good last year. You invested more in your portfolio right before prices went up, and you sold right before prices went down. In calculating historical performance measures, which one of the following will be the largest?Multiple Choicemean holding-period returnarithmetic average returngeometric average returndollar-weighted return
2. You went to a grocery store and bought a lot of groceries. 25% of the...
2. You went to a grocery store and bought a lot of groceries. 25% of the total money you spent was on produce, which comprised $14.79. What was the total bill? 3. A tube feeding formula is 9% protein by volume. The patient needs 80 grams of protein per day. How much formula should this patient get per day? 4. A patient is getting an IV infusion with 0.45% NaCl. If a patient receives needs 5 grams of NaCl, how...
ABC is a company that just bought goods from a french company for 500 million euros...
ABC is a company that just bought goods from a french company for 500 million euros with payment due in 4 months. Assume the following: Spot rate $1.30/euro 4 month forward rate $1.31/euro 4 month french interest rate 8% pa; US 6% pa 4 month call option on euros at a strike price of $1.29/euro with a 3% premium 4 month put option on euros at a strike price of $1.305/euro with a 4% premium Questions: 1, The proceeds of...
On January 1, 2014, Allan Company bought a 15 percent interest in Sysinger Company. The acquisition...
On January 1, 2014, Allan Company bought a 15 percent interest in Sysinger Company. The acquisition price of $184,500 reflected an assessment that all of Sysinger’s accounts were fairly valued within the company’s accounting records. During 2014, Sysinger reported net income of $100,000 and declared cash dividends of $30,000. Allan possessed the ability to influence significantly Sysinger’s operations and, therefore, accounted for this investment using the equity method. On January 1, 2015, Allan acquired an additional 80 percent interest in...
On January 1, 2014, Thor Corp. bought 30,000 shares of the available 100,000 common shares of...
On January 1, 2014, Thor Corp. bought 30,000 shares of the available 100,000 common shares of Loki Inc., a publicly traded firm. This acquisition provided Thor with significant influence. Thor paid $700,000 cash for the investment. At the time of the acquisition, Loki reported assets of $2,500,000 and liabilities of $1,200,000. Asset values reflected fair market value, except for capital assets that had a net book value of $500,000 and a fair market value of $730,000. These assets had a...
A financial advisor says she has an investment that will pay you $500 a month forever....
A financial advisor says she has an investment that will pay you $500 a month forever. It will cost you $25,000 today. What effective annual rate (EAR) will you earn on this investment? Round your answer to the nearest tenth of a percent.
Addison just went through a hard break up while trying to study for her MCAT exam....
Addison just went through a hard break up while trying to study for her MCAT exam. The breakup has caused her to suffer from extreme depression while studying has caused her to develop extreme stress. The stress and depression have increased her blood pressure. She not only has an increase in her blood pressure but her heart sounds also swish and whistle. 1. What effect does the extreme stress and depression causing her blood pressure to increase have on her...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT