Question
In: Finance
An investor pays $10,000 today to purchase an investment that returns $5,000 at the end of...
An investor pays $10,000 today to purchase an investment that returns $5,000 at the end of each of years 2, 4, and 5. The returns are immediately reinvested at an annual interest rate of 5%. Calculate the annual effective yield rate for the investor at the end of the fifth year.
(a) 9.91% (b) 12.00% (c) 12.45% (d) 13.11% (e) 15.13%
Solutions
Expert Solution
We first need to calculate the sum of the Future value of the cash inflows at the enf of year 5:
Below is the future value calculation:
| Year | CF | Compounding Factor | Compounded CF | ||
| 2 | $ 5,000.00 | (1+0.05)^(5-2)= | 1.157625 | 1.157625*5000= | $ 5,788.13 |
| 4 | $ 5,000.00 | (1+0.05)^(5-4)= | 1.05 | 1.05*5000= | $ 5,250.00 |
| 5 | $ 5,000.00 | (1+0.05)^(5-5)= | 1 | 1*5000= | $ 5,000.00 |
| Future Value = Sum of all Compounded CF | $ 16,038.13 |
Now annual return is calculated as follows:
So the annual return is 9.91% and the correct option is a
jeff jeffy answered 1 year agoRelated Solutions
If an investor pays $10,000 for an investment today that is anticipated to produce net sale...
If an investor pays $10,000 for an investment today that is
anticipated to produce net sale proceeds of $28,300 at end of year
10, what is the anticipated IRR?
4. Determine the value at the end of four years of a $5,000 investment today that...
4. Determine the value at the end of four years of a $5,000
investment today that pays a nominal annual interest rate of 15%,
compounded:
a)Annually
b)Semiannually
c)Quarterly
d)Monthly
4) Determine the value at the end of four years of a $5,000 investment today that...
4) Determine the value at the end of four years of
a $5,000 investment today that pays a nominal annual
interest rate of 15%, compounded:
a)
Annually
b)
Semiannually
c)
Quarterly
d)
Monthly
5. You are considering buying a painting by a
local
artist for $1,200. You believe that this artist is just
about to be discovered, and think that five years from now the
painting will be worth $5,000. If you are
correct, what average annual return would you...
Suppose an investor initially pays $4,000 towards the purchase of $10,000 worth of stock (200 share...
Suppose an investor initially pays $4,000 towards the
purchase of $10,000 worth of stock (200 share at $50 per share),
borrowing the remaining from a broker with an interest rate of 6%
p.a.? i) What is the initial margin? ii) If the price
declines to $40 by the end of the year, what is the percentage
margin (equity position) and the return on investment (ROI)? iii)
If the price increases to $60 by the end of the year, what is...
An investor invests $11000. The investment pays $4000 at the end of year 1, $5000 at...
An investor invests $11000. The investment pays $4000 at the end
of year 1, $5000 at the end of year 2 and $4500 at the end of year
3. (a) Calculate the internal rate of return (IRR) of the
investment. (b) Calculate the net present value (NPV) of the
investment using interest preference rate of 8.5%.
Ans is 10.76% for (a)
Show all works, and please calculate it with math steps AND
DON'T USE financial calculator!!your Answer should be in...
An investor invests $500. The investment pays $100 at the end of year 2, $200 at...
An investor invests $500. The investment pays $100 at the end of
year 2, $200 at the end of year 3 and $300 at the end of year
4.
Calculate the net present value (NPV) of the investment using
interest preference rate of 5.7%.
----------------------------------------------
I got
v = 1/1.12
So would it just be NPV = -500 + 100(v)^2 + 200v^3 + 300v^4?
An investor invests $11000. The investment pays $4000 at the end of year 1, $5000 at...
An investor invests $11000. The investment pays $4000 at the end
of year 1, $5000 at the end of year 2 and $4500 at the end of year
3. (a) Calculate the internal rate of return (IRR) of the
investment. (b) Calculate the net present value (NPV) of the
investment using interest preference rate of 8.5%.
Show all works, and please calculate it with math formula
instead of financial calculator!! Thank you!
Today, you invest $5,000 in an investment that pays 3% per year. How much will your...
Today, you invest $5,000 in an investment that pays 3% per year.
How much will your investment be worth in 5 years?
George pays 100,000 today for a 4-year investment that returns cash flows of 60,000 at the...
George pays 100,000 today for a 4-year investment that returns
cash flows of 60,000 at the end of each years 3 and 4. Suppose
that, at 15%, the net present value of George's cash flows is equal
to the net present value fo Joe's cash flows, where Joe makes an
investment of X one year from today that returns cash flows of
60,000 at the end of each of years 4 and 5. Calculate X.
Your investment account pays 8.2%, compounded annually. If you invest $5,000 today, how many years will...
Your investment account pays 8.2%, compounded annually. If you
invest $5,000 today, how many years will it take for your
investment to grow to $9,140.20?
Select the correct answer.
a. 9.15
b. 12.15
c. 7.65
d. 6.15
e. 10.65
One year ago Lerner and Luckmann Co. issued 15-year,
noncallable, 8% annual coupon bonds at their par value of $1,000.
Today, the market interest rate on these bonds is 5.5%. What is the
current price of the bonds, given that they...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- You are tasked with assessing the health department’s intervention program in preventing recurrence of acute alcohol...
- Compare the MOSFET, JFET , and BJT and identify the reasons these devices behave differently. What...
- How would you use SAS Enterprise Miner to create a neural network model of your example?
- Explain the use of neural networking modeling in predictive analytics.
- Current Market Mix of Netflix, as detail as possible, please.
- This is all one question, thank you so much in advance! You must evaluate a proposal...
- X Company is considering the purchase of a new processor that costs $200,000. Shipping and setup...
ADVERTISEMENT