Question

In: Finance

Sasha owns two investments, A and B, that have a combined total value of 59,400 dollars....

Sasha owns two investments, A and B, that have a combined total value of 59,400 dollars. Investment A is expected to pay 28,000 dollars in 3 year(s) from today and has an expected return of 17.1 percent per year. Investment B is expected to pay 55,734 in 2 years from today and has an expected return of R per year. What is R, the expected annual return for investment B? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

Now, Sasha owns two investments, A and B, that have a combined total value of 52,600 dollars. Investment A is expected to pay 22,500 dollars in 3 year(s) from today and has an expected return of 12.11 percent per year. Investment B is expected to pay 60,905 dollars in T years from today and has an expected return of 3.69 percent per year. What is T, the number of years from today that investment B is expected to pay 60,905 dollars? Round your answer to 2 decimal places (for example, 2.89, 14.70, or 6.00).'

2 year(s) ago, Sasha invested 6,310 dollars. In 1 year(s) from today, he expects to have 8,890 dollars. If Sasha expects to earn the same annual return after 1 year(s) from today as the annual rate implied from the past and expected values given in the problem, then how much does Sasha expect to have in 6 years from today?

Solutions

Expert Solution

Solution :- (1)

Combined total Value = $59,400

Now $59,400 = [ $28,000 / ( 1 + 0.171 )3 ] + [ $55,734 / ( 1 + r )2 ]

= $59,400 = ( $28,000 * 0.6228 ) + [ $55,734 / ( 1 + r )2 ]

[ $55,734 / ( 1 + r )2 ] = $41,962.37

( 1 + r )2 = 1.32819

( 1 + r ) = 1.1525

r = 0.1525 = 15.25%

Therefore , the expected annual return for investment B = 0.1525

(B)

Combined total Value = $59,400

Now $52,600 = [ $22,500 / ( 1 + 0.1211 )3 ] + [ $60,925 / ( 1 + 0.0369 )t ]

= $52,600 = ( $22,500 * 0.7097 ) + [ $60,925 * ( 1 + 0.0369 )-t ]

= [ $60,925 * ( 1.0369 )-t ] = $36,632.04

( 1.0369 )-t = 0.60126

( 1.0369 )t = 1.66316

Take Log Both Sides

t log (1.0369 ) = Log ( 1.66316 )

t = 14.04 ( Approx )  

= 14.04 Years

(C)

Invested 2 Year ago = $6,310

Investment after 1 Year = $8,890

Return (r ) = ??

$8,890 = $6,310 * ( 1 + r )3

( 1 + r )3 = 1.40887

1 + r = 1.12105

r = 0.12105 = 12.105%

Now Amount after 6 Years from today = $8,890 * ( 1 + 0.12105 )5   

= $8,890 * 1.7706

= $15,740.55

If there is any doubt please ask in comments

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