1)What is the nature of interest? Mary is considering two investment options for a $5,000 gift...

1)What is the nature of interest? Mary is considering two investment options for a $5,000 gift she received for graduation. Both investments have 9% annual interest rates. One offers quarterly compounding and the other compounds on a semiannual basis. Which investment should she choose and why?

2)What are the primary characteristics of an annuity? Differentiate between an “ordinary annuity” and an “annuity due”

Solutions

Expert Solution

ekkarill92 answered 10 months ago

Next > < Previous

Related Solutions

You are considering investment in one of the following two options. Assume an interest rate of...

You are considering investment in one of the following two options. Assume an interest rate of 12% per year, compounded monthly. Option A & Option B Initial Cost, respectively -$100,000 -$800,000 Quarterly Maintenance Cost, respectively -$26,000 -$15,000 Salvage Value, respectively $16,000 $200,000 Lifespan (years) 2 & 4, respectively a. What is the effective monthly interest rate? b. What is the effective quarterly interest rate (to 2 decimal places)? c. Draw cash flow diagrams for the two projects. d. Calculate the...

1. If the interest rate is 4%, what are the proceeds of a $5,000 investment after...

1. If the interest rate is 4%, what are the proceeds of a $5,000 investment after 10 years? ?a) assuming simple interest ?b) assuming compound interest 2. What if interest in #1 is compounded semi-annually? What if monthly? 3. How much do you need to deposit into a bank in order to receive proceeds of $200,000 in 5 years if the interest rate is 2.5% What if interest is compounded quarterly? 4. What is the present value of $200,000 to be...

A company is considering two investment options: Option 1: An investment of $45,000 today, and another...

A company is considering two investment options: Option 1: An investment of $45,000 today, and another investment of $15,000 in year 3, with returns of $18,000 in year 2, $7000 in year 3, and $50,000 in year 5. Option 2: An investment of $55,000 today, and another investment of $5000 in year 4, with returns of $15,000 in year 1, $16,000 in year 3, and $60,000 in year 5. Calculate the internal rate of return for each option. Which investment...

You are comparing two investment options that each pay 6 percent interest, compounded annually. Both options...

You are comparing two investment options that each pay 6 percent interest, compounded annually. Both options will provide you with $12,000 of income. Option A pays $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? Assume a positive discount rate. which option has a higer preswnr value? show the calculations of the present value for...

A firm is considering two mutually exclusive investment alternatives, both of which cost $5,000. The firm's...

A firm is considering two mutually exclusive investment alternatives, both of which cost $5,000. The firm's expected rate of return is 12 percent. The cash flows associated with each investment are: Year Investment A Investment B 1 $ 2000 $ 1000 2 $1500 $ 1500 3 $1500 $ 2000 4 $1000 $3000 For each alternative calculate the payback period, the net present value, and the profitably index. Which alternative (if any) should be selected?

You are considering two investment options. In option A, you have to invest $6,000 now and...

You are considering two investment options. In option A, you have to invest $6,000 now and $1,100 three years from now. In option B, you have to invest $3,200 now, $1,300 a year from now, and $1,000 three years from now. In both options, you will receive four annual payments of $2,200 each. (You will get the first payment a year from now.) Which of these options would you choose based on (a) the conventional payback criterion, and (b) the...

Net Present Value—Unequal Lives Daisy's Creamery Inc. is considering one of two investment options. Option 1...

Net Present Value—Unequal Lives Daisy's Creamery Inc. is considering one of two investment options. Option 1 is a $75,000 investment in new blending equipment that is expected to produce equal annual cash flows of $19,000 for each of seven years. Option 2 is a $90,000 investment in a new computer system that is expected to produce equal annual cash flows of $27,000 for each of five years. The residual value of the blending equipment at the end of the fifth...

Q2. A bank is considering two types of new investment options: Yield Bond (YB) and Equity...

Q2. A bank is considering two types of new investment options: Yield Bond (YB) and Equity Income (EI). Three possibilities are being considered: Yield Bond only; Equity Income only; and offering both YB and EI. Concerning the uncertainty about future demand, the bank management team estimates two potential demands for each type of investment: strong or weak, with the following probability assessments: Equity Income Demand Yield Bond Demand Weak Strong Weak 0.15 0.45 Strong 0.25 0.15 The projected bank profit,...

You are considering two investment options, which are expected to behave differently in different political situations...

You are considering two investment options, which are expected to behave differently in different political situations as follows: Possible Outcomes Probability Stock A Stock B Returns Returns Democrats 0.25 5% 10% Republicans 0.50 10% 12% Libertarians 0.05 -6% -11% Independents 0.20 13% 16% Calculate the expected rate of return, standard deviation, and coefficient of variation for Stock A, Stock B and a portfolio consisting of 50% in A and 50% in B).

Company A is considering two fixed interest long-term debt options: a) borrowing at a fixed rate...

Company A is considering two fixed interest long-term debt options: a) borrowing at a fixed rate of 3.5% or b) borrowing at a floating rate of Libor + 0.5% and entering a fixed-for-floating swap at 3.25% for Libor. Which option should the company take? How much interest would the company pay for option b) on a $10 million loan (and swap) at the end of the first year if Libor tuns out to be 2.9%?

Subjects