23 May discussion questions
Problem 5.1
| Session 4 Discussion Questions | |
| Solution: | |
| PV= | 25,000 |
| i= | 8% |
| N= | 10 |
| Find FV= | $53,973.12 |
5.1 Future value: Chuck Tomkovick is planning to invest $25,000 today in a mutual fund that will provide a return of 8 percent each year. What will be the value of the investment in 10 years?
Problem 5.30
| Session 4 Discussion Questions |
5.30 Patrick Seeley has $2,400 that he is looking to invest. His brother approached him with an investment opportunity that could double his money in four years. What interest rate would the investment have to yield in order for Patrick’s brother to deliver on his promise?
Problem 6.8
| Session 4 Discussion Questions |
6.18 Growing perpetuity: You are evaluating a growing perpetuity product from a large financial services firm. The product promises an initial payment of $20,000 at the end of this year and subsequent payments that will thereafter grow at a rate of 3.4 percent annually. If you use a 9 percent discount rate for investment products, what is the present value of this growing perpetuity?
Problem 6.22
| Session 4 Discussion Questions |
6.22 Computing annuity payment: Gary Whitmore is a high school sophomore. He currently has $7,500 in a money market account paying 5.65 percent annually. He plans to use this and his savings over the next four years to buy a car at the end of his sophomore year in college. He estimates that the car will cost him $12,000 in four years. How much should he invest in the money market account every year for the next four years if he wants to achieve his target?
Exercise 5.6
| Session 4 Discussion Questions |
5.6 Consider an investment that pays $200 one year from now, with cash flows increasing by $200 per year through year 4. If the interest rate is 12%, what is the present value of this stream of cash flows? If the issuer offers this investment for $1,500, should you purchase it? Why or why not?
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