You are considering an investment that requires you to spend $150,000 today and receive $200,000 in 10 years. The cost of funds from a bank is 4.5% per year if you have collateral and 6.8% if you do not. Would you turn to an informal credit market to access funds at 8.3% if you did not have collateral? Support your answer with some computations.
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- Consider an investment that pays off $700 or $1,400 per $1,000 invested with equal probability. Suppose you have $1,000 but are willing to borrow to increase your expected return. What would happen to the expected value and standard deviation of the investment if you borrowed an additional $1,000 and invested a total of $2,000? What if you borrowed $2,000 to invest a total of $3,000? Instructions: Complete the table below to answer the questions above. Enter your responses as whole numbers and enter percentage values as percentages not decimals (i.e., 23% not 0.23). Enter a negative sign (-) to indicate a negative number if necessary. Invest $1,000 Invest $2,000 Invest $3,000 Expected Value $ 1050 1200 $ $ 1300 Percentage 20 % 30 % 40 % Standard Deviation 300 600 900 Expected Return N/A Doubled TripledYou are considering an investment that requires you to spend $150,000 today and receive $200,000 in 10 years. The cost of funds from a bank is 4.5% per year if you have collateral and 6.8% if you do not. Would you turn to an informal credit market to access funds at 8.3% if you did not have collateral? Support your answer with some computations.You plan to use the 150,000 TL fund, which was idle for a year, in a time deposit account. The annual interest rate offers you receive from traditional and digital banks are as follows. Accordingly, calculate which option will give you the highest rate of return.
- Consider an investment that pays off $800 or $1,500 per $1,000 invested with equal probability. Suppose you have $1,000 but are willing to borrow to increase your expected return. What would happen to the expected value and standard deviation of the investment if you borrowed an additional $1,000 and invested a total of $2,000? What if you borrowed $2,000 to invest a total of $3,000?You have an opportunity to make an investment that will pay $100 at the end of year 1, $400 at the end of year 2, $400 at the end of year 3, $400 at the end of year 4 and $300 at the end of year 5. Find the present value of this cash flow stream if the interest rate is 8%. (Hint: You can simply discount each cash flow to the present and then add them up or use the "=NPV function" in Excel or the CF key on your financial calculator a. $1,251.25 b. $1,351.25 c. $1,151.25 d. $1,451.25 a.. b.. C. . d..You are currently investing your money in a bank account which has a nominal annual rate of 7 percent, compounded monthly. How many years will it take for you to double your money? Identify the following variables to help solve problem: m Nper (or N) =n*m Rate (or I/Y)=i/m PV PMT FV
- You have an opportunity to make an investment that will pay $ 300 at the end of the first year, $ 100 at the end of the second year, $ 200 at the end of the third year, $ 400 at the end of the fourth year, and $500 at the end of the fifth year. a. Find the present value if the interest rate is 9 percent. (Hint: You can simply bring each cash flow back to the present and then add them up. Another way to work this problem is to either use the =NPV function in Excel or to use your CF key on a financial calculator —but you'll want to check your calculator's manual before you use this key. Keep in mind that with the =NPV function in Excel, there is no initial outlay. That is, all this function does is bring all the future cash flows back to the present. With a financial calculator, you should keep in mind that CF0 is the initial outlay or cash flow at time 0, and, because there is no cash flow at time 0, CF0 =0.) b. What would happen to the…Your friend offers you an investment opportunity. If you give him $1,200 today, his project will provide you with the following cash flows in Years 1-4: $100, $200, $600, $550. You required 10% return on investments of this risk level. Alternatively, you can invest your $1,200 in the money market fund at 4% today. Which of the two options is a better investment opportunity? Q4. There are two different ways to answers the question (both lead to the same conclusion). Show the complete formula (not the calculator shortcuts) with all the necessary terms that you would use to solve the problem as if you didn't have a financial calculator on hand. Q5. Circle the better investment opportunity: Friend's project / Money market fundYou are currently investing your money in a bank account which has a nominal annual rate of 7 percent, compounded monthly. How many years will it take for you to double your money? m Nper (or N) =n*m Rate (or I/Y)=i/m PV PMT FV Identify variables and use excel
- One can solve for payments (PMT), periods (N), and interest rates (1) for annuities. The easiest way to solve for these variables is with a financial calculator or a spreadsheet. Quantitative Problem 1: You plan to deposit $2,100 per year for 4 years into a money market account with an annual return of 3%. You plan to make your first deposit one year from today. a. What amount will be in your account at the end of 4 years? Do not round intermediate calculations. Round your answer to the nearest cent. $ b. Assume that your deposits will begin today. What amount will be in your account after 4 years? Do not round intermediate calculations. Round your answer to the nearest cent. $ Quantitative Problem 2: You and your wife are making plans for retirement. You plan on living 25 years after you retire and would like to have $95,000 annually on which to live. Your first withdrawal will be made one year after you retire and you anticipate that your retirement account will earn 12% annually. a.…Investment X offers to pay you $5,300 per year for eight years, whereas Investment Y offers to pay you $7,300 per year for five years. Which of these cash flow streams has a higher present value if the discount rate is 5% ? If the discount rate is 15% ? (Solve this using excel formula and provide formulas, also solve this using a financial calcuator solution. Show your work please)You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment? The discount rate decreases. The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000. The discount rate increases. The riskiness of the investment's cash flows decreases. The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years.