Suppose you invest $10,000 in a savings account earning 2% interest (compounded yearly) with no risk. After 7 years, how much will you have?
Repeat Question #1, but this time there is an inflation rate of 4%. How does this change your overall return on investment? If you had a chance to invest in an account with a long-term expected rate of 5%, with a 50% chance of earning 0% nominal compound interest and a 50% chance of earning 10% nominal compound interest in each year, would you choose this account, or the savings account? Why?
Suppose you will need $50,000 in 4 years to start up a new business you have planned. With a 5% real interest rate, how much do you have to invest now in order to achieve this goal?
Repeat Problem #3, but assume you can contribute an equal amount on a yearly basis. How much would you need to put into the account each year?
Matt Flynn contributes $25,000 per year to a retirement account. This particular account is expected to gain 9.5% interest each year. He plans to retire in 25 years, with the same contribution for each of these years. How much money will he have when he retires?
Now, repeat #5 assuming a 4% inflation rate yearly during this period. How has his purchasing power changed from the example without inflation accounted for?
Suppose Florida plans to pay Coach Muschamp a perpetuity if he wins a National Championship this season. The payment will be $37,000 each year for the rest of his life. Assume a 6% real interest rate. What is the present value of the perpetuity?
You are negotiating a deal to purchase a fitness center. You feel that the best way to value a firm is using yearly profits. The current owners want $1 million for the center. They let you take a look at their financial information, and you see that they see a pretty steady average of $50,000 per year. Assume a standard interest rate of 6%. Would you purchase the fitness center at the asking price?
Now, assume you have the option of buying a different fitness center with the same average profits and interest rate as the one in Problem #8. You have negotiated the price of this firm down to $800,000. Would you be willing to purchase this one?
Assume you invest $25,000 into an account with an 11% APR. Interest is compounded monthly. How much will you have in 25 years? How much more is this amount than if you compounded interest yearly?
Repeat Problem #10, but this time continuously compound the interest? How do the effective rates (APY) differ between yearly, monthly, and continuously compounding interest for this problem?
How much do you need to invest into an account today with 7% monthly compounded interest in order to have $500,000 fifteen years from now?
You are the owner of the New Orleans Saints. Let's say you take out a loan for $250 million to build new luxury boxes in your stadium. The interest rate on the loan is 7.5%, compounded yearly. It is a 15-year term for paying back the loan. What would be your yearly payment? How much is paid in total?
Subject | Business |
Due By (Pacific Time) | 08/06/2015 03:00 pm |
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