Chapter 4: Q14BP (page 282)
Question: Phil Goode will receive $175,000 in 50 years. His friends are very jealous of him. If the funds are discounted back at a rate of 14 percent, what is the present value of his future “pot of gold”?
The present value is $249.92.
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Why might investors demand a lower rate of return for an investment in Microsoft as compared to United Airlines?
Question: What is the present value of a 10-year annuity of $3,000 per period in which payments come at the beginning of each period? The interest rate is 12 percent.
Why is the remaining time to maturity an important factor in evaluating the impact of a change in yield to maturity on bond prices?
Cal Lury owes $10,000 now. A lender will carry the debt for five more years at 10 percent interest. That is, in this particular case, the amount owed will go up by10 percent per year for five years. The lender then will require that Cal pay off the loan over the next 12 years at 11 percent interest. What will his annual payment be?
You will receive \(6,800 three years from now. The discount rate is 10 percent. a. What is the value of your investment two years from now? Multiply \)6,800 3 (1/1.10) or divide by 1.10 (one year’s discount rate at 10 percent).
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