# Question

Sara Holliday must earn a return of 10% on an investment that requires an initial outlay of $2,500 and promises to return $6,000 in 8 years.

a. Use present value techniques to estimate the yield on this investment.

b. On the basis of your finding in part a, should Sara make the proposed investment? Explain.

a. Use present value techniques to estimate the yield on this investment.

b. On the basis of your finding in part a, should Sara make the proposed investment? Explain.

## Answer to relevant Questions

Use a financial calculator or an Excel spreadsheet to estimate the yield for each of the following investments. A company reported net income in 2009 of $350 million. In 2013 the company expects net income to be $441.7 million. Estimate the annual compound growth rate of net income. The risk-free rate is 7%, and expected inflation is 4.5%. If inflation expectations change such that future expected inflation rises to 5.5%, what will the new risk-free rate be? What is an annuity? How can calculation of the future value of an annuity be simplified? What about the present value of an annuity? Using a financial calculator or an Excel spreadsheet, calculate the following. a. The present value of $500 to be received 4 years from now, using an 11% discount rate. b. The present value of the following end-of-year ...Post your question

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