up Your parents have never given you and your twin sister expensive gifts on your birthdays...
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up Your parents have never given you and your twin sister expensive gifts on your birthdays and new year. Today, you celebrate your 21st birthday and your graduation from college. Your parents give you 25 bitcoins and your twin sister 25 bitcoins as your birthday and graduation gifts. You both are thrilled to death when you saw your gift certificates for these bitcoins. Your mother, the smart investor, purchased these bitcoins on your 11th birthday for $2 per bitcoin with the intention of giving them to you on your 21st birthday. The first thing you did is to check the price a bitcoin today and learned that it is trading in the market for $33,610 per bitcoin. You and your twin sister are ecstatic about your gift. a. (10 points) Calculate the annual percentage return your parents earned on their investment in bitcoins. b. (10 points) You know how volatile the value of bitcoin is, therefore, you sold your 25 bitcoins immediately and deposit the money into a bank account, earning 6% interest per year compounding monthly until you decide what to do with the money. Calculate the effective annual return you earn on your investment in this bank account. c. (15 points) Compare the annual percentage returns you calculated in parts (a) and (b) of this question. Briefly explain the reasons for the difference between the returns on bitcoins and the money deposited into a bank account based on everything you learned in your Finance course this semester. d. (20 points) Your sister decided to live on with the money she generated from selling her bitcoins. She will keep the money in the bank account and continue to earn 6% per year compounded monthly. You and your sister each are expected to inherit an additional $250,000 in 40 years from today when your parents passed away. She plans to deposit this money into her bank account as well. She plans to make 65 annual withdrawals at the beginning of every year from this account to pay for her living expenses. Her first withdrawal from the account will be today. Determine the annual withdrawals she can make from this account given all her wealth. Activati e. (25 points) Like your twin sister, you also decided to sell your bitcoins today and keep the money in the bank account. You also expect to get $250,000 in 40 years as inheritance from your parents. You will deposit all of this money into a bank account at an interest rate of 6% compounded monthly. However, you do not think the annual withdrawals your twin sister can make from her bank account is enough to support your lifestyle. Since you already have a job offer, you decided to work for 25 years and then retire. You would like to make 40 annual withdraws of $275,000 from your bank account during your retirement period. The first withdrawal from the account will be on the day you retire. Starting immediately today, you are going to make monthly deposits into your bank account for the next 25 years. Your last deposit into the account will be on the day you retire. Assume that you will continue to earn 6% per year compounded monthly on your bank account throughout this whole period. i. (5 points) Draw a timeline and show all the cash inflows and outflows. ii. (20 points) Determine the monthly deposits you have to make to your bank account starting from today for the next 25 years to accumulate the required amount. f. (20 points) You started working for The Lord of the Wings (LOWS) Inc. The company has its shares listed on the stock exchange. On the morning of July 6th, the price of company shares is $15 in the market. While driving to work on the morning of July 6th, you heard the CEO of the LOWs talking on the radio about a substantial technological breakthrough the company kept as a secret for the last year and a half. After hearing this announcement by the CEO, your dad purchased 500 shares of the LOWs at $15 per share on July 6th. Throughout the week, the price of the LOWs shares increased. At the close of trading on July 9th, the price of company shares was $35 per share. Your father sold his 500 shares of the LOWs at this price. During the week, no new information about the company, economy, or competitors came to the market. Given everything you know about market efficiency, briefly discuss the level of efficiency this stock market should have to observe the change in the price of LOWs company shares during the week following the CEO's announcement of the technological breakthrough. up Your parents have never given you and your twin sister expensive gifts on your birthdays and new year. Today, you celebrate your 21st birthday and your graduation from college. Your parents give you 25 bitcoins and your twin sister 25 bitcoins as your birthday and graduation gifts. You both are thrilled to death when you saw your gift certificates for these bitcoins. Your mother, the smart investor, purchased these bitcoins on your 11th birthday for $2 per bitcoin with the intention of giving them to you on your 21st birthday. The first thing you did is to check the price a bitcoin today and learned that it is trading in the market for $33,610 per bitcoin. You and your twin sister are ecstatic about your gift. a. (10 points) Calculate the annual percentage return your parents earned on their investment in bitcoins. b. (10 points) You know how volatile the value of bitcoin is, therefore, you sold your 25 bitcoins immediately and deposit the money into a bank account, earning 6% interest per year compounding monthly until you decide what to do with the money. Calculate the effective annual return you earn on your investment in this bank account. c. (15 points) Compare the annual percentage returns you calculated in parts (a) and (b) of this question. Briefly explain the reasons for the difference between the returns on bitcoins and the money deposited into a bank account based on everything you learned in your Finance course this semester. d. (20 points) Your sister decided to live on with the money she generated from selling her bitcoins. She will keep the money in the bank account and continue to earn 6% per year compounded monthly. You and your sister each are expected to inherit an additional $250,000 in 40 years from today when your parents passed away. She plans to deposit this money into her bank account as well. She plans to make 65 annual withdrawals at the beginning of every year from this account to pay for her living expenses. Her first withdrawal from the account will be today. Determine the annual withdrawals she can make from this account given all her wealth. Activati e. (25 points) Like your twin sister, you also decided to sell your bitcoins today and keep the money in the bank account. You also expect to get $250,000 in 40 years as inheritance from your parents. You will deposit all of this money into a bank account at an interest rate of 6% compounded monthly. However, you do not think the annual withdrawals your twin sister can make from her bank account is enough to support your lifestyle. Since you already have a job offer, you decided to work for 25 years and then retire. You would like to make 40 annual withdraws of $275,000 from your bank account during your retirement period. The first withdrawal from the account will be on the day you retire. Starting immediately today, you are going to make monthly deposits into your bank account for the next 25 years. Your last deposit into the account will be on the day you retire. Assume that you will continue to earn 6% per year compounded monthly on your bank account throughout this whole period. i. (5 points) Draw a timeline and show all the cash inflows and outflows. ii. (20 points) Determine the monthly deposits you have to make to your bank account starting from today for the next 25 years to accumulate the required amount. f. (20 points) You started working for The Lord of the Wings (LOWS) Inc. The company has its shares listed on the stock exchange. On the morning of July 6th, the price of company shares is $15 in the market. While driving to work on the morning of July 6th, you heard the CEO of the LOWs talking on the radio about a substantial technological breakthrough the company kept as a secret for the last year and a half. After hearing this announcement by the CEO, your dad purchased 500 shares of the LOWs at $15 per share on July 6th. Throughout the week, the price of the LOWs shares increased. At the close of trading on July 9th, the price of company shares was $35 per share. Your father sold his 500 shares of the LOWs at this price. During the week, no new information about the company, economy, or competitors came to the market. Given everything you know about market efficiency, briefly discuss the level of efficiency this stock market should have to observe the change in the price of LOWs company shares during the week following the CEO's announcement of the technological breakthrough.
Expert Answer:
Answer rating: 100% (QA)
a To calculate the annual percentage return on the investment in bitcoins we can use the formula Annual Percentage Return Ending Value Initial Value Initial Value 100 The initial value of the investme... View the full answer
Related Book For
Money Banking and Financial Markets
ISBN: 978-0078021749
4th edition
Authors: Stephen Cecchetti, Kermit Schoenholtz
Posted Date:
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