1) An investment produces a return of -20% in year one and then +20% in year two, with all monies...
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a) For an initial investment of $10,000, what is the final amount received at the end of year two?
b) What return in year two would be required to breakeven and get back to $10,000?
2) An investment adviser offers you an investment which for $1,200 today will pay $1,500 in 9 months.
a) What is the simple interest rate that the investment adviser is promising?
b) If you felt that a 12% simple interest rate was more realistic, how much money would you need to invest to achieve the $1,500 in 9 months?
3) Suppose that you invest $1,000 in a 3-month bank CD and at the end of each quarter you "roll it over" (i.e., reinvest) into another 3-month CD and you do this for one year. The simple interest rates for each quarter are 3%, 3.5%, 4%, and 4.5%. respectively.
a) What is the final amount received at the end of one year?
b) What is the (total) return, or simple interest rate, for the whole one year period?
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Chapter # 11
Section: Critical Thinking Cases
Posted Date: September 20, 2023 01:19:09