1. An investment will require a $2.4 million cash outlay to enter and will generate perpetual cash inflows of $235,000 a year. Investors could earn 5 percent elsewhere by taking the same risk. Will this investment generate an economic profit?

The annual economic profit is _____________.

2. If an investment is expected to return of 6.25 percent in the future, a $300,000 investment today will grow to how much in 25 years?

The answer is _______________.

3. To buy a retirement home, you will need $570,000 at the end of 16 years. If funds can be invested at an effective return of 6 percent a year, how much must you invest today to have the needed amount?

The amount needed to invest today is _______________.

4. You decide to max-out your annual investment into your Individual Retirement Account and invest $6,000 at the end of each year for the next 32 years. You expect to earn only 6.5% annually. How much will you have at the end of this investment period?

The answer is _______________.

5. You want $1,950,000 to upgrade your store in 12 years. The treasurer wants to make equal payments at the end of each year into a fund for the purpose of accumulating this amount. If the fund can earn an effective annual return of 7 percent, how much must the company invest at the end of each year?

The annual payment is _______________.

6. You borrowed $478,000 for the purchase of your new home. This loan carries an annual percentage rate of 3.25 percent. It will be paid off through equal month-end installments, including both principal and interest, over a 20-year period. What is the monthly payment required?

The monthly payment is _______________.

7. A credit card company runs an ad quoting a nominal interest rate of 31 percent on charges. What is the effective interest rate if interest is compounded quarterly? monthly?

The effective annual rate is ________if compounded quarterly and _______ if compounded monthly.

8. You plan to retire in 28 years and can invest to earn 6.15 percent annually. You estimate that you will need $98,000 at the end of each year for an estimated 15 years after retirement, and you expect to earn 4.75 percent during those retirement years. How much do you need to set aside at the end of each year to accumulate the money necessary for your retirement? (Assume year-end cash flows.)

I will need this much at retirement _____________and will need to set aside ___________per year (at the end of each year.

9. Using the no-growth perpetuity formula at the end of Chapter 3, assume that you can receive $63,000 per year forever and that your cost of money is 8.2%. What is this opportunity worth today?

The opportunity is worth _______________.

10. Using the constant growth perpetuity formula at the end of Chapter 3, assume that you will receive $28,000 at the end of the first year this cash flow will grow at 2.7% annually forever after that. With a cost of money of 6.5 percent, what is this opportunity worth today?

The opportunity is worth _______________.

Answer rating: 100% (QA)

The annual economic profit is 115000 The answer is 1448309732 The amount needed to invest toda... View the full answer