Assume you are planning to deposit $1,000 that you will receive one year from today into...
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Assume you are planning to deposit $1,000 that you will receive one year from today into a tax-free savings account. a. If interest rates are 8 percent per year, what is the value of your planned investment today? Show your work! (2 marks) b. If the interest rate is 8 percent compounded semi-annually, calculate the value today for the investment in part a. Show your work! (3 marks) c. Rather than waiting one year to deposit the $1,000, you plan on depositing $250 every 3 month with your first deposit occurring 3 months from now. If interest rates are 8 percent compounded quarterly, what is the value today of these quarterly deposits? Show your work! (3 marks) Problem 2 (14 marks) Calculate the following values: (Show your work!) i. You collect empty bottles along the side of the road. You manage to collect $5.00 per week in empty bottles. If you deposit the $5.00 every week into an account the pays 4 percent compounded daily, how much will be in the account at the end of 4 years? Show your timeline and show your work. (4 marks) You observe that a fund pays $100 at the end of every year forever. (Include time lines with your answer.) a. If interest rates are 5 percent per year, how much would you be willing to pay for this series of cash flows today? (3 marks) b. If interest rates are 5 percent per year, the first cash flow is still $100 and the cash flows are allowed to grow at 3 percent per year, how much would you be willing to pay for this series of cash flows? (3 marks) ii. c. If interest rates are 5 per year and the cash flows are allowed to grow at 3 percent per year; but, the first cash flow of $100 does not occur until year 6, how much would you be willing to pay for this series of cash flows? (4 marks) Assume you are planning to deposit $1,000 that you will receive one year from today into a tax-free savings account. a. If interest rates are 8 percent per year, what is the value of your planned investment today? Show your work! (2 marks) b. If the interest rate is 8 percent compounded semi-annually, calculate the value today for the investment in part a. Show your work! (3 marks) c. Rather than waiting one year to deposit the $1,000, you plan on depositing $250 every 3 month with your first deposit occurring 3 months from now. If interest rates are 8 percent compounded quarterly, what is the value today of these quarterly deposits? Show your work! (3 marks) Problem 2 (14 marks) Calculate the following values: (Show your work!) i. You collect empty bottles along the side of the road. You manage to collect $5.00 per week in empty bottles. If you deposit the $5.00 every week into an account the pays 4 percent compounded daily, how much will be in the account at the end of 4 years? Show your timeline and show your work. (4 marks) You observe that a fund pays $100 at the end of every year forever. (Include time lines with your answer.) a. If interest rates are 5 percent per year, how much would you be willing to pay for this series of cash flows today? (3 marks) b. If interest rates are 5 percent per year, the first cash flow is still $100 and the cash flows are allowed to grow at 3 percent per year, how much would you be willing to pay for this series of cash flows? (3 marks) ii. c. If interest rates are 5 per year and the cash flows are allowed to grow at 3 percent per year; but, the first cash flow of $100 does not occur until year 6, how much would you be willing to pay for this series of cash flows? (4 marks)
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Answer rating: 100% (QA)
Lets solve each part of the problem step by step Problem 1 a Single Deposit with Annual Compounding Given Future value FV 1000 to be received one year from today Interest rate r 8 per year Using the f... View the full answer
Related Book For
Valuation The Art and Science of Corporate Investment Decisions
ISBN: 978-0133479522
3rd edition
Authors: Sheridan Titman, John D. Martin
Posted Date:
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