Answers 1. Your neighbor offers you an investment opportunity, which will pay a

Question

Answers 1. Your neighbor offers you an investment opportunity, which will pay a single lump sum of S2,000 five years from today. The investment requires a single payment of The return on the investment is % A. 4.195 B. 4.729 C. 5.361 D. 5.922 E. 6.961 An investment promises to pay you a return of 10% over the 5 year life of the investment. You invested $30,000 today. The investment will pay you $10,000 in year 2, $8,000 in year 3. You must receive $ in year 2, 3, and 5. A. 23,985.64 B. 25,325.30 C. 26,487.19 D. 27,315.43 E. 28,955.30 2. -in year 5 to assure a 10% pa. return. You receive payments only 3. If you deposit $700 per year beginning today (t 0) until 15 years from today (t 15) into an How much will you have in your account right after you make the account earning 6% pa. last deposit? A. $16,293.18 B. $16,993.18 C. S17,970.77 D. $17,388.26 E. $19,049.02 You have invested your money into a project that will pay you $1,000 starting 5 years from today (t 5) and will continue to pay out until 20 years from today (t rate is 7% pa., then the value of your investment today (t-0) is $ A. 7,206.80 B. 6,948.38 C. 6,735.33 D. 9,107.91 E. 9,446.65 4. 20). If the interest .

Explanation / Answer

Solution 1 :-

The Return on the investment is

1500 = 2000/(1+r)5

(1+r)5 = 2000 / 1500 = 1.33

(1 + r ) = 1.0592

Therefore r = 0.0592 = 5.92%

Solution 2 :-

ATQ :-

30000 = 10000/(1+0.10)2 + 8000/(1+0.10)3 + (Cashflow)/(1+0.10)5

30000 = 8264.46 + 6010.518 + CF*0.621

CF * 0.621 = 30000 - 14274.98 = 15725.02

Therefore CF = 15725.02 / 0.621 = 25325.09$

Solution 3:-

The Amount in the account at the end of 15 years =

FV = CF * FVAF(15 , 6%)

FV = 700 * 23.2759 = 16293.13 $

Therefore the correct answer is (A)

Solution :- 4

The value of the investment today is =

The value of the investment after 4 years = CF * PVAF(n , r) = 1000 * PVAF(16 , 7%)

= 1000 * 9.446648 = 9446.648

Now the present value of the amount of value in 4 years = 9446.648 * PV(r , n)

= 9446.648 * PV(7% , 4)  = 9446.648 * 0.7628 = 7206.803

Therefore the answer is 7206.803

The correct answer is (A)

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