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Answer the Questions and provide a clear explanation of the steps and formulas. Nominal vs real Interest Exercises Calculating FV: Assume you deposit $10,000 today
Answer the Questions and provide a clear explanation of the steps and formulas.
Nominal vs real Interest
Exercises
- Calculating FV: Assume you deposit $10,000 today in an account that pays 6 percent interest. How much will you have in five years?
- Calculating PV: Suppose you have just celebrated your 19th birthday. A rich uncle has set up a trust fund for you that will pay you $150,000 when you turn 30. If the relevant discount rate is 9 percent, how much is this fund worth today?
- Calculating Rates of Return You've been offered an investment that will double your money in 10 years. What rate of return are you being offered?
- Calculating the Number of Periods You've been offered an investment that will pay you 9 percent per year. If you invest $15,000, how long until you have $30,000? How long until you have $45,000?
- Consider 2 projects: Each requires an immediate cash outlay of 10m$. Project 1 will return 13m$ at the end of 2 years. Project 2 will return 6,5m$ every year at the end. If the appropriate discount rate is 15%, does any of the 2 qualify? Which one?
- Your association is thinking about running a venture which will involve a speculation of $1,000,000. The item from the venture is determined to make incomes of $250,000 in the primary year after the end of the venture and of $420,000 in each of the two after years. With a discount rate of 10% would this be an interesting investment option?
- EB Ltd is considering 2 possible projects but can only raise enough funds to proceed with one of them. Investment appraisal techniques have been used and the following results found: Which of the followingis the most logical interpretation of the results?
Project W | Project X |
Payback Period 3.8Years | Payback Period 2.8 Years |
ARR 16% | ARR 14% |
NPV 880,000 | NPV 610,000 |
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