Question
Compute and critically evaluate the following situations. (a) Ruby places $600 in a savings account paying 6% interest compounded annually. She wants to know how
Compute and critically evaluate the following situations.
(a) Ruby places $600 in a savings account paying 6% interest compounded annually. She wants to know how much money will be in the account at the end of 5 year.
(b) An investor wishes to find the present value of $1,800 that will be received 6 years from now. The investor opportunity cost is 8%.
(c) Forever Insurance Company has offered to pay you or your heir $100 per year at the end of each year forever. If the correct discount rate for such a cash flow is 13%, what is the amount that you would be willing to pay Forever Insurance for this set of perpetuity? If the discount rate rose to 22%, what happen to the value of this perpetuity?
(d) Interest rate futures contract is highly related to bonds. Movements in interest rate also will influence the availability of bond futures. Critically justify your answer.
(e) Currency futures contract is not only related to multinational companies (MNCs) but domestic companies also somehow will involve in this transaction. Critically evaluate this statement.
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