Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Winifred has an opportunity to invest in Widgets USA. She can invest $100 today, which will return to her $60 at the end of 1

Winifred has an opportunity to invest in Widgets USA. She can invest $100 today, which will return to her $60 at the end of 1 year and another $60 at the end of 2 years. (The original investment is not returned except through these future payments.)

(a) Suppose Winnie uses a 10% annual interest rate when discounting future payments. Calculate the present discounted value of this investment in Widgets USA.

Winnie learns of a second investment opportunity, this one in American Gadgets, which requires her to invest $80 today, and then in 1 year it pays off $90. (The original investment is not returned except through the future payment.)

(b) Calculate the (annual) internal rate of return on the investment in American Gadgets.

(c) For what nonnegative (annual) interest rates is the present discounted value of the Widgets USA investment larger than the present discounted value of the American Gadgets investment?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Tensile Trading The 10 Essential Stages Of Stock Market Mastery

Authors: Gatis N. Roze , Grayson D. Roze

1st Edition

1119224330,1119224357

More Books

Students also viewed these Finance questions

Question

Have to Do: Support professional learning.

Answered: 1 week ago