Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are considering a 10 year investment plan in which your target is $150,000. There are two options available for you: Option 1: Putting exactly

You are considering a 10 year investment plan in which your target is $150,000. There are two options available for you:

Option 1: Putting exactly an equal amount of money into an investment fund at the end of each year for 10 years with the rate of return of 8%, annually compounding.

Option 2: Putting your initial investment of $50,000 in an asset that will pay you 9% rate of return, compounding quarterly for the first 6 years. The rate of return, compounding annually for the last 4 years (the period from year 7 to the end of year 10) has not been defined yet.

Required:

a) Calculate the amount of money you should put into your investment fund each year in Option 1?

b) Compute the effective annual interest rate (EAR) in the first 6 years in Option 2?

c) Compute the annually compounding rate of return you should target for your asset in the following 4 years to get $150, 000 at the end of year ten in Option 2?

d) If a firm decides to go public on the stock market, what type of financial institution would help the firm to issue shares and sell them to public investors?

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

Basic Finance An Introduction To Financial Institutions Investments And Management

Authors: Herbert B. Mayo, Michael J Lavelle

13th Edition

0357714741, 978-0357714744

More Books

Students also viewed these Finance questions