business finance
You are considering investing in a security that will pay you
$
in
years.
a.If the appropriate discount rate is
percent,
what is the present value of this investment?
b.Assume these investments sell for
$
in return for which you receive
$
in
years. What is the rate of return investors earn on this investment if they buy it for
$?
a.If the appropriate discount rate is
percent, the present value of this investment is
$.
Homework Answers
SOLUTION :
a.
PV
= FV / ( 1+r)^n
= 5000 / ( 1 + 0.10)^32
= 236.81 ($) (ANSWER).
b.
PV = FV / ( 1+r)^n
=> 915 = 5000 / (1 + r)^32
=> r = (5000 / 915)^(1/32) - 1
=> r = 0.0545 = 5.45 %
So,
Investors will earn @ 5.45 % on this investment (ANSWER).
Hi,
The present value = 2000/(1+11%)^28
=$107.64
---------------
Rate of return:
531*(1+r)^28 = 2000
=> r = 4.85%
hence, 4.85% is the required rate of return
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