)Washington-Pacific (W-P) invests $3 million to buy a tract of land and plant so
ID: 2637183 • Letter: #
Question
)Washington-Pacific (W-P) invests $3 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 8 years, at which time W-P plans to sell the forest at an expected price of $6 million. What is W-P's expected rate of return? Round your answer to two decimal places. %
A mortgage company offers to lend you $85,000; the loan calls for payments of $8,964.13 at the end of each year for 30 years. What interest rate is the mortgage company charging you? Round your answer to two decimal places.
You need to accumulate $10,000. To do so, you plan to make deposits of $1,650 per year - with the first payment being made a year from today - into a bank account that pays 10.18% annual interest. Your last deposit will be less than $1,650 if less is needed to round out to $10,000. How many years will it take you to reach your $10,000 goal? Round your answer up to the nearest whole number.
year(s)
How large will the last deposit be? Round your answer to the nearest cent.
$
Present Value of a Perpetuity
What is the present value of a perpetuity of $100 per year if the appropriate discount rate is 4.22%? Round your answer to the nearest cent.
$
If interest rates in general were to double and the appropriate discount rate rose to 8.44%, what would its present value be? Round your answer to the nearest cent.
$
Explanation / Answer
A) PV of investment = $3,000,000
FV of investment = $6,000,000
Time = 8 years
Rate of return = ?
Solving for R using the formula = FV = PV * (1 + r)n
We have R = 9.05%
B) PV of loan = $85,000
Yearly payments = $8,964.13
Time = 30 years
Rate of return = ?
Solving for R using the formula = FV = PV * (1 + r)n
We have R = 9.93%
C) FV of savings = $10,000
Deposits per year = $1,650
R = 10.18%
N = ?
Solving for N using the formula = FV = PV * (1 + r)n
N = 4.96 or 5 years.
D) PV of a Perpetuity = PMT / (I/Y)
1) PMT = $100 and I/Y = 4.22%
PV = 100 / 0.0422 = $2,369.67
2) PMT = $100 and I/Y = 8.44%
PV = 100 / 0.0844 = $1,184.83
I hope my solution solves your query.
Regards.
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