1. You are considering an investment that will have the following cash flows: $5
ID: 2683014 • Letter: 1
Question
1. You are considering an investment that will have the following cash flows: $54,000, $66,000, $(60,000), $57,000, and $120,000. The appropriate discount rate is 11 percent. What is the value of this investment? Note that the cash flow in brackets is negative.2. North Bank offers you an APR of 8.62 percent compounded weekly, and South Bank offers you an effective rate of 8.75 percent on a business loan. Which bank should you choose and why?
a.south bank becayse its effective rate is higher
b.north bank because the APR is lower
c.south bank because its effective rate is lower
d.north bank because its effective rate is lower
3. Tim needs to borrow $5,000 for two years. The loan will be repaid in one lump sum
at the end of the loan term. which of the following interest rates is best for Tim?
a. 7.5 percent simple interest
b.7.5 percent interest, compounded monthly
c.8.0 percent simple interest
d. 8.0 percent interest, compounded annually
e. 8.0 percent interest, compounded monthly
Explanation / Answer
1. You are considering an investment that will have the following cash flows: $54,000, $66,000, $(60,000), $57,000, and $120,000. The appropriate discount rate is 11 percent. What is the value of this investment? Note that the cash flow in brackets is negative.
PV = (54,000/1.11) + (66,000/1.11^2) - (60,000/1.11^3) + (57,000/1.11^4) + (120,000/1.11^5) =$167,106
2. North Bank offers you an APR of 8.62 percent compounded weekly, and South Bank offers you an effective rate of 8.75 percent on a business loan. Which bank should you choose and why?
a.south bank becayse its effective rate is higher
b.north bank because the APR is lower
c.south bank because its effective rate is lower
d.north bank because its effective rate is lower
3. Tim needs to borrow $5,000 for two years. The loan will be repaid in one lump sum
at the end of the loan term. which of the following interest rates is best for Tim?
a. 7.5 percent simple interest
b.7.5 percent interest, compounded monthly
c.8.0 percent simple interest
d. 8.0 percent interest, compounded annually
e. 8.0 percent interest, compounded monthly
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