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Old Alfred Road, who is well-known to drivers on the Maine Turnpike, has reached his seventieth birthday and is ready to retire. Mr. Road has no formal training in finance but has saved his money and invested carefully. Mr. Road owns his home-the mortgage is paid off-and does not want to move. He is a widower, and he wants to bequeath the house and any remaining assets to his daughter. He has accumulated savings of $180,000, conservatively invested. The investments are yielding 9% interest. Mr. Road also has $12,000 in a savings account at 5% interest. He wants to keep the savings account intact for unexpected expenses or emergencies. Mr. Road's basic living expenses now average about $1,500 per month, and he plans to spend $500 per month on travel and hobbies. To maintain this planned standard of living, he will have to rely on his investment portfolio. The interest from the portfolio is $16,200 per year (9% of $180,000), or $1,350 per month. Mr. Road will also receive $750 per month in social security payments for the rest of his life. These payments are indexed for inflation. That is, they will be automatically increased in proportion to changes in the consumer price index. Mr. Road's main concern is with inflation. The inflation rate has been below 3% recently, but a 3% rate is unusually low by historical standards. His social security payments will increase with inflation, but the interest on his investment portfolio will not. What advice do you have for Mr. Road? Can he safely spend all the interest from his investment portfolio? How much could he withdraw at year-end from that portfolio if he wants to keep its real value intact? Suppose Mr. Road will live for 20 more years and is willing to use up all of his investment portfolio over that period. He also wants his monthly spending to increase along with inflation over that period. In other words, he wants his monthly spending to stay the same in real terms. How much can he afford to spend per month? Assume that the investment portfolio continues to yield a 9% rate of return and that the inflation rate will be 4%.
Explain Venture capital calculations and you consider opening a business that allows them to let off steam and get rid of their aggression
Three-month European call options on BCE stock, with strike prices of= $30, $40 and $50, cost $7, $3 , and $2, respectively. Create an appropriate butterfly spread.
Based on acquisition mode and market value accounting for land and other fixed assets acquired for business - Find the cost of the Holiday Hotel.
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Explain Computing net present value for two mutually exclusive projects and the company has exactly this amount to invest
Medtran is a profitable company that is not paying a dividend on its common stock. James Weber, an analyst for A.G. Edwards, believes that Medtrans will begin paying a $1 each share dividend in two years and that the dividend will increase 6% yearly ..
Chester's Elite product Cell has an awareness of 72 percent. Chester's Cell product manager for the Elite segment is estimated to have more awareness for Cell than Andrews' Elite product Axe.
A loan was made ten years ago with an original balance of $1,000,000.00 at a fixed interest rate of 8.00% with equal monthly payments for thirty years.
A manager has selected a random sample of his league consumers. he asked them to record the number of games they bowl during the month December, including both league and open bowling.
Suppose the yield on short-term government securities (perceived to be risk-free) is about 4%. What is the expected return on the market portfolio? What would be the expected return on a zero-beta stock?
Calculation of a proposal to buy a new milling machine using NPV and What is the net cost of the machine for capital budgeting purposes
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