User Account

All Pages

What is the present value of the amount

Assignment Help Finance Basics
Reference no: EM132477775

You have the opportunity to join a group of investors who are buying one of the islands in Boston Harbor.   Each investor must make a total of 20 payments. The first payment is $125,000 and must be paid today. After that, the remaining 19 payments are due at the end of each year and increase 3% per year, every year.

If the interest rate is 5% and you decide to invest in the island, what is the present value of the amount that you will pay?

On my answer key provided by my professor it says that this question can be solved in two ways using the PV of a growing annuity formula of PV= C x (1/r-g)(1-(1+g/1+r)n )...

PV = 125,000 x 1/(.05-.03) x [1- (1.03/1.05)20] x 1.05 = $1,995,598 x 1.05 = $2,095,378

OR

PV = 125,000 + 125,000 x 1.03 x 1/(.05-.03) x [1- (1.03/1.05)19] = $125,000 + 1,970,378 = $2,095,378

Reference no: EM132477775

Questions Cloud

What are the implications of using a convenience sample : The most common sampling method is the convenience sample; therefore, many of the studies that you find for evidence use this sampling method.
What are the payoffs from the call in state of the world : What are the payoffs from the call in each state of the world? What is the European call option price at time 0?
Write a report about the state of health care : Write a 700 - to 1,050-word report about the state of health care in your selected city, your proposal for a new or improved service, and the floor plan.
What is the long term effects of child abuse and neglect : What is the Long Term Effects of Child Abuse and Neglect? The voice that is hardly heard. Can child abuse and child neglect affect an individual
What is the present value of the amount : If the interest rate is 5% and you decide to invest in the island, what is the present value of the amount that you will pay?
Calculate a delta neutral position : You have 500 shares purchased at $ 87 per share A call with a delta of 0.7 and a strike of 87.50 sells for 0.90 (premium)
What is the expected rate of return and standard deviation : You have decided to invest $70,000 in TDA and $30,000 in Philips. What is the expected rate of return and standard deviation of your portfolio?
Expected rate of return and standard deviation : You have decided to invest $70,000 in CIBC and $30,000 in Suncor. What is the expected rate of return and standard deviation of your portfolio?

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd