Assigment 4 Key (Short Version)

Assigment 4 Key (Short Version) - Finance 300 Homework # 4...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Finance 300 Homework # 4 – Time Value of Money 1. Future Value of a Single Cash Flow or Lump Sum K-Fed needs your financial advice. He just got a $100,000 divorce settlement and would like to invest it. You tell him that he should put his money into a Certificate of Deposit (CD) that pays 10% interest per year. Thus, How much should K-Fed obtain at the end of year 5? FV 5 = $161,051 K-Fed should get $161,051 at the end of year 5. 2. Present Value of a Single Cash Flow or Lump Sum Beavis is your best friend. He was recently offered an investment that would pay him $2,000 at the end of year 4. The interest rate quoted was 9% per year. What should be the most Beavis should pay for this investment, in other words, what is the present value of this investment? PV 4 = = $1,417.43 After you figured out the PV of this investment, Beavis tells you that the price of this investment is $3,500. Do you recommend that he buys this investment? Explain (Note : you don’t need calculations here) No, this investment is only worth $1,417.43 and this most anyone should pay for it. If you were to pay more than $1,417.73 for this investment, you would be taking an inferior
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 3

Assigment 4 Key (Short Version) - Finance 300 Homework # 4...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online