FNAN 301 Lab problems – 2/04/2011 Group lab problem Five years ago, Lincoln invested $2,500. Today, his investment is worth $4,500. If Lincoln earns the same annual rate of return in the future as the annual rate implied from the past and present values of his investment, then how much will Lincoln’s investment be worth in 9 years from today? Group lab problem (part a is from Fall 2010, quiz 1, question 8, version 3) Arielle bought a new jet ski today from Wally’s Watersports Emporium. She will pay $300 today to Wally’s, she will receive a rebate of $300 from Wally’s in 1 year from today, and she will pay $1,600 to Wally’s in 3 years from today. a. If the discount rate is 9.6 percent, then what is the present value of the cash flows associated with this transaction? Note: the correct answer is less than zero. b. Should Arielle choose the plan described above or should she prefer to pay $1,500 in 2 years? Assume the discount rate is 9.6 percent for both alternatives.
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