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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 Spring '09
 MURRAY
 Net Present Value, Arielle, Wally, Group lab problem

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