mgmt109 hw2

mgmt109 hw2 - % interest, how much money will you have in...

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James Weinstock 67573931 Mgmt109 October 17, 2011 Problem Set 2 Managerial Finance Fall 2011 6.36-Paradise, Inc. has identified an investment project with the following cash flows. If the discount rate is 8 %, what is the future value of these cash flows in year 4? What is the future value at a discount rate of 11%? 24%? FV n = PV (1 + r) n Year Cash flow Future Value 1 $950 950(1.08)^4=1292.46 2 1,040 1292.46(1.08)^3=1628.13 3 1,130 1628.13(1.08)^2=1899.05 4 1,075 1899.05 (1.08)^1=2050.97 Total = 6870.61$ At 11% FV=8,542.13$ At 24% FV=21,277 ?6.70- If you deposit 4000$ at the end of each of the 20 years into an account paying 11.2
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Unformatted text preview: % interest, how much money will you have in the account in 20 years? 107,652.4 Problems 1. You are considering the following one-year investments: (i) Bank A promises to pay 8% on you deposit compounded annually. (ii) Bank B promises to pay 8% on you deposit compounded daily. Compare the effective annual rate (EAR) on these investments. EAR = (1+ quoted rate / m ) m- 1 *Bank A would = (1.08/1) -1 =.08 *Bank B would = (1.08/365)-1=-.99 bank a would benefit....
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