Because it is a business loan the interest portion of

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Unformatted text preview: Financial Concepts LG6 4–46 Growth rates You are given the series of cash flows shown in the following table. Cash flows Year A B C 1 $500 $1,500 $2,500 2 560 1,550 2,600 3 640 1,610 2,650 4 720 1,680 2,650 5 800 1,760 2,800 6 1,850 2,850 7 1,950 2,900 8 2,060 9 2,170 10 2,280 a. Calculate the compound annual growth rate associated with each cash flow stream. b. If year-1 values represent initial deposits in a savings account paying annual interest, what is the annual rate of interest earned on each account? c. Compare and discuss the growth rate and interest rate found in parts a and b, respectively. LG6 4–47 Rate of return Rishi Singh has $1,500 to invest. His investment counselor suggests an investment that pays no stated interest but will return $2,000 at the end of 3 years. a. What annual rate of return will Mr. Singh earn with this investment? b. Mr. Singh is considering another investment, of equal risk, that earns an annual return of 8%. Which investment should he make, and why? LG6 4–48 Rate of return and inve...
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This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

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