An investor wants to be able to buy 4 percent more goods and services in the future in order to induce her to invest today. During the investment period prices are expected to rise by 2 percent. Which statement (s) below is true ? i 4 percent is the desired real risk free interest rate. ii. 6 prevéis the approximate nominal rate of interest required. iii. 2 percent is the expected inflation rate over the period I. only ? I I only ? iii only ? i and ii only ?
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An investor wants to be able to buy 4 percent more goods and services in the future in order to induce her to invest today. During the investment period prices are expected to rise by 2 percent. Which statement (s) below is true ?
i 4 percent is the desired real risk free interest rate.
ii. 6 prevéis the approximate nominal rate of interest required.
iii. 2 percent is the expected inflation rate over the period
I. only ?
I I only ?
iii only ?
i and ii only ?
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- 3. Finding the interest rate and the number of years Aa Aa E The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations If a security currently worth $9,200 will be worth $12,106.57 seven years in the future, what is the implied interest rate the investor will earn on the security-assuming that no additional deposits or withdrawals are made? 7.60% 0 0.19% О 4.00% О 1.32% If an investment of $35,000 is earning an interest rate of 4.00%, compounded annually, then it will take for this investment to reach a value of $41,755.92-assuming that no additional deposits or withdrawals are made during this time. Which of the following statements is true-assuming that no additional deposits or withdrawals are made? It takes 10.50 years for $500 to double if invested at an annual rate of 5%. 0 It takes 14.21 years for $500 to double if invested at an annual rate of 5%.of interest? The exact real rate? 10. Inflation and Nominal Returns Suppose the real rate is 1.8 percent and the inflation rate is 3.7 percent. What rate would you expect to see on a Treasury bill? 11. Nominal and Real Returns An investment offers a total return of 12 percent4. Finding the interest rate and the number of years The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations. If a security currently worth $5,600 will be worth $12,379.82 seven years in the future, what is the implied interest rate the investor will earn on the security—assuming that no additional deposits or withdrawals are made? 12.00% 4.52% 9.60% 0.32% If an investment of $35,000 is earning an interest rate of 4.00%, compounded annually, then it will take for this investment to reach a value of $44,286.17—assuming that no additional deposits or withdrawals are made during this time. Which of the following statements is true—assuming that no additional deposits or withdrawals are made? If you invest $1 today at 15% annual compound interest for 82.3753 years, you’ll end up with $100,000. If you invest $5 today at…
- 5. Finding the interest rate and the number of years The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations. If a security currently worth $9,200 will be worth $15,767.18 seven years in the future, what is the implied interest rate the investor will earn on the security-assuming that no additional deposits or withdrawals are made? O 8.00% O 5.83% 1.71% O 0.24% If an investment of $50,000 is earning an interest rate of 8.00%, compounded annually, then it will take a value of $89,052.92-assuming that no additional deposits or withdrawals are made during this time. Which of the following statements is true-assuming that no additional deposits or withdrawals are made? O If you invest $1 today at 15% annual compound interest for 82.3753 years, you'll end up with $100,000. O If you invest $5 today at 15% annual compound interest for 82.3753 years, you'll end up with $100,000. for…If the expected inflation rate is 3.45%, the realized real rate of return is 3.80%, and the actual inflation rate is 2.15%, what is the required real rate of return? а. 1.45% b. 2.50% С. 5.60% d. 2.35%6. Finding the interest rate and the number of years The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations. If a security currently worth $9,200 will be worth $15,767.18 seven years in the future, what is the implied interest rate the investor will earn on the security-assuming that no additional deposits or withdrawals are made? 5.83% O6.40% 8.00% O 1.71 % If an investment of $50,000 is earning an interest rate of 8.00%, compounded annually, then it will take a value of $89,052.92-assuming that no additional deposits or withdrawals are made during this time. for this investment to reach Which of the following statements is true-assuming that no additional deposits or withdrawals are made? An investment of $25 at an annual rate of 10% will return a higher value in five years than $50 invested at an annual rate of 5% in the same time. An investment of $50 at an annual rate of…
- 5. Finding the interest rate and the number of years The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations. If a security currently worth $2,000 will be worth $3,524.68 five years in the future, what is the implied interest rate the investor will earn on the security-assuming that no additional deposits or withdrawals are made? O 12.00% O 1.76% O 0.35% O 5.67% If an investment of $40,000 is earning an interest rate of 8.00%, compounded annually, then it will take for this investment to reach a value of $56,554.46-assuming that no aditional deposits or withdrawals are made during this time. Which of the following statements is true-assuming that no additional deposits or withdrawals are made? O If you invest $1 today at 15% annual compound interest for 82.3753 years, you'll end up with $100,000. O If you invest $5 today at 15% annual compound interest for 82.3753 years, you'll…Suppose the term structure of risk-free interest rates is as shown below: 5 yr 7 yr 10 yr 20 yr Term 1 yr 2 yr 3 yr 2.42 2.77 3.31 3.75 4.15 4.93 1.98 Rate (EAR %) What is the present value of an investment that pays $103 at the end of each of years 1, 2, and 3? If you wanted to value this investment correctly using the annuity formula, what discount rate should you use? What is the present value of an investment that pays $103 at the end of each of years 1, 2, and 3? The present value of the investment is $294.08. (Round to the nearest cent.) If you wanted to value this investment correctly using the annuity formula, what discount rate should you use? The discount rate you should use if you want to use the annuity formula is 2.94%. (Round to two decimal places.)Suppose the term structure of risk-free interest rates is as shown below: 5 yr 7 yr 10 yr 20 yr Term 1 уг 2 yr 3 yr 3.24 3.79 4.09 5.05 2.07 2.46 2.71 Rate (EAR %) a. Calculate the present value of an investment that pays $1,000 in two years and $3,000 in five years for certain. b. Calculate the present value of receiving $100 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example, the rate in year 4 would be the average rate in year 3 and year 5.) c. Calculate the present value of receiving $1,800 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.)
- 10. Finding the interest rate and the number of years The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations. If a security of $4,000 will be worth $5,324.00 three years in the future, assuming that no additional deposits or withdrawals are made, what is the implied interest rate the investor will earn on the security? ○ 6.00% ○ 7.50% ○ 10.00% ○ 12.00% If an investment of $35,000 is earning an interest rate of 11.00% compounded annually, it will take value of $58,977.04-assuming that no additional deposits or withdrawals are made during this time. for this investment to grow to a Which of the following statements is true, assuming that no additional deposits or withdrawals are made? If you invest $1 today at 15% annual compound interest for 82.3753 years, you'll end up with approximately $100,000. ○ If you invest $5 today at 15% annual compound interest for 82.3753 years,…5. Finding the interest rate and the number of years The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations. If a security currently worth $12,800 will be worth $16,843.93 seven years in the future, what is the implied interest rate the investor will earn on the security—assuming that no additional deposits or withdrawals are made? 7.60% 0.19% 4.00% 1.32% If an investment of $40,000 is earning an interest rate of 4.00%, compounded annually, then it will take for this investment to reach a value of $53,679.69—assuming that no additional deposits or withdrawals are made during this time. Which of the following statements is true—assuming that no additional deposits or withdrawals are made? It takes 14.21 years for $500 to double if invested at an annual rate of 5%. It takes 10.50 years for $500 to double if invested…Given a real rate of interest of 3.4%, an expected inflation premium of 3.6%, and risk premiums for investments A and B of 4.7% and 6.8% respectively, find the following: a. The risk-free rate of return, rf b. The required returns for investments A and B a. The risk-free rate of return is %. (Round to one decimal place.)