3) A savings bonds pay 3% annual real rate of return compounded daily. Professor John Jones invests $40 biweekly as a part of his University payroll program. If the inflation rate is assumed to be 2% per year over the next 10 years, what is the purchasing power of the professor's bonds 10 years from now?
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
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- Suppose you borrowed $30,000 on a student loan at a rate of 8% and must repay itin three equal installments at the end of each of the next 3 years. How large wouldyour payments be; how much of the first payment would represent interest, howmuch would be principal; and what would your ending balance be after the firstyear? (PMT = $11,641.01; Interest = $2,400; Principal = $9,241.01; Balance atend of Year 1 = $20,758.99)Suppose that a person deposits $500 in a savings account at the end of each year, starting now, for the next 12 years. If the bank pays 8% per year, compounded annually, how much money will accumulate by the end of the 12-year period? Repeat Problem for an interest rate of 6.25% per year, compounded annually?A saving bonds pay 3% annual real rate of return compounded daily. Professor John Jones invest $40 biweekly as part of his University payroll program. IF the inflation rate is assumed to be 2% per year over the next 10 years, what is the purchasing power of the power of the professor's bonds 10 years from now?
- Suppose you graduate with a debt of $42,000 that you or someone must repay. One option is to pay off the debt in constant amounts at the beginning of each month over the next 10 years at a nominal annual interest rate of 10%. (a) What is the constant beginning-of-month payment? (b) Of the first payment, what is the interest and the principal paid? (c) Of the last payment, what is the interest and the principal paid? (d) How are student loans treated in bankruptcy? What are the practical and ethical reasons for and against treating student loans differently from other loans?College students are now graduating with loan debts averaging $24,000. a. If students repay their loan of $24,000 over 10 years with an annual effective interest rateof 8.3%, what will their annual payment be? b. What is the annual payment going to be when the interest rate is 9.6%, continuouslycompounded each year? c. What is the effective interest rate in Part (b)?Suppose that you deposit $1,000 into a savings account that pays 8 percent. a. If the bank compounds interest annually, how much will you have in your account in four years? b. What would your balance be in four years if the bank used quarterly compounding rather than annual compounding? c. Suppose you deposited the $1,000 in four payments of $250 each year beginning one year from now. How much would you have in your account after you make the final deposit, based on 8 percent annual compounding? d. Suppose you deposited four equal payments in your account beginning one year from today. If you can invest your money at an 8 percent interest rate, how large would each of your payments have to be for you to obtain the same ending balance as you calculated in part (a)?
- You have a student loan of 40,000$ that you want to repay in 10 years. Interest rates are at 6% per year for every maturity. Assuming annual payments with annual compounding, how much should you pay each year? A) 5,435$ B) 4,000$ C) 4,011$ D) 5,555$ E) 5,226$ F) 6,510$ G) 5,862$ H) 2,402$Assume you graduate from college with $32,000 in student loans. If your interest rate is fixed at 4.90% APR with monthly compounding and you repay the loans over a 10-year period, what will be your monthly payment? Your monthly payment will be $?3. Suppose that you have a savings plan that pays 2.5% compounded monthly. You make payments of $75 at the end of each month for 15 years, and then you make monthly payments of $110 for an additional 6 years. a) What is the value of the account at the end of 21 years? b) How much did you earn in interest during those 21 years? 4. Three years after buying 200 shares of XYZ stock for $25 per share, you sell the stock for $8,500. Find the total and annual return.
- You deposit $4,000 today in a bank that promises to pay an annual interest of 8%? What is future value of this sum at the end of 12 years? b. What if the bank pays 8% interest compounded monthly? What if the bank pays 8% interest compounded quarterly? What interest will the bank have to pay if the future value has to be $12,000 at the end of 12 years? d. Using information from (la) only, what quarterly compounded interest rate should the bank quote in order to provide the same interest as the 10% annual rate? What should be the quoted continuously compounded rate if it is to be the same as the 10% annual rate? Provide the rates per annum. What is the APR? Do we use APR or EAR when we are calculating the present а. с. е. value of an investment?College students are now graduating with loan debts averaging $24,000. Solve, a. If students repay their loan of $24,000 over 10 years with an annual effective interest rate of 8.3%, what will their annual payment be? b. What is the annual payment going to be when the interest rate is 9.6%, continuously compounded each year? c. What is the effective interest rate in Part (b)?Assume that you need $1,000 four years from today. Your bank compounds interest at an 8 percent annual rate. a. How much must you deposit one year from today to have a balance of $1,000 in your account four years from today? b. If you want to make equal payments each year, how large must each of the four payments be if the first deposit is made one year from today? c. If your father were to offer either to make the payments calculated in part (b) ($221.92) or to give you a lump sum of $750 in one year, which would you choose? d. If you have only $750 in one year, what interest rate, compounded annually, would you have to earn to have the necessary $1,000 four years from today? e. Suppose you can deposit only $186.29 each for the next four years, beginning in one 21 year, but you still need $1,000 in four years. At what interest rate, with annual compounding, must you invest to achieve your goal? f. To help you reach your $1,000 goal, your father offers to give you $400 in one year. You…