Will tip for quality and correct solutions WEEK 2 PROBLEM SET 1. Suppose the risk-free interest rate is 3.2%. a. Having $600 today is equivalent to

Will tip for quality and correct solutions

WEEK 2 PROBLEM SET

1. Suppose the​ risk-free interest rate is 3.2%.

a. Having $600 today is equivalent to having what amount in one​ year? ​(Round to the nearest​ cent.)

b. Having $600 in one year is equivalent to having what amount​ today?

c. Which would you​ prefer, $600 today or $600 in one​ year? Does your answer depend on when you need the​ money? Why or why​ not?

2. You have an investment opportunity in Japan. It requires an investment of $0.92 million today and will produce a cash flow of ¥108 million in one year with no risk. Suppose the​ risk-free interest rate in the United States is 3.8%​, the​ risk-free interest rate in Japan is 1.8%​, and the current competitive exchange rate is ¥110 per dollar. What is the NPV of this​ investment? Is it a good​ opportunity? ​(Round to the nearest​ dollar.)

3. Calculate the future value of $3,000 in

a. 44 years at an interest rate of 8% per year. (Round to the nearest​ dollar.)

b. 88 years at an interest rate of 8% per year.

c. 44 years at an interest rate of 16% per year.

d. Why is the amount of interest earned in part ​(a​) less than half the amount of interest earned in part ​(b​)?

4. Suppose you invest $850 in an account paying 5% interest per year.

a. What is the balance in the account after 4 ​years? How much of this balance corresponds to​ “interest on​ interest”?      (Round to the nearest​ cent.)

b. What is the balance in the account after 27 ​years? How much of this balance corresponds to​ “interest on​ interest”?

5. Your daughter is currently 11 years old. You anticipate that she will be going to college in 7 years. You would like to have $117,000 in a savings account to fund her education at that time. If the account promises to pay a fixed interest rate of 11% per​ year, how much money do you need to put into the account today to ensure that you will have $117,000 in 77 ​years? (Round to the nearest​ dollar.)    

Question 1 FV = principal∗( 1+rate ) a) n FV =600∗( 1+ 0.032 )1FV =$ 619 b) ) FV = principal∗( 1+rate ) n 600= p ( 1+0.032 )1P=$ 581c)$600 today is worth more than $600 in a year. If $600…

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