Log in
Finance
1
answer
0
watching
65
views

You expect to receive 1000 bucks every year at the end of each year, starting in year 7 and ending in year 21. If you expect the rate of return is 11.1 percent, and you invest all your cash flows at the going rate as soon as you receive them, how much money will you have at the end of year 25?

Watch
1
answer
0
watching
65
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Elin Hessel
Elin HesselLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Question 6. (13 points) You have $100,000 to invest and you are choosing between investing in two funds: Slow and Somewhat Steady (SASS) and Wild Ride (WR). Each year, the return on SASS is either 0% or 10% with returning 0% or 10% being equally likely. Wild Ride either returns 90% or -47% every year with returning 90% or -47% being equally likely. The return varies each year and is not affected by what happened last year. You will invest for 2 years and whichever investment you choose is the one in which you will invest for both years.

a) If you invest in SASS and it go well both years, how much money will you have at the end?

b) If you invest in SASS and it goes poorly both years, how much money will you have at the end?

c) If you invest in SASS and it goes well in one year and poorly in the other, how much money will you have at the end?

d) If you invest in SASS, how much money would you expect to have in two years?

e) Using you result from part d, what annual rate of return would you expect to make by investing in SASS over two years? How does this compare to SASS’ reported 5% average yearly returns?

f) If you invest in WR and it go well both years, how much money will you have at the end?

g) If you invest in WR and it goes poorly both years, how much money will you have at the end?

h) If you invest in WR and it goes well in one year and poorly in the other, how much money will you have at the end?

i) If you invest in WR, how much money would you expect to have in two years?

j) Using you result from part i, what annual rate of return would you expect to make by investing in WR over two years? How does this compare to WR’s reported 21.5% average yearly returns?

k) Would you choose to invest in SASS or WR? Why?

Question 3. (10 points) You want to buy a 3 year bond with a coupon rate of 22%, annual coupons, and a
face value of 1000. You know that 1 year zero coupon bonds (ZCBs) trade a yield to maturity of 12%, 2
year ZCBs trade at a yield to maturity of 9%, and 3 year ZCBs trade at a yield to maturity of 7.5%.
(a) What is the price of this 3 year 22% coupon rate bond?
(b) What is the yield to maturity on this 3 year 22% coupon rate bond?
(c) What does the market expect the rate on a 1-year zero coupon bond will be two years from now
(what is the implied forward rate)?
(d) What does the market expect the rate on a 2-year zero coupon bond will be one year from now?
(e) Assume you buy the coupon bond and then you decide you do not need money until the end of
three years. As a result, when you receive the coupons in years 1 and 2, you will reinvest them at
the prevailing market rate (assume these will be the forward rates you calculated in parts c and d).
How much money will you have at the end of the 3 years? What rate of return will you receive on
your investment?

You are expecting to receive $300 at the end of each year in years 3, 4, and 5, and then 500 each year at the end of each year in years 10 through 25, inclusive. If the appropriate discount rate is 6.7 percent, for how much would you be able to sell your claim to these cash flows today?

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in