Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 38QP
Summary Introduction
To determine: The amount of withdrawal each month from the retirement account, and the nominal dollar value of the final withdrawal
Introduction:
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
You want to have $3.5 million in real dollars in an account when you retire in 50 years. The nominal return on your investment is 8 percent and the inflation rate is 3.5 percent. What real amount must you deposit each year to achieve your goal?
A. $20,569.90
B. $6,100.00
C. $21,598.40
D. $21,392.70
E. $19,541.41
8
[Question text] You are considering to invest in a savings plan. The plan offers a rate of return of 8 percent per year. The plan requires you to save RM1,500, RM1,250, and RM6,400 at the end of each year for the next three years, respectively, how much do you need to save today?
Select one:
A. RM7,541
B. RM7,203
C. RM8,449
D. RM11,623
5. Present value To find the present value of a cash flow expected to be paid or received in the future, you will the future value cash flow by
(1+1)N What is the value today of a $42, 000 cash flow expected to be received 17 years from now based on an annual interest rate of 7% ? $13,296 $10,637 $132, 670 $20, 609 Your broker called carfier today and offered you the opportunity to invest in a security. As a friend, he suggested that you compare the current, or present value, cost of the security and the discounted value of its expected future cash flows before deciding whether or not to invest. The decision rule that should be used to decide whether or not to invest should be. Everything else being equal, you should invest if the discounted value of the security's expected future cash flows is greater than or equal to the current cost of the security. Everything else being equal, you should invest if the current cost of the security is greater than the present value of the security's…
Chapter 7 Solutions
Fundamentals of Corporate Finance
Ch. 7.1 - What are the cash flows associated with a bond?Ch. 7.1 - What is the general expression for the value of a...Ch. 7.1 - Is it true that the only risk associated with...Ch. 7.2 - Prob. 7.2ACQCh. 7.2 - Prob. 7.2BCQCh. 7.2 - Prob. 7.2CCQCh. 7.3 - What does a bond rating say about the risk of...Ch. 7.3 - What is a junk bond?Ch. 7.4 - Prob. 7.4ACQCh. 7.4 - What do you think would be the effect of a put...
Ch. 7.5 - Why do we say bond markets may have little or no...Ch. 7.5 - Prob. 7.5BCQCh. 7.5 - What is the difference between a bonds clean price...Ch. 7.6 - What is the difference between a nominal and a...Ch. 7.6 - What is the Fisher effect?Ch. 7.7 - What is the term structure of interest rates? What...Ch. 7.7 - What is the Treasury yield curve?Ch. 7.7 - What six components make up a bonds yield?Ch. 7 - Prob. 7.1CTFCh. 7 - The 10-year bonds issued by KP Enterprises were...Ch. 7 - Prob. 7.4CTFCh. 7 - Prob. 7.6CTFCh. 7 - The term structure of interest rates is based on...Ch. 7 - Treasury Bonds [LO1] Is it true that a U.S....Ch. 7 - Interest Rate Risk [LO2] Which has greater...Ch. 7 - Treasury Pricing [LO1] With regard to bid and ask...Ch. 7 - Prob. 4CRCTCh. 7 - Call Provisions [LO1] A company is contemplating a...Ch. 7 - Coupon Rate [LO1] How does a bond issuer decide on...Ch. 7 - Prob. 7CRCTCh. 7 - Prob. 8CRCTCh. 7 - Prob. 9CRCTCh. 7 - Term Structure [LO5] What is the difference...Ch. 7 - Crossover Bonds [LO3] Looking back at the...Ch. 7 - Municipal Bonds [LO1] Why is it that municipal...Ch. 7 - Bond Market [LO1] What are the implications for...Ch. 7 - Prob. 14CRCTCh. 7 - Bonds as Equity [LO1] The 100-year bonds we...Ch. 7 - Prob. 1QPCh. 7 - Interpreting Bond Yields [LO2] Suppose you buy a 7...Ch. 7 - Prob. 3QPCh. 7 - Prob. 4QPCh. 7 - Coupon Rates [LO2] Essary Enterprises has bonds on...Ch. 7 - Bond Prices [LO2] Sqeekers Co. issued 15-year...Ch. 7 - Prob. 7QPCh. 7 - Coupon Rates [LO2] DMA Corporation has bonds on...Ch. 7 - Zero Coupon Bonds [LO2] You find a zero coupon...Ch. 7 - Valuing Bonds [LO2] Yan Yan Corp. has a 2,000 par...Ch. 7 - Valuing Bonds [LO2] Union Local School District...Ch. 7 - Calculating Real Rates of Return [LO4] If Treasury...Ch. 7 - Prob. 13QPCh. 7 - Prob. 14QPCh. 7 - Nominal versus Real Returns [LO4] Say you own an...Ch. 7 - Using Treasury Quotes [LO2] Locate the Treasury...Ch. 7 - Using Treasury Quotes [LO2] Locate the Treasury...Ch. 7 - Bond Price Movements [LO2] Bond X is a premium...Ch. 7 - Interest Rate Risk [LO2] Both Bond Sam and Bond...Ch. 7 - Interest Rate Risk [LO2] Bond J has a coupon rate...Ch. 7 - Prob. 21QPCh. 7 - Prob. 22QPCh. 7 - Accrued Interest [LO2] You purchase a bond with an...Ch. 7 - Prob. 24QPCh. 7 - Finding the Bond Maturity [LO2] Shinoda Corp. has...Ch. 7 - Prob. 26QPCh. 7 - Bond Prices versus Yields [LO2] a. What is the...Ch. 7 - Prob. 28QPCh. 7 - Zero Coupon Bonds [LO2] Suppose your company needs...Ch. 7 - Finding the Maturity [LO2] Youve just found a 10...Ch. 7 - Prob. 31QPCh. 7 - Components of Bond Returns [LO2] Bond P is a...Ch. 7 - Holding Period Yield [LO2] The YTM on a bond is...Ch. 7 - Valuing Bonds [LO2] Jallouk Corporation has two...Ch. 7 - Valuing the Call Feature [LO2] At one point,...Ch. 7 - Prob. 36QPCh. 7 - Real Cash Flows [LO4] When Marilyn Monroe died,...Ch. 7 - Prob. 38QPCh. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Prob. 7MCh. 7 - Prob. 8MCh. 7 - Financing SS Airs Expansion Plans with a Bond...Ch. 7 - Prob. 10M
Knowledge Booster
Similar questions
- You deposit $1,000 today, $3,000 two years from now, and $5,000 five years from now. How much money will you have at the end of year 5 if the annual compound interest rates for each year are predicted to be different and shown in the table below. Draw the cash flow diagram to illustrate your results. Year Interest rate 1 5% IT 2 10% 3 15% 4 15% 5 17%arrow_forwardof return will you earn over the last 10 years? 17. Calculating Present Values Suppose you are still committed to owning a $175,000 Ferrari (see Question 9). If you believe your mutual fund can achieve an annual return of 11.2 percent, and you want to buy the car in 10 years on the day you turn 30, how much must you invest today? LO 2arrow_forwardQUESTION 1 i. You just put $1,000 in a bank account that pays 6 percent nominal annual interest, compounded monthly. How much will you have in your account after 3 years? ii. You are currently investing your money in a bank account that has a nominal annual rate of 7 percent, compounded monthly. How many years will it take for you to double your money? iii. A real estate investment has the following expected cash flows: Cash Flows $10,000 Year 1 25,000 3 50,000 35,000 The discount rate is 8 percent. What is the investment's present value?arrow_forward
- much is it worth? (See Problem 1.) Future Value with Multiple Cash Flows You plan to make a series of deposits in an interest-bearing account. You will deposit $1,000 today, $2,000 in two years, and $8,000 in five years. If you withdraw $3,000 in three years and $5,000 in seven years, how much will you have after eight years if the interest rate is 9 percent? What is the present value of these cash flows? (See Problem 3.) 5.2 You ore loking into an inyestment that will pay youarrow_forward9 You are planning to save for retirement over the next 20 years. To do this, you will inves $1,200 a month in a stock account and $900 a month in a bond account. The return o the stock account is expected to be 10 percent, and the bond account will pay 6 percent When you retire, you will combine your money into an account with a return of 8 percent 38 nts How much can you withdraw each month from your account assuming a 20-yea withdrawal period?arrow_forwardYou invest in a company which expects to pay you the following amounts in return each year. Year 1: $1,100, Year 2: $2,100, Year 3: $1,600, Year 4: $2,100, and Year 5 $1,500. If an annual interest rate is 5 percent, what is the present value of this uneven cash flow stream? $7,883 $7,807 $7,563 $7,237arrow_forward
- 4. Calculating Annuity Present Values An investment offers $6,125 per year for 15 years, with the first payment occurring one year from now. If the required return is 8 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever? LO 1 5. Calculating Annuity Cash Flows For each of the following annuities, calculate the annual cash flow. LO1arrow_forwardYou are currently investing your money in a bank account which has a nominal annual rate of 7 percent, compounded monthly. How many years will it take for you to double your money? m Nper (or N) =n*m Rate (or I/Y)=i/m PV PMT FV Identify variables and use excelarrow_forward(Present value of complex cash flows) How much do you have to deposit today so that beginning 11 years from now you can withdraw $13,000 a year for the next 7 years (periods 11 through 17) plus an additional amount of $26,000 in the last year (period 17)? Assume an interest rate of 7 percent. The amount of money you have to deposit today is (Round to the nearest cent.) wwwarrow_forward
- You plan to invest $19,000 per year into a retirement account. If you earn a compound annual rate of return of 8%, how many years will it take you to reach a balance of $1,000,000? Question 10 options: 18.98 22.26 20.16 17.54 21.45arrow_forwardQuestion 3 You are considering to invest in a savings plan. The plan offers a rate of return of 8 percent per year. The plan requires youto save RM1,500, RM1,250, and RM6,400 at the end of each year for the next three years, respectively, how much do you need to savetoday?Select one:A. RM11.623B. RM7 203C. RM8,449D. RM7.541arrow_forwardYou want to have $500,000 in real terms 10 years from now. You expect inflation over that time period to be 3% per year. Your investments eam 5% APR (nominal) compounded annually. Based on your expectations, you construct a growing nominal annuity to meet your investment target. What is the nominal cash-flow you would have to deposit in year 10 if inflation turns out to what you expected? O $60,301 O $62,147 O $44,869 O $61,531 $62,147 $45,785arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you