ZuoTi.Pro
Question

WG Investors is looking at three different investment opportunities. Investment one is a​five-year investment with a...

WG Investors is looking at three different investment opportunities. Investment one is a​five-year investment with a cost of ​$420 and a promised payout of ​$840 at maturity. Investment two is a​ seven-year investment with a cost of

​$420 and a promised payout of ​$1,134. Investment three is a​ ten-year investment with a cost of ​$420

and a promised payout of ​$1,974. WG Investors can take on only one of the three investments. Assuming that all three investment opportunities have the same level of​ risk, calculate the effective annual return for each​ investment, and select the best investment choice.

What is the effective annual return for investment​ one, a​ five-year investment with a cost of ​$420

and a promised payout of $840 at​ maturity?

Round to two decimal places

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

А В C D Investment time Average Return Investment Option Initial Investment Maturity Payout (in year) (Maturity Payout/Initia

В D Investment time Average Return (Maturity Payout/Initial Investment)^(1/investment time)-1 14.87% 1 Investment Option Init

We can see that, investment 1 , 2 and 3 has 14.87%, 15.25%, 16.74% return respectively.

As investment 3 has highest return, he should choose investment 3.

0 0
Add a comment
Know the answer?
Add Answer to:
WG Investors is looking at three different investment opportunities. Investment one is a​five-year investment with a...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Three investors invest in the same 10-year 8% annual coupon bond. They bought the bond at...

    Three investors invest in the same 10-year 8% annual coupon bond. They bought the bond at the same price ($85.503075 for a par value of $100) and at the same time. A is a buy-and-hold investor (hold till maturity), B will sell the bond after four years, and C will sell the bond after seven years. What is the yield to maturity of this bond? For each of these three investors, find the total cash flow (in dollar amount) at...

  • A money manager is looking at various investment options. Her clients are looking to invest some...

    A money manager is looking at various investment options. Her clients are looking to invest some excess cash in a low-risk investment and do not anticipate needing this cash for a minimum of two years. Currently, the manager can invest her clients' money for one year at an effective annual rate of 3.889% with the intention of reinvesting the money for an additional year at whatever prevailing one-year spot interest rates are one year from today. Alternatively, she can make...

  • The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is...

    The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 30% chance that Loughran will default on these bonds. If Loughran does default, investors expect to receive 25% of their promised payoff at maturity (e.g., $0.25 cents per dollar they are promised). If investors require a 7% expected return on their investment in these bonds, which of the following statements most accurately describes the price and YTM of these bonds? a. This bond...

  • Grummon Corporation has issued zero-coupon corporate bonds with a five-year maturity (assume $100 face value bond). Investors believe there is a 15%  chance that Grummon will default on these bonds. If Grummon does default, investors expect to receive o

    Grummon Corporation has issued zero-coupon corporate bonds with a five-year maturity (assume $100 face value bond). Investors believe there is a 15%  chance that Grummon will default on these bonds. If Grummon does default, investors expect to receive only 40 cents per dollar they are owed. If investors require a 6% expected return on their investment in these bonds, what will be the price and yield to maturity on these bonds?Note: Assume annual compounding.

  • Problem 16-19 Using net present value and internal rate of return to evaluate investment opportunities LO...

    Problem 16-19 Using net present value and internal rate of return to evaluate investment opportunities LO 16-2, 16-3 Dwight Donovan, the president of Rooney Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of five years and no salvage value. Project B supports a training program that...

  • answer all &. You purchased a share of stock for $20. One year later you received...

    answer all &. You purchased a share of stock for $20. One year later you received $1 as a dividend and sold the share for $29. What was your holding-period return? A, 45% B.50% C.5% D, 40% Е.none of the above 9. The risk premium for common stocks A cannot be zero, for investors would be unwilling to invest in common stocks B. must always be positive, in theory С.is negative, as common stocks are risky. D. A and B...

  • Problem 16-19 Using net present value and internal rate of return to evaluate investment opportunities LO 16-2, 16...

    Problem 16-19 Using net present value and internal rate of return to evaluate investment opportunities LO 16-2, 16-3 Dwight Donovan, the president of Finch Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of five years and no salvage value. Project B supports a training program that...

  • You have $1,000 to invest over an investment horizon of three years. The bond market offers...

    You have $1,000 to invest over an investment horizon of three years. The bond market offers various options. You can buy (i) a sequence of three one-year bonds; (ii) a three-year bond; or (iii) a two-year bond followed by a one-year bond. The current yield curve tells you that the one-year, two-year, and three-year yields to maturity are 5.2 percent, 4 percent, and 5.2 percent respectively. You expect that one-year interest rates will be 4 percent next year and 5...

  • You have $1,000 to invest over an investment horizon of three years. The bond market offers...

    You have $1,000 to invest over an investment horizon of three years. The bond market offers various options. You can buy (Ja sequence of three one year bonds: (i) a three year bond; or (i) a two-year bond followed by a one-year bond. The current yield curve tells you that the one year, two year, and three year yields to maturity are 2.5 percent. 4 percent, and 2.7 percent respectively. You expect that one-year interest rates will be 5 percent...

  • 17. Imagine you are investing for one year and are considering three different bonds, each with...

    17. Imagine you are investing for one year and are considering three different bonds, each with a $1000 face value: A one-year treasury bill. A two-year zero coupon Treasury. A ten-year zero coupon Treasury. Today, each bond has a 4% yield to maturity. For each of the following scenarios, compute the return you'd get on each of the three bonds under consideration. A) Yields increase to 5%. B) Yields fall to 2%. Show all calculations.

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT