9. a) What must be the interest rate in order for an investment of $1,000 to...

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Finance

9. a) What must be the interest rate in order for an investmentof $1,000 to produce proceeds of $2,000 in 20 years?
b) If a cash flow of $2,000 in 20 years has a price today of$1,000, what must be the discount rate (i.e., the “implied”rate)?
10. An asset promises to pay $50,000 in five years and $100,000in ten years. What is its price if the 5-year rate of discount is10% and the 10-year rate of discount is 5%?

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4.2 Ratings (671 Votes)

9 a Here P 1000 A 2000 T 20 years where P is the principal or amount invested A is the amount received ie the proceeds and T is the time let the rate of interest be r therefore by the formula of compound interest A P1r100T 2000 10001r10020 1r10020 See Answer

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9. a) What must be the interest rate in order for an investmentof $1,000 to produce proceeds of $2,000 in 20 years?b) If a cash flow of $2,000 in 20 years has a price today of$1,000, what must be the discount rate (i.e., the “implied”rate)?10. An asset promises to pay $50,000 in five years and $100,000in ten years. What is its price if the 5-year rate of discount is10% and the 10-year rate of discount is 5%?