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nikitadnepr [17]
3 years ago
8

You have your choice of two investment accounts. Investment A is a five-year annuity that features end-of-month $2,500 payments

and has an interest rate of 11.5 percent compounded monthly. Investment B is a 10.5 percent continuously compounded lump sum investment, also good for five years. How much would you need to invest in B today for it to be worth as much as investment A five years from now
Business
1 answer:
oee [108]3 years ago
5 0

Answer:

$119,176.06

Explanation:

Calculation for How much would you need to invest in B today

First step is to calculate the Future value of annuity (FVA)

FVA =$2,500 * ({[1 + (.115 / 12)](5 × 12) - 1} / (.115 / 12))

FVA = $201,462.23

Since we have known the FVA Second Step will be to calculate the Present value (PV)

PV = $201,462.23 × e-1 × .105 × 5

PV= $119,176.06

Therefore the amount that you would need to invest in B today will be $119,176.06

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790,000, i.e. $79 x 10,000= 790,000 . Yes, the manufacturer should change the design.  666,667 (when it goes from 1/10,000 to 1/15,000).  It is 500,000 (when it goes from 1/10,000 but ​1/20​,000) . No, the benevolent social planner would not agree with the manufacturer's decision.

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In the estimates provided by the manufacturer, the total cost of the design is equivalent to  $79 x 10,000= 790,000. There should be an alteration in the design to remove the necessary precautions. If the probability is different from the estimate provided by the manufacturer, the planner will disagree with the decision made by the manufacturer. For example, a change to 1/15000 will make the total cost to be approximately $666,667.

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