Under normal conditions (70% probability), Financing Plan A will produce $24,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $40,000 less than Plan B. What is the expected value of return for Plan A over Plan B?
$28,800
$4,000
$4,800
$35,200
The belief that investors require a higher return to entice them into holding long-term securities is the viewpoint of the
the expectations hypothesis.
segmentation theory.
the liquidity premium theory.
market credit crunch theory.
At age 5, how much would you have to save per month to have $1 million in your account at age 65, if your investment rate was 10% per year? Assume no taxes and compounding on a monthly basis.
$213.30
$21.23
$274.60
can't be done with these assumptions.
Under normal conditions (70% probability), Financing Plan A will produce $24,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $40,000 less than Plan B. What is the expected value of return for Plan A over Plan B?
0.7*24,000 + 0.3*(-40,000) = $4800
You have already posted questiuon 3 elsewhere, and it has been answered there.
$28,800
$4,000
$4,800
$35,200
To find the expected value of return for Plan A over Plan B, we need to calculate the weighted average of the returns under normal and tight money conditions.
Under normal conditions (70% probability), Plan A produces a return that is $24,000 higher than Plan B.
Under tight money conditions (30% probability), Plan A produces a return that is $40,000 less than Plan B.
The expected value can be calculated as follows:
Expected value = (Probability of normal conditions * Return under normal conditions) + (Probability of tight money conditions * Return under tight money conditions)
Expected value = (0.70 * $24,000) + (0.30 * -$40,000)
Expected value = $16,800 - $12,000
Expected value = $4,800
Therefore, the expected value of return for Plan A over Plan B is $4,800.
The answer is option C: $4,800.
Regarding the second question:
The belief that investors require a higher return to entice them into holding long-term securities is the viewpoint of the liquidity premium theory.
The answer is option C: the liquidity premium theory.
For the last question:
To find out how much you need to save per month to have $1 million in your account at age 65, we can use the formula for future value of an ordinary annuity:
FV = P * [(1 + r)^n - 1] / r
Where:
FV = Future value (in this case, $1 million)
P = Monthly savings
r = Annual interest rate (10% in this case)
n = Number of periods (number of months until age 65, which is 65 - 5 = 60 years * 12 months = 720 months)
Substituting the values in the formula:
$1,000,000 = P * [(1 + 0.10/12)^720 - 1] / (0.10/12)
Simplifying the equation, we can solve for P:
P = $1,000,000 * (0.10/12) / [(1 + 0.10/12)^720 - 1]
Calculating this equation, we find:
P ≈ $1,000,000 * (0.00833) / [(1.00833)^720 - 1]
P ≈ $8,330 / (17.2965 - 1)
P ≈ $8,330 / 16.2965
P ≈ $510.38
Therefore, you would need to save approximately $510.38 per month to have $1 million in your account at age 65.
Since none of the given options match this result, the answer is "can't be done with these assumptions."
To find the expected value of return for Plan A over Plan B, we need to calculate the weighted average of the returns under different probabilities.
For Plan A:
Under normal conditions (70% probability), the return is $24,000 higher than Plan B.
Expected return under normal conditions = 0.7 * $24,000 = $16,800
Under tight money conditions (30% probability), the return is $40,000 less than Plan B.
Expected return under tight money conditions = 0.3 * (-$40,000) = -$12,000
Total expected return for Plan A = Expected return under normal conditions + Expected return under tight money conditions
Total expected return for Plan A = $16,800 - $12,000 = $4,800
Therefore, the expected value of return for Plan A over Plan B is $4,800.
Answer: $4,800
For the belief that investors require a higher return to entice them into holding long-term securities, the correct answer is "the liquidity premium theory."
Answer: the liquidity premium theory
To calculate how much you would have to save per month to have $1 million in your account at age 65, we need to calculate the monthly savings required to reach that goal considering compound interest.
We have 60 years (65-5) to accumulate $1 million with an annual interest rate of 10%. Since compounding is done monthly, the interest rate needs to be divided by 12 to get the monthly interest rate, which is 10% / 12 = 0.8333%.
Using the future value of an ordinary annuity formula, which is FV = PMT * [(1+i)^n - 1] / i, where FV is the future value, PMT is the monthly savings, i is the monthly interest rate, and n is the number of periods, we can calculate the monthly savings required.
$1,000,000 = PMT * [(1+0.008333)^720 - 1] / 0.008333
Solving for PMT:
PMT = $1,000,000 * 0.008333 / [(1+0.008333)^720 - 1]
PMT ≈ $274.60
Therefore, you would have to save approximately $274.60 per month to have $1 million in your account at age 65, assuming no taxes and monthly compounding.
Answer: $274.60