You are considering two lottery payment options: Option A pays €10,000today and Option B pays €20,000 at the end of ten years. Assume you can earn 6 per cent on your savings. Which option will you choose if you base your decision on present values? Which option will you choose if you base your decision on future values? Explain why your answers are either the same or different.
c. You receive a credit card application from Skye Bank Plc offering an introductory rate of 3.20 per cent per year, compounded monthly for the first six months, increasing thereafter to 25 per cent per year compounded monthly. Assuming you transfer the £6,200 balance from your existing credit card and make no subsequent payments, how much interest will you owe at the end of the first year?
You have just read a life-enhancing book that tells you that if you believe things will happen, they will! You decide that you want to become a millionaire by the time you are 65. You have just turned 22 and you decide to play the stock market. Your fantastic corporate finance textbook leads you to believe that you can earn 12.3 per cent per annum from investing in equities. How much do you need to invest yearly to achieve your goal of £1,000,000?
Seven years ago you inherited £500,000 and decided to invest it in an exchange traded fund (ETF). You have just checked your balance and discovered it is now worth €1,970,000. What rate of return did you earn onyour investment?
1. Why might a borrower select an interest-only loan instead of an amortized loan, which would be cheaper?
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