The Indians have always been ridiculed for selling the Manhattan Island for dollars 24 in 1624. Was it really ridiculous? If the Indians had invested dollars 24 at 6 per cent per annum, they would have had ……..
If the Indians had been a little more astute and invested dollars 24 at 7.5%, they would now have had ……..
The power of compounding can explain why well to do families bequeath their wealth to their grandchildren rather than their children. Parents would rather make their grandchildren very rich than make their children moderately rich. In these families, the grandchildren have a more positive view of the power of compounding than do the children.
Suppose that Jay Ritter invested in the initial public offering of the Modigliani company. Modigliani pays a current dividend of $1.10, which is expected to grow at 40-percent per year for the next five years.
Assume the total cost of a college education will be $50,000 when your child enters college in 12 years. You have $5,000 to invest today. What rate of interest must you earn on your investment to cover the cost of your child’s education?
You wish to buy a photocopier and the supplier has quoted a price of 11,000 cash or 3000 per year for five years. If your cost of capital is 12%, which alternative would you prefer? What if the cost of capital is 8%
New York State has started a lottery scheme wherin it will give away 40 million (2million per year for the next 20 years) to the winner. It plans to donate 50% of the collections of 36 million to charities. If the discount rate is 10%, will it save anything from the scheme or will it have to fund the charity donations from other sources?
Savings in pension fund up to 2000 per annum are tax free. You are starting your career at 25 years. You plan to retire at 65 years. Your investments are likely to yield 8% per annum. How much money will you have at retirement? What amount will you have if your annual returns are taxed at 25%.