You just had your 24th birthday today and have accepted a position at CDI.com. Your salary...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You just had your 24th birthday today and have accepted a position at CDI.com. Your salary will be paid annually with the first year's salary (of $40,000) paid at the end of the first year of work. You expect to work for CDI 30 years. Your contract guarantees that you will receive a 5% raise every year for the first 15 working-years of your career and a 7% raise for the subsequent 15 years. You elderly aunt has put aside $100,000 for you in her trust account today. The trust account will earn interest at the rate of 8% per year, compounded annually. Her trustees have received instructions from her to pay you whatever monies are in the account when you stop working. You expect to incur living expenses in the amount of $10,000 at the end of the first year. These expenses will grow at the rate of 3% per year for as long as you are working. You also plan to purchase a house for $400,000 on your 44th birthday. Assume that you will die when you stop working. If you need a rate for compounding/discounting other than the ones provided above, assume that the nominal annual rate for discounting purposes is 10%, compounded annually. You plan to leave all your money to your daughter when you die but you have asked your financial advisor to arrange it so that she receives ten equal payments at the end of each year after you die. How much will each payment be? 2. The company you work for will deposit $1,500 at the end of each month into your retirement fund. This retirement fund is invested in a diversified mutual fund that has a nominal annual rate of 7.25%, compounded monthly. You will retire 15 years from now. You need to withdraw $2,000 out of the account at the end of every year for the next 10 years, starting today. After retirement, you will need $6,000 at the end of every month till the day you die. Your friend, the actuarial scientist predicts that since you live such a stressful life, you will only live for 10 years after retirement. How much money do you need to put into the diversified mutual fund at the end of every month, from now until the time you retire, in order to meet your financial objectives? Assume monthly compounding for all payments, except the $2000 withdrawals (for those, use the nominal annual rate). 3. You just won the lottery. You can take the winnings in three alternative forms: Alternative A You will receive ten payments of $60,000 each. The payments will be made at the end of every year with the first payment being made exactly 1 year from today. Unfortunately, these payments will be taxed at the rate of 30% as soon as they are made. Alternative B You will receive five payments of $60,000 each. The payments will be made at the end of every two years with the first payment being made exactly 2 years from today. Unfortunately, these payments will be taxed at the rate of 30% as soon as they are made. You will also receive a non-taxable payment of $100,000 today. Alternative C You will receive three non-taxable payments of $100,000 each. The payments are made every three years with the first payment made today. You will also receive an additional taxable payment (at the rate of 30%) of $60,000 today. The nominal annual rate is 12%. Which alternative would you prefer and why? You just had your 24th birthday today and have accepted a position at CDI.com. Your salary will be paid annually with the first year's salary (of $40,000) paid at the end of the first year of work. You expect to work for CDI 30 years. Your contract guarantees that you will receive a 5% raise every year for the first 15 working-years of your career and a 7% raise for the subsequent 15 years. You elderly aunt has put aside $100,000 for you in her trust account today. The trust account will earn interest at the rate of 8% per year, compounded annually. Her trustees have received instructions from her to pay you whatever monies are in the account when you stop working. You expect to incur living expenses in the amount of $10,000 at the end of the first year. These expenses will grow at the rate of 3% per year for as long as you are working. You also plan to purchase a house for $400,000 on your 44th birthday. Assume that you will die when you stop working. If you need a rate for compounding/discounting other than the ones provided above, assume that the nominal annual rate for discounting purposes is 10%, compounded annually. You plan to leave all your money to your daughter when you die but you have asked your financial advisor to arrange it so that she receives ten equal payments at the end of each year after you die. How much will each payment be? 2. The company you work for will deposit $1,500 at the end of each month into your retirement fund. This retirement fund is invested in a diversified mutual fund that has a nominal annual rate of 7.25%, compounded monthly. You will retire 15 years from now. You need to withdraw $2,000 out of the account at the end of every year for the next 10 years, starting today. After retirement, you will need $6,000 at the end of every month till the day you die. Your friend, the actuarial scientist predicts that since you live such a stressful life, you will only live for 10 years after retirement. How much money do you need to put into the diversified mutual fund at the end of every month, from now until the time you retire, in order to meet your financial objectives? Assume monthly compounding for all payments, except the $2000 withdrawals (for those, use the nominal annual rate). 3. You just won the lottery. You can take the winnings in three alternative forms: Alternative A You will receive ten payments of $60,000 each. The payments will be made at the end of every year with the first payment being made exactly 1 year from today. Unfortunately, these payments will be taxed at the rate of 30% as soon as they are made. Alternative B You will receive five payments of $60,000 each. The payments will be made at the end of every two years with the first payment being made exactly 2 years from today. Unfortunately, these payments will be taxed at the rate of 30% as soon as they are made. You will also receive a non-taxable payment of $100,000 today. Alternative C You will receive three non-taxable payments of $100,000 each. The payments are made every three years with the first payment made today. You will also receive an additional taxable payment (at the rate of 30%) of $60,000 today. The nominal annual rate is 12%. Which alternative would you prefer and why?
Expert Answer:
Answer rating: 100% (QA)
Lets analyze each of the three alternatives to determine which one is the most favorable considering ... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-1259024900
9th canadian edition
Authors: Ray Garrison, Theresa Libby, Alan Webb
Posted Date:
Students also viewed these accounting questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Fill in the blanks in the chart below: Year Years since 1960 1960 1965 1970 1975 1980 1985 1990 1995 1996 1997 1998 1999 2000 2001 2003 2005 2006 2007 2008 2009 2010 2011 0 5 [a] [b] [c] [d] [e] [f]...
-
Calculate the force of Earths gravity on a spacecraft 12.800km (2 Earth radii) above the Earths surface it its mass is 1350kg.
-
Construct a modulo 4 multiplication table. Then determine whether the modulo 4 system forms a commutative group under the operation of multiplication.
-
Take the example on p. 633 and give a probability of 50% to the two states of the world. Calculate the value of A, B and G. Calculate the value of C, D and E. What are your conclusions? State of the...
-
Polaski Inc. uses an actual cost, job order system. The following transactions are for August 2010. At the beginning of the month, Direct Material Inventory was $2,000, Work in Process Inventory was...
-
21 Charlie bought a pair of shorts at the store when they were having a 45% off sale. If the regular price of the pair of shorts was $24, how much did Charlie pay Answer:$
-
A commercial real estate investment fund must report its quarterly investment performance to investors. A summary of its (1) beginning and end-of-quarter assets and equity and (2) cash inflows and...
-
Consider the following. A mortgage of $300,000.00 was entered into 2 years ago with an amortization period of 15 years. The agreement has a term of 5 years, an interest rate of 8% which is compounded...
-
Supreme Court Justices discussing issues related to access to justice. Have they missed any issues? Do you agree or disagree with their assessment? Provide evidence from external peer-reviewed...
-
Leadership deals with internal and external environmental influences. Provide an example of an internal and external environmental influence. Employee orientation and production orientation were...
-
Bi-monthly deposits of 16,000 are made to accumulate a fund at the end of 8 years. Round off final answers for leff to 4 decimal places and final answers for future fund value F to two decimal...
-
Given the training set (the following table) and X {"youth", "low", "excellent"}, a Nave Bayes classifier is trained based on the given training set, please answer the following questions. Table 3:...
-
If I invest $1,050,000 and require annual payments for 19 years at an investment rate of 7%, what would be annual amount. Please provide formula (excel and calculator) and calculation?
-
Archie Co. purchased a framing machine for $64,000 on January 1, 2021. The machine is expected to have a four-year life, with a residual value of $8,000 at the end of four years. Using the...
-
What mass of H2 will be produced when 122 g of Zn are reacted? Zn(s) + 2HCl(aq) ( ZnCl2(aq) + H2(g)
-
The Scottish firm of Cullen and MacNeil produces a single product and uses a standard costing system to help control costs. Manufacturing overhead is applied to production on the basis of standard...
-
Christine Dandra owns a catering company that serves food and beverages at exclusive parties and business functions. Dandras business is seasonal, with a heavy schedule during the summer months and...
-
Little River Cycles (LRC) produces and distributes carbon fibre road bikes. Management is eager to take advantage of the growing market for these bikes. To be competitive, LRCs sales manager...
-
Does Russias BOP balance? Use the following balance of payments data for Russia (Russian Federation) from the IMF to answer this problem. Assumptions (million US$) 2000 2001 2002 2003 2004 2005 2006...
-
Is the Euro Area experiencing a net capital inflow? Use the following balance of payments data for the Euro Area from the IMF to answer this problem. Assumptions (billion US$) 2000 2001 2002 2003...
-
What is the Euro Areas total for Groups A and B? Use the following balance of payments data for the Euro Area from the IMF to answer this problem. Assumptions (billion US$) 2000 2001 2002 2003 2004...
Study smarter with the SolutionInn App