Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

5. You will deposit $10,000 today. It will grow for 10 years at 10% interest compounded annually. You will then withdraw the funds every year

image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
5. You will deposit $10,000 today. It will grow for 10 years at 10% interest compounded annually. You will then withdraw the funds every year over the next 4 years. The annual interest rate over those 4 years is 8%. What will be your annual withdrawal? 6. You have two alternatives: 1) sell the rights to a song that will pay you $40,000 per year at the end of each year for the next 12 years or 2) sell the rights for a lump sum payment of $375,000 right away. Which offer should you take? Assume a discount rate of 5% per year. 7. You have been offered a choice of: Offer One Offer Two Offer Three $6,000now $14,000attheendof8yearsat6% 10. Your grandma wants to support you with your studies. She gave your two options: 1. $15,000 today or, 2. $1,000 per year, at the end of the each year forever You can invest this money at an interest rate of 6%. What alternative should you go for? Show your calculations 11. Refer to question 10 , assume there is a third alternative in which the first payment will occur in a year and will be $170. Each year after that, you will receive a payment that is 5% larger than the last payment. This pattern will go on forever. Interest rate for investing the money will remain the same at 6%. Is this alternative better than the one that you chose in question 9 ? Why? Show your calculation. 1. If we wish to accumulate $8,000 by the end of 4 years, how much should the annual payments be if we receive an interest rate of 10% on our investments? Assume each payment is made at the end of each year. 2. A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. Assume you have $250,000 to your credit in the plan. The plan anticipates earning 9% interest compounded yearly. How much will your annual benefits be, paid at the end of each year? 3. Dr. Russell wants to buy an expensive car which will cost $74,000 four years from today. He would like to set aside an equal amount at the end of each year in order to accumulate the amount needed. He can earn a 7% annual return. How much should he set aside each year? 4. Ruth H. wants to build a house in 12 years. She estimates that the total cost will be $350,000. If she can put aside $20,000 at the end of each year, what rate of return must she earn in order to have the amount needed, assuming annual compounding? 8. After bonuses have been paid, you can deposit $4,000 at the end of each year into an account that pays 4.0% interest. If you have deposited this amount for 15 years and started drawing money out of the account in equal annual installments at the end of each following year, how much could you draw out each year for 20 years? 9. As a financial adviser, you are helping you clients planning for their daughter's education. Their daughter wants to go to SAIT in 10 years. The cost of tuition and other expenses is expected to be $20,000 per year for a period of 4 years of the BBA program payable at the beginning of each year. The rate of return on their savings until their daughter goes to SAIT is 6%. How much they need to save each year (assuming they will deposit the money at the end of each year) for the next 10 years so that they can fully pay for their daughter's education

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Options Futures And Other Derivatives

Authors: John C. Hull

4th Edition

0130224448, 9780130224446

More Books

Students also viewed these Finance questions