Question
a. A company wants its CEO to retire. It offers the CEO a cash payment once a year for the next 5 years. The first
a. A company wants its CEO to retire. It offers the CEO a cash payment once a year for the next 5 years. The first payment would be $20,000 one year from today. The amount of the payment will increase by 10% each successive year. Assuming a discount rate of 12%. What is the present value of the cash flows?
b. You make an annual deposit starting with $2000 and growing by 2% each year thereafter. Assuming a discount rate is 8%. How much money will you have after 30 years?
c. Suppose that you take out a $250,000 house mortgage from your local savings bank when the interest rate is 12%. The bank requires you to repay the mortgage in equal annual installments over the next 30 years. What is the annual mortgage payment?
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