a) Alan has just started work and he has been wanting to buy a sleek power boat
Question:
a) Alan has just started work and he has been wanting to buy a sleek power boat for some time. Rather than purchase and finance now, he plans to save money to buy it. He plans to deposit a fixed amount every month into a bank account that pays 3% a year, compounded monthly. His first deposit will be made a month from now. How much must each deposit be, if he is going to buy the boat in 5 years and the boat will cost $50,000 then?
2. b) You are considering the purchase of an apartment complex that will generate net cash flows each of the next 20 years, starting at $400,000 in Year 1. You normally demand a 10% rate of return on such investments. Future cash flows after year 1 are expected to grow with inflation at 4% per year. How much would you be willing to pay for the complex today if it will have to be torn down in 20 years?