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A. How do you calculate PROBLEMS 9/29 1-4 and 9/30 1-4 using the template provided below? Problem 9/29 Your grandfather has offered you a choice
A. How do you calculate PROBLEMS 9/29 1-4 and 9/30 1-4 using the template provided below?
Problem 9/29
Your grandfather has offered you a choice of one of the three following alternatives: $7,500 now; $2,200 a year for nine years; or $31,000 at the end of nine years. Assuming you could earn 10 percent annually, which alternative should you choose? If you could earn 11 percent annually, would you still choose the same alternative? | |||||||
Assumptions | |||||||
Amount now | $7,500 | ||||||
Annuity (9 years) | $2,200 | ||||||
Amount in 9 years | $12,000 | ||||||
Present values | 10% | 11% | |||||
1. Annuity (9 years) | WHAT IS THE FORMULA BASED ON INFORMATION ABOVE? | WHAT IS THE FORMULA BASED ON INFORMATION ABOVE? | |||||
2. Amount received in 9 years | WHAT IS THE FORMULA BASED ON INFORMATION ABOVE? | WHAT IS THE FORMULA BASED ON INFORMATION ABOVE? | |||||
3. Assuming you could earn 10 percent annually, which alternative should you choose? | |||||||
4. If you could earn 11 percent annually, would you still choose the same alternative? |
Problem 9/30
You need $28,974 at the end of 10 years, and your only investment outlet is an 8 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year. | |||||||
Instructions complete the table below | |||||||
Information | |||||||
Future value needed | $28,974 | ||||||
Years | 10 | ||||||
Annual investment yield | 8% | ||||||
1. What single payment could be made at the beginning of the first year to achieve this objective? | |||||||
2. Single payment (present value) | WHAT IS THE FORMULA BASED ON INFORMATION ABOVE? | ||||||
3. What amount could you pay at the end of each year annually for 10 years to achieve this same objective? | |||||||
4. Payments at end of each year (annuity) | WHAT IS THE FORMULA BASED ON INFORMATION ABOVE? |
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