All the answers are given. Just explain how to come up wothbthose answers and why did those options are chosen
PROBLEMS 8.1 Dannah deposited P1,000 in a savings account that pays 8% interest, compounded quart inform planning to use it to finish your last year in college. Eighteen months later, Dannah decide to go ter p 100,0 Rocky Mountains to become a ski instructor rather than continue in school, so you close outof follow in account. 1. How much money will she receive after closing her account? 2. How much money will she have if the interest is at 10% 3 . Supposed she wanted to have P1,500 in her savings account after 18 months, how much must she deposit? 13 3 2 8.6 8.2 Suppose Emeliza has a winning lottery ticket and she are given the option of accepting value of P1,000,000 paying interest three years from now or taking the present value of the P1,000, gene of lif now. The sponsor of the prize uses a 6% discount rate. 1. If she elect to receive the present value of the prize now, the amount she will receive is? Ye 2. If she elect to receive the value three years from now, the amount she will receive is? 3. Which of the options will give higher amount? 8.3 One day, your friend Erin came to you to seek an advice about investment decision. She wants to buy her dream Tiffany & Co. bracelet and is planning to accumulate money by investing: A. P 20,000 each year for the next five years in Security X which pays a 10% annual rate of retum The bracelet will cost P130,000 at the end of the fifth year. B. P14,000 each year for the next eight years in Security Y which pays a 9% annual rate of retum. The bracelet will cost P150,000 at the end of the eighth year. Questions: 1. Which option would you pick for her? 2. How much will she be able to accumulate in the option that you chose? 3. How much will be the deficiency of the other option which you did not choose? 8.4 Starship Entertainment wants to accumulate a total of P 4,000,000 after 5 years from World Bank. According to the company's financial manager, it can only afford to invest at a maximum annual amount of P 975,000. The bank has offered Starship Ent., 1) a 5-year loan with an 14 percent interest rate at the beginning of each year, 2) a 5-year loan with a 13 percent interest rate at the end of each year, or 3) a 5-year loan with an 10 percent interest rate at the beginning of each year.CASE PROBLEMS SOLUTIONS CASE PROBLEM 1 A. =P1000 x (1 + 8%) 1.5x4 =P1000 x 1.1262 = P1126 B. =P1000 x (1 + 10%) 1.5x4 =P1000 x 1.1597 = P1160 C =P1500 x (1 + 8%) -1.5x4 =P1500 x .8880 = P1332 CASE PROBLEM 2 A. =P1,000,000 x (1 + 6%) -3 =P1,000,000 x .8396 = P839,619 B =P1,000,000 x (1 + 6%)3 =P1,000,000 x 1.1910 = P1,191,016 C. Elect to receive the value three years from now because it earns interest yearly. CASE PROBLEM 3 1. Option B 2. FVA = PMT (FVIFA) = 14,000(11.028) = P 154,392 3. FVA = PMT (FVIFA) = 20,000(6.105) = P 122,100 P 130,000 - 122,100 = P 7,900 deficiency CASE PROBLEM 4 1. PV Annuity Due = 975,000 ((1-(1.14^-5))/0.14)(1.14) = 3,815,869.49 2. PV OA = 975,000 ((1-(1.18^-5))/0.08) = 3892892.29 3. PV Annuity Due = 975,000 ((1-(1.10^-5))/0.10)(1.10) = 4,065,618.81 4. The company should choose option #3. CASE PROBLEM 5 1. The PV of A = P 435,000 2. The PV of B = 100,000 (((1-(1.05^-5))/0.05) 3. Option A.193 Questions: 1. Compute the PV Annuity Due for Option A. 2. Compute the PV Ordinary Annuity for Option B. 3. Compute the PV Annuity Due for Option C. 4. Which option should the company choose? 8.5 Congratulations! You just won in an online Texas Hold'em Poker! However, you have just formed that you can take your winnings in one of two ways. Choice A pays P 435,000. Choice B pays 100,000 at the end of each year for the next five years. Using a discount rate of 5 percent, answer the following questions: 1. What is the PV of Option A? 2. What is the PV of Option B? 3. What option would you choose
