Question
At the conclusion of 14 years, Richard desired to have $380,000. Richard bought an investment that produces an expected annual return of 10%. Richard made
At the conclusion of 14 years, Richard desired to have $380,000. Richard bought an investment that produces an expected annual return of 10%. Richard made equivalent annual payments for the first five years and earned the expected annual return. However, for the final 9 years, the return fell to 7%. Such a decrease caused Richard to increase his equivalent annual payments in years six through fourteen in order to achieve his goal.
Answer the following parts below.
Part #1: What equivalent payments did Richard make for the first five years?
Part #2: What equivalent payments did Richard make in the final nine years to achieve his goal?
Part #3: Suppose that Richard knew that when making the investment that the rate of return would change after the fifth year as explained above. What fourteen equivalent annual payments should Richard have planned to make in order for his goal to be achieved?
Note: Please show your work
Step by Step Solution
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Step: 1
SOLUTION Part 1 Let X be the equivalent annual payment that Richard made for the first five years Using the formula for the present value of an annuit...Get Instant Access to Expert-Tailored Solutions
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Step: 3
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