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Calculate the future value of $4,600 received today if it is deposited at 9 percent for three years. (Equation 4.4, 4.5, and 4.6) 1. Calculate
Calculate the future value of $4,600 received today if it is deposited at 9 percent for three years.
(Equation 4.4, 4.5, and 4.6)
1. Calculate the future value of $4,600 received today if it is deposited at 9 percent for three years. (Equation 4.4, 4.5, and 4.6) 2. Calculate the present value of $89,000 to be received in 15 years, assuming an opportunity cost of 14 percent. (Equation 4.9, 4.11, and 4.12) 3. Jeanie has deposited $33,000 today in an account which will earn 10 percent annually. She plans to leave the funds in this account for seven years earning interest. If the goal of this deposit is to cover a future obligation of $65,000, what recommendation would you make to Jeanie? (Equation 4.4, 4.5, and 4.6) 4. EcoSystems, Inc. is preparing a fiveyear plan. Today, sales are $1,000,000. If the growth rate in sales is projected to be 10 percent over the next five years, what will the dollar amount of sales be in year five? (Equation 4.4, 4.5, and 4.6) 5. Fred has inherited $6,000 from the death of Barney. He would like to use this money to buy Wilma a new rockmobile costing $7,000 for their 10th anniversary celebration which will take place in 2 years from now. Will Fred have enough money to buy the gift if he deposits his money in an account paying 8 percent compounded semiannually? (Equation 4.4, 4.5, and 4.6) 6. Kay and Arthur are newlyweds and have just purchased a condominium for $70,000. Since the condo is very small, they hope to move into a singlefamily house in 5 years. How much will their condo worth in 5 years if inflation is expected to be 8 percent? (Equation 4.4, 4.5, and 4.6) 7. Calculate the present value of a $10,000 perpetuity at a 6 percent discount rate. (Equation 4.19) 8. Calculate the future value of an annuity of $5,000 each year for eight years, deposited at 6 percent. (Equation 4.13, 4.14) 9. Calculate the present value of an annuity of $3,900 each year for four years, assuming an opportunity cost of 10 percent. (Equation 4.15, 4.16) 10. Linda has decided to set up an account that will pay her granddaughter (Janice) $5,000 a year indefinitely. How much should Linda deposit in an account paying 8 percent annual interest? (Equation 4.13, 4.14) 11. A wealthy industrialist wishes to establish a $2,000,000 trust fund which will provide income for his grandchild into perpetuity. He stipulates in the trust agreement that the principal may not be distributed. The grandchild may only receive the interest earned. If the interest rate earned on the trust is expected to be at least 7 percent in all future periods, how much income will the grandchild receive each year? (Equation 4.19) 12. Cara establishes a sevenyear, 8 percent loan with a bank requiring annual endofyear payments of $960.43. Calculate the original principal amount. (Equation 4.15, 4.16) 13. A lottery administrator has just completed the state's most recent $50 million lottery. Receipts from lottery sales were $50 million and the payout will be $5 million at the end of each year for 10 years. The expenses of running the lottery were $800,000. The state can earn an annual compound rate of 8 percent on any funds invested. (a) Calculate the gross profit to the state from this lottery. (b) Calculate the net profit to the state from this lottery (no taxes). (Equation 4.15, 4.16) 14. Kimberly has just won a $20 million lottery, which will pay her $1 million at the end of each year for 20 years. An investor has offered her $10 million for this annuity. She estimates that she can earn 10 percent interest, compounded annually, on any amounts she invests. She asks your advice on whether to accept or reject the offer. What will you tell her? (Ignore Taxes) (Equation 4.15, 4.16) 15. Mr. Handyman has been awarded a bonus for his outstanding work. His employer offers him a choice of a lumpsum of $5,000 today, or an annuity of $1,250 a year for the next five years. Which option should Mr. Handyman choose if his opportunity cost is 9 percent? (Equation 4.15, 4.16)Step by Step Solution
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