Answered step by step
Verified Expert Solution
Link Copied!

Question

...
1 Approved Answer

( Comprehensive problem ) Over the past few years, Microsoft founder Bill Gates' net worth has fluctuated between $ 2 0 billion and $ 1

(Comprehensive problem) Over the past few years, Microsoft founder Bill Gates' net worth has fluctuated between $20 billion and $130 billion. In early 2006 was about $26 billion-after he reduced his stake in Microsoft from 21 percent to around 14 percent by moving billions into his charitable foundation. Let's see what Bill Gates can do with his money in the following problems.
a. Manhattan's native tribe sold Manhattan Island to Peter Minuit for $24 in 1626. Now, 387 years later in 2013, Bill Gates wants to buy the island from the "current natives." How much would Bill have to pay for Manhattan if the "current natives" want a 5 percent annual return on the original $24 purchase price? b. Bill Gates decides to pass on Manhattan and instead plans to buy the city of Seattle, Washington, for $50 billion in 11 years. How much would Bill have to invest today at 11 percent compounded annually in order to purchase Seattle in 11 years?
c. Now assume Bill Gates only wants to invest half his net worth today, $13 billion in order to buy Seattle for $50 billion in 11 years. What annual rate of return would he have to earn in order to complete his purchase in 11 years?
d. Instead of buying and running large cities, Bill Gates is considering quitting the rigors of the business world and retiring to work on his golf game. To fund his retirement, Bill would invest his $20 billion fortune in safe investments with an expected annual rate of return of 8 percent. He also wants to make 50 equal annual withdrawals from this retirement fund beginning a year from today, running his retirement fund to $0 at the end of 50 years. How much can his annual withdrawal be in this case?
a. The amount Bill would have to pay for Manhattan if the "current natives" wanted a 5 percent annual return on the original $24 purchase price after 387 years is $ billion. (Round to two decimal places.)
b. The amount Bill would have to invest at 11 percent compounded annually in order to purchase Seattle for $50 billion in 11 years is $ billion. (Round to two decimal places.)
c. If Bill Gates only wants to invest half his net worth today, $13 billion, in order to buy Seattle for $50 billion in 11 years, the annual rate of return he would have to earn in order to complete his purchase in 11 years is %.(Round to two decimal places.)
d. If Bill invests his $20 billion fortune in safe investments with an expected annual rate of return of 8 percent and he also wants to make 50 equal annual withdrawals from this retirement fund beginning a year from today, the amount of his annual withdrawal in this case would be $ billion per year. (Round to two decimal places.)
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions