Question
could you solve these problems with explanations? 1) A very careful new father wants to set money aside for his baby daughters wedding. If the
could you solve these problems with explanations?
1) A very careful new father wants to set money aside for his baby daughters wedding. If the wedding will take place in 18.00 years, he expects the wedding will cost $70,800.00. If the father can earn 12.00% APR with quarterly compounding on his investments, how much does he need to invest today to reach his goal?
2) A young graduate looks to save money to buy a house 5.00 years from today. He is somewhat conservative and will invest his money in a bond fund that pays 4.00% APR with quarterly compounding. The graduate invests $13,800.00 today. How much will his account be worth in 5.00 years?
3) A father is trying to save for his daughters wedding in two years. (Long engagement!). He thinks he can make the following contributions to an account: $12,480.00 today and $13,213.00 in one year. The father thinks he can earn 8.00% in the market each of the next two years. If the wedding is expected to cost $56,665.00 two years from today, how much will he need to contribute at the time of the wedding to cover its cost?
4) An investor can purchase a small business today for $408,650.00. The investor plans on holding the business for three years, and wants a 20.00% annual return on his investment. He feels he can sell the business for $386,450.00 in three years. In addition, he also believes he can create an annual cash flow of $38,800.00 over the next three years from operating the business.
5) The Atlanta Braves signed an outfielder to a five-year contract. The contract calls for the following cash flows:
- a signing bonus of $2.00 million today,
- $11.12 million in year 1,
- $12.32 million in year 2,
- $14.40 million in year 3,
- $15.01 million in year 4, and
- $16.01 million in year 5.
If the outfielder has a discount rate of 5.00% per year, what is the value of his contract today (in millions)? (Express answer in millions. $1,000,000 would be 1.00)
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