Question
Mary wants to visit Hawaii, and needs to accumulate $6,000 for her dream trip.To pay for her trip, she will begin (starting today) making annual
Mary wants to visit Hawaii, and needs to accumulate $6,000 for her dream trip.To pay for her trip, she will begin (starting today) making annual payments of$1,325.78 into a savings account that will earn an annual return of 5% (interest compounded annually). How many years (minimum) will it take for Mary to have enough money in the account to pay for her trip?
Nancy has always wanted a BMW 750i, but she wants to be able to pay cash for it. She wants to be able to purchase the car 10 years from today, and she estimates that she will need $100,000 to make the purchase. Nancy will make 10 annual payments, beginning today, into an account that will pay a 6.5% interest rate (compounded annually). What is the amount that Nancy must invest each year to be able to purchase the car 10 years from today?
You win the Mighty ball lottery, which promises a "$1 million" payout - yippee!But, there's a catch - your winnings will be paid as an annuity at a rate of$50,000 per year for 20 years, with the first payment beginning immediately.Alternatively, you may elect to receive an immediate lump-sum payout of$650,000. If the appropriate interest rate is 4.75% (compounded annually), which alternative should you select, and why?
a. The annuity alternative, because its PV of $1,000,000 is greater than the$650,000 PV of the lump-sum alternative.
b. The lump-sum alternative, because its PV of $650,000 is greater than the$636,533 PV of the annuity alternative.
c. The annuity alternative, because its PV of $666,768.79 is greater than the$650,000 PV of the lump-sum alternative.
d. It doesn't matter - you would be indifferent between the two alternatives.
You go to Gary's Used Cars in search of a new (to you) car. Since you don't have a lot of money, you tell Gary that you must limit your monthly payment to$100. Gary shows you a nice, clean 1985 Yugo, which he offers to sell you for$3,000 cash (assume that $3,000 is the fair market value of the car). Or, if you would like to finance the purchase, you may choose to make 60 monthly payments of $100 each, with the first payment beginning one month from today.If you decide to finance the car, what nominal annual rate of interest (rounded to the nearest tenth of a percent) would you be paying on this loan?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started