Part I:

Answer the following questions:

1. What is the difference between an annuity and a perpetuity?

2. What is the difference between an ordinary annuity and an annuity due?

Part II:

Calculate the value requested for each problem. Shows the formula used and the calculations for each problem.

1. Jos Luis has the opportunity to make an investment that requires a payment of $750 annually for the next twelve years. If the investment is made at an interest rate of 8%, what is the value of that investment today
2. What is the present value of an investment that guarantees a payment of $22,500 annually for the next five years if the compounded annual interest rate is 15%?
3. Roberto Homar is planning to invest $25,000 annually for the next seven years, an investment that will pay him an annual compound interest of 11.4%. How much money will Roberto have at the end of the seven years?
4. Cecilia Thomas is 25 years old and is planning to invest $3,000 annually in an IRA that pays 9.75% interest compounded annually, until she retires at age 65. How much money will Cecilia have for her retirement?
5. How much would you pay today for a $1,000 per year perpetuity if the prevailing interest rate is 5.25%?
6. How much would you buy a preferred stock that pays $5 in annual dividend if you require a return of 12% annual interest?
7. Determine how much you would pay in total, interest and principal, at the end of the 30 years of your mortgage at 3.99% interest compounded monthly, if the monthly payment is $675.00.
8. How much would you have to pay monthly for the car you want to buy if the cost of the car is $30,000 and they finance it at 5.75% interest compounded for six years without having to pay soon?
9. How much money will you have paid at the end of ten years if you pay $10,000 for equipment leases at the beginning of each year and the annual compound interest rate is 4.75%?

10. From the previous exercise, calculate how much you will pay at the end of the ten years if you pay $10,000 annually at the end of each year instead of at the beginning of the year. Which option suits you best?

MBA 5050 4.2