Question
Question 1 You lend a friend $30,000, which your friend will repay in five equal annual end-of-year payments of $10,000, with the first payment to
Question 1
You lend a friend $30,000, which your friend will repay in five equal annual end-of-year payments of $10,000, with the first payment to be received 1 year from now. What rate of return does you loan receive?(1.5points)
Question 2
You are offered $1,000 today,$10,000 in 12 years, or$25,000 in 25 years. Assuming that you can earn 11 percent(compounded annually)on your money, which should you choose?(1.5points)
Question 3
To pay for yourchild's education, you wish to haveaccumulated $50,000 at the end of 15 years. For that you plan on depositing an equal amount into the bankat the end of each year. If the bank is willing to pay 6percent compounded annually, how much must you depositeach year to reach your goal?(1.5points)
Question 4
You would like to have $50,000 in 15 years. To accumulate this amount you plan to deposit each year an equal sum in the bank, which will earn 7 percent interest compounded annually. Your first payment will be madeat the end of the year.
a)How much must you deposit annually to accumulate this amount?(1.5points)
b)If you decide to make a large lump-sum deposit today instead of the annual deposits, how large should this lump-sum deposit be? (Assume you can earn 7 percent on this depositcompounded annually.)(1.5points)
c)At the end of5 years you will receive $10,000 and deposit this in the bank toward your goal of $50,000 at the end of 15 years. In addition to this deposit, how much must you deposit in equal annual deposits to reach your goal?(Again assume you can earn 7 percent on this deposit).(1.5points)
Question 5
You are trying to plan for retirement in 10 years, and currently you have $100,000 in a savings account and $300,000 in stocks. In addition, you plan on adding to your savings by depositing$10,000 per year in your savings account at the end ofeach ofthe next 5 years and then $20,000 per year at the end of each year for the final 5 years until retirement.
a)Assuming your savings account returns 7 percent compounded annually,and your investment in stocks will return 12 percent compounded annually, how much will you have at the end of 10 years? (Ignore taxes)(1.5points)
b)If you expect to live for 20 years after you retire, and at retirement you deposit all of your savings ina bank account paying 10 percent, howmuch can you withdraw each year after retirement (20 equal withdrawals beginning 1 year after you retire) to end up with a zero balance upon your death?(2points)
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