questions 2,3,5,9,13,14,26,29,37,38 please

Please see the preface for more information. Basic Problems What is the value of your investment after one year? Multiply $3,000 x 1.12. a. Fu C. 1. You invest $3,000 for three years at 12 percent. b. What is the value of your investment after two years? Multiply your answer (L to part a by 1.12. What is the value of your investment after three years? Multiply your answer to part b by 1.12. This gives your final answer. d. Combine these steps using the formula FV = PV x (1 + i)" to find the future value of $3,000 in three years at 12 percent interest. 2. What is the present value of a. $7,900 in 10 years at 11 percent? b. $16,600 in 5 years at 9 percent? c. $26,000 in 14 years at 6 percent? 3. a. What is the present value of $140,000 to be received after 30 years with a 14 percent discount rate? b. Would the present value of the funds in part a be enough to buy a $2,900 concert ticket? You will receive S6,800 three years from now. The discount rate is 10 percent What is the value of your investment two years from now? Multiply $6,800 X (1/1.10) or divide by 1.10 (one year's discount rate at 10 perc) What is the value of your investment one year from now? Multiply you What is the value of your investment today? Multiply your answer to par Murr The Capital tegning Process 4. answer to part a by(1/1.10). by (1/1.10). value b. c. money is alue lue he d. Use the formula PV - FV * -o to find the present value of $6,600 received three years from now at 10 percent interest. 5. If you invest $9,000 today, how much will you have In 2 years at 9 percent? In 7 years at 12 percent? In 25 years at 14 percent? d. In 25 years at 14 percent (compounded semiannually)? 6. Your aunt offers you a choice of $20,100 in 20 years or $870 today. If discounted at 17 percent, which should you choose? 7. Your uncle offers you a choice of $105,000 in 10 years or $47,000 today. If money is discounted at 9 percent, which should you choose? 8. Your father offers you a choice of $105,000 in 12 years or $47,000 today. 4. If money is discounted at 8 percent, which should you choose? b. If money is still discounted at 8 percent, but your choice is between $105,000 in 9 years or $47.000 today, which should you choose? 9. You are going to receive $205,000 in 18 years. What is the difference in presen value between using a discount rate of 12 percent versus 9 percent? 10. How much would you have to invest today to receive a $15,000 in 8 years at 10 percent? b. $20,000 in 12 years at 13 percent? c. $6,000 each year for 10 years at 9 percent? d. $50,000 each year for 50 years at 7 percent? 11. If you invest $8,500 per period for the following number of periods, how much would you have? a. 12 years at 10 percent. b. 50 years at 9 percent. 12. You invest a single amount of $10,000 for 5 years at 10 percent. At the end of 5 years you take the proceeds and invest them for 12 years at 15 percent. How much will you have after 17 years? 13. Mrs. Crawford will receive $7,600 a year for the next 19 years from her trust. If a 14 percent interest rate is applied, what is the current value of the future payments? 14. Phil Goode will receive $175,000 in 50 years. His friends are very jealous of him. If the funds are discounted back at a rate of 14 percent, what is the present value of his future "pot of gold? 15. Sherwin Williams will receive $18,500 a year for the next 25 years as a result of a picture he has painted. If a discount rate of 12 percent is applied, should he be willing to sell out his future rights now for $165,000? 16. Carrie Tune will receive $19,500 for the next 20 years as a payment for a new song she has written. If a 10 percent rate is applied, should she be willing to sell out her future rights now for $160,000? band 17. The Clearinghouse Sweepstakes has just informed you that you have won Si million. The amount is to be paid out at the rate of $20,000 a year for the next 50 years. With a discount rate of 10 percent, what is the present value of 18 Rita Gonzales won the $41 million lottery. She is to receive 51.5 million a year 19 years. The discount rate is 14 percent. What is the current value of her winning? for the next 19 years plus an additional lump sum payment of $125 million after 19. Al Rosen invests $25.000 in a mint condition 1952 Mickey Mantle Topps baseball card. He expects the card to increase in value 12 percent per year for the next 10 years. How much will his card be worth after 10 years? 2 Christy Reed made a $2.000 deposit in her savings account on her 21st birthday. and she has made another $2.000 deposit on every birthday since then. Her account earns 7 percent compounded annually. How much will she have in the account after she makes the deposit on her 32nd birthday? 21. Ar a growth interest rate of 10 percent annually, how long will it take for a sum to double? to triple? Select the year that is closest to the correct answer creditor accept in payment immediately if she could earn 13 percent on her money? Chapter The Time Value of Money your winnings (LOG Prese (L09 (LO Fut (LC Fu (L P 1 1 Intermediate Problems 23. Jack Hammer invests in a stock that will pay dividends of $2.00 at the end of the first year, $2.20 at the end of the second year, and $2.40 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $33. What is the present value of all future benefits if a discount rate of 11 percent is applied? (Round all values to two places to the right of the decimal point.) 24. Les Moore retired as president of Goodman Snack Foods Company but is currently on a consulting contract for $35,000 per year for the next 10 years. a. If Mr. Moore's opportunity cost (potential return) is 10 percent, what is the present value of his consulting contract? b. Assuming Mr. Moore will not retire for two more years and will not start to receive his 10 payments until the end of the third year, what would be the value of his deferred annuity? 25. Juan Garza invested $20,000 10 years ago at 12 percent, compounded quarterly. How much has he accumulated? 26. Determine the amount of money in a savings account at the end of 10 years, given an initial deposit of $5,500 and a 12 percent annual interest rate when interest is compounded (a) annually, (b) semiannually, and (c) quarterly. 27. As stated in the chapter, annuity payments are assumed to come at the end of each payment period (termed an ordinary annuity). However, an excep- tion occurs when the annuity payments come at the beginning of each period (termed an annuity due). To find the present value of an annuity due, the annuity formula must be adjusted as to the following: 1 (1 + i) - +1 PVAD = AX 17. The Clearinghouse Sweepstakes has just informed you that you have won $1 million. The amount is to be paid out at the rate of $20.000 a year for the next 30 years. With a discount rate of 10 percent, what is the present value of & Rita Gonzales won the $41 million lottery. She is to receive $1.5 million a year 19 years. The discount rate is 14 percent. What is the current value of her winning? for the next 19 years plus an additional lump sum payment of $125 million after 19. Al Rosen invests $25.000 in a mint condition 1952 Mickey Mantle Topps baseball card. He expects the card to increase in value 12 percent per year for the next 10 years. How much will his card be worth after 10 years? 2 Christy Reed made a $2.000 deposit in her savings account on her 21st birthday. and she has made another $2.000 deposit on every birthday since then. Her account earns 7 percent compounded annually. How much will she have in the account after she makes the deposit on her 32nd birthday? 21. At a growth interest rate of 10 percent annually, how long will it take for a sum to double? to triple? Select the year that is closest to the correct answer creditor accept in payment immediately if she could earn 13 percent on her money? Chapter The Time Value of Money your (LOG Prese (LOG (LO (LC Fu (L P 1 ! Intermediate Problems 23. Jack Hammer invests in a stock that will pay dividends of $2.00 at the end of the first year, $2.20 at the end of the second year, and $2.40 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $33. What is the present value of all future benefits if a discount rate of 11 percent is applied? (Round all values to two places to the right of the decimal point.) 24. Les Moore retired as president of Goodman Snack Foods Company but is currently on a consulting contract for $35,000 per year for the next 10 years. a. If Mr. Moore's opportunity cost (potential return) is 10 percent, what is the present value of his consulting contract? b. Assuming Mr. Moore will not retire for two more years and will not start to receive his 10 payments until the end of the third year, what would be the value of his deferred annuity? 25. Juan Garza invested $20,000 10 years ago at 12 percent, compounded quarterly. How much has he accumulated? 26. Determine the amount of money in a savings account at the end of 10 years, given an initial deposit of $5,500 and a 12 percent annual interest rate when interest is compounded (a) annually, (b) semiannually, and (c) quarterly. 27. As stated in the chapter, annuity payments are assumed to come at the end of each payment period (termed an ordinary annuity). However, an excep- tion occurs when the annuity payments come at the beginning of each period (termed an annuity due). To find the present value of an annuity due, the annuity formula must be adjusted as to the following: 1 (1 + i) - +1 PVAD = AX payments come at the beginning of each period? The interest rate is 12 perc 84 Aur The Capital Maning Pro Likewise, the formula for the future value of an annuity due requires a modification: FV0 = AX 28. What is the present value of a 10-year annuity of 53.000 per period in which payments come at the beginning of each period? The interest rate is 12 percent PVAD = AX 1 (1 +)*- 1 ue Advanced Problems 29. Your grandfather has offered you a choice of one of the three following alternatives: $7,500 now: $2,200 a year for nine years, or $31,000 at the end of nine years. Assuming you could earn 10 percent annually, which alternative should you choose? If you could earn 11 percent annually, would you still choose the same alternative? uired 30. You need $28,974 at the end of 10 years, and your only investment outlet is an 8 percent long-term certificate of deposit (compounded annually). With the cer tificate of deposit, you make an initial investment at the beginning of the first yeae What single payment could be made at the beginning of the first year to achieve this objective? b. What amount could you pay at the end of each year annually for 10 years to achieve this same objective? 31. Beverly Hills started a paper route on January 1. Every three months, she deposits $550 in her bank account, which earns 8 percent annually but is compounded quarterly. Four years later, she used the entire balance in her bank account to invest in an investment at 7 percent annually. How much will she have after three more years? 32. Franklin Templeton has just invested $9,260 for his son (age one). This money will be used for his son's education 18 years from now. He calculates that he will need $71,231 by the time the boy goes to school. What rate of return will Mr. Templeton need in order to achieve this goal? 33. Mr. Dow bought 100 shares of stock at $14 per share. Three years later, he sold the stock for $20 per share. What is his annual rate of return? 34. C. D. Rom has just given an insurance company S35,000. In return, he will receive an annuity of $3,700 for 20 years. At what rate of return must the insurance company invest this $35,000 in order to make the annual payments? 35. Betty Bronson has just retired after 25 years with the electric company. Her total pension funds have an accumulated value of $180,000, and her life expectancy for the next five years: $1.000, $2.000, $3.000, $4,000, and $5.000. She will Chapter The Value of Mones 285 i 15 more years. Her pension fund manager wames vecane percent return on her assets. What will be her yearly vay for the next 15 years? 36 Morgan Jennings, a geography professor invests 550.000 parcel of land that is expected to increase in value by 12 percent per year for the next five Assuming a 12 percent interest rate, how wach will this annuity be? years. He will take the proceeds and provide him with a 10-year annuity. 17. You wish to retire in 14 years, at which time you want to have accumulated enough money to receive an annual city of $17.0 for 19 years after while after retirement you can carn 10 percent on your money. retirement. During the period before retirement you can earn 8 percent annually. (L09-4) What annual contributions to the retirement fund will allow you to receive 38. Del Monty will receive the following payments at the end of the next three years: $2.000, $3.500, and $4,500. Then from the end of the 4th year through the end of the 10th year, he will receive an annuity of $5.000 per year. Ata discount rate of 9 percent, what is the present value of all three future benefits? 39. Bridget Jones has a contract in which she will receive the following payments the $17,000 annuity? LO 4) Deferred (L09-3) Present value (L09-3) Deferred muity (L09-3) then receive an annuity of $8.500 a year from the end of the 6th through the end of the 15th year. The appropriate discount rate is 14 percent. If she is offered $30,000 to cancel the contract, should she do it? 40. Mark Ventura has just purchased an annuity to begin payment two years from today. The annuity is for $8,000 per year and is designed to last 10 years. If the interest rate for this problem calculation is 13 percent, what is the most he should have paid for the annuity? 41. If you borrow $9,441 and are required to pay back the loan in five equal annual Yield installments of $2,750, what is the interest rate associated with the loan? (L09-4) 42. Cal Lury owes $10,000 now. A lender will carry the debt for five more years at Loan repayme 10 percent interest. That is, in this particular case, the amount owed will go up by (L09-4) 10 percent per year for five years. The lender then will require that Cal pay off the loan over the next 12 years at 11 percent interest. What will his annual payment be? Loan repay 43. If your uncle borrows $60,000 from the bank at 10 percent interest over the (L09.4) seven-year life of the loan, what equal annual payments must be made to discharge the loan, plus pay the bank its required rate of interest (round to the nearest dollar)? How much of his first payment will be applied to interest? to principal? How much of his second payment will be applied to each? Loan repas 44. Larry Davis borrows $80,000 at 14 percent interest toward the purchase of a home. His mortgage is for 25 years. (L09-4) a. How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate answer.) b. How much interest will he pay over the life of the loan? How much should he be willing to pay to get out of a 14 percent mortgage and into a 10 percent mortgage with 25 years remaining on the mortgage? c