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25 Jul 2019

Explain the importance of a time line.

Present value with multiple cash fl ows: Carol Jenkins, a lottery winner, will receive the following
payments over the next seven years. If she can invest her cash fl ows in a fund that will earn
10.5 percent annually, what is the present value of her winnings?
$200,000 $250,000 $275,000 $300,000 $350,000 $400,000 $550,000
1 2 3 4 5 6 7 Year

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Keith Leannon
Keith LeannonLv2
28 Jul 2019

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please answer all questions and Thank you !

1. Susan Wilson is a sales executive at a Baltimore firm. She is25 years old and plans to invest $3,800 every year in an IRAaccount, beginning at the end of this year until she reaches theage of 65. If the IRA investment will earn 8.45percent annually,how much will she have in 40 years, when she turns 65? (Roundanswer to 2 decimal places)

2. Donna Clark is a sales executive at a Baltimore firm. She is25 years old and plans to invest $2,500 each year in an IRA accountuntil she is 65 at which time she will retire (a total of 40payments). If Donna invests at the beginning of each year, and theIRA investment will earn 11.00 percent annually, how much will shehave when she retires? Assume that she makes the first paymenttoday.(Round answer to 2 decimal places)

3. Kevin Hall is saving for an Australian vacation in threeyears. He estimates that he will need $5,920 to cover his airfareand all other expenses for a week-long holiday in Australia. If hecan invest his money in an S&P 500 equity index fund that isexpected to earn an average annual return of 10.5 percent over thenext three years, how much will he have to save every year if hestarts saving at the end of this year?

4.Your grandfather is retiring at the end of next year. He wouldlike to ensure that his heirs receive payments of $9,600 a yearforever, starting when he retires. If he can earn 6.1 percentannually, how much does your grandfather need to invest to producethe desired cash flow? (Round answer to 2 decimal places)

5.Joseph Moore borrowed $15,550 from a bank for three years. Ifthe quoted rate (APR) is 8.90 percent, and the compounding isdaily, what is the effective annual interest rate (EAR)? (Roundanswer to 2 decimal places)

6.You are evaluating a growing perpetuity investment from alarge financial services firm. The investment promises an initialpayment of $24,700 at the end of this year and subsequent paymentsthat will grow at a rate of 2.6 percent annually. If you use a 9percent discount rate for investments like this, what is thepresent value of this growing perpetuity?(Round answer to 2 decimalplaces)

7.Cullumber Productions borrowed some money from the CaliforniaFinance Company at a rate of 13.90 percent for a seven-year period.The loan calls for a payment of $1,253,000 each year beginningtoday. How much did Cullumber borrow?(Round answer to 2 decimalplaces)

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It will help to use the timeline to outline the following problems.

1. You decide to begin saving for a new car to purchase in five years. If you put $1,000 at the end
of each of the next 5 years in a savings account paying 6% compounded annually, how much will you accumulate after 5 years?

2. James Smith has a 4-year ordinary annuity that pays $1,000 per year and has an interest rate of 6%. a. Calculate the future value of this ordinary annuity.

b. Assuming this was an annuity due, calculate the future value of this annuity.

3. You have contacted a number of car dealerships to determine the best interest rate on a new automobile loan. A Ford dealership has quoted you a 5-year, 10% loan in the amount of $35,000 that will require monthly payments.

a. What is the monthly loan payment?

b. What will be the loan‘s effective annual interest rate (EAR)?

4. Marcus has won the grand prize in a lottery and must choose between the following three options: a. Receive a lump sum payment of $9,000,000.

b. Receive annual end of the year payments of $1,000,000 for the next 12 years.
c. Receive annual end of the year payments of $1,500,000 for the next 8 years.
a. Which option should Marcus choose based on an annual investment rate of 8%?

5. How much money does Kristi need to have in her retirement savings account today if she wishes to withdraw $25,000 per year for 30 years? She expects to earn an average rate of 8%.

decide to begin saving towards the purchase of a new car in 5 years. If you put $1,000 at the end

6. What is the future value of $4,900 invested for 8 years at 7 percent compounded semiannually?

7. In 2005, soccer player David Beckham signed a contract reported to be worth $51 million. The contract called for $2 million immediately and $10 million in 2006. The remaining $39 million was to be paid as $9 million in 2007, $7 million in 2008, $6 million in 2009, $5 million in 2010, $4 million in 2011 and in 2012, $2 million in 2013, and $1 million in 2014 and 2015. Assuming all the payments, except the first $2 million are paid at the end of each year and the discount rate is 9%, what kind of deal did the soccer player snag?

8. What is the present value of the following set of cash flows at a 10% discount rate? Year 1 2 3 4
Cash Flow $600 –$600 $600 –$600

9. What is the future value of the set of cash flows (from the previous problem) 4 years from now? Assume an interest rate of 10%.

10. Starting today, George is going to contribute $300 on the first of each month to his retirement account. His employer will contribute an additional 50% of the amount George contributes. If both George and his employer continue to do this and he can earn a monthly rate of .68%, how much will George have in his retirement account 35 years from now?

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