Fin U02A2 Time, Value and Money

You can earn 5% per year compounded annually for the next 4 years, followed by 8% per year compounded quarterly for 5 years. What is the average annual compounded rate of return over the 9 year period?

A. The future value of an annuity is unaffected by the amount of each annuity payment.

13. What is the formula for the Present Value (PV) for a finite stream of cash flows (1 per year) that lasts for 10 years?

9. What is the present value of an 8-year annuity that makes quarterly payments of $73 if

b. What is the future value of this annuity if the payments are invested in an account paying

11. A 65-year-old wishes to convert the cash value of his insurance policy into an annuity. He can select an annuity that will last 15 years or one that lasts 20 years. If the cash value is $450,000 and interest rates are 5.25%, how much less per year will he receive if he chooses the 20-year annuity?

In question four, Janet was asked to solve a question that deals with annuity payments, specifically, ordinary annuities. It starts by asking of how much you will make if you add $2,000 every year and it is compounded by 10% interest every year. These, for the most part, are future value problems. The first one comes out to be a future value of $12,210.20, which does not satisfy the need for $20,000. The next part asks what the value would be if the interest was compounded semiannually. You have to do an equation in order to find out what the effective annual interest rate. Through this equation you come out with a value of 10.25% and after the calculator calculations you come out with a future value of $12,271.11, also not meeting the demand for that first year of college. The next part asks what payment will you need in order to get to that $20,000 number and the present value comes to be $3,275.95. Next, the case asks what original payment you would need in order

In 5% interest rate, Mr. Smith’s original pension plan has the expected present value $157,044 at age 65. If he chooses a 10-year benefit, his revised benefit will be $978.17 per month, with

The annuity present value would be PV=C{1-[1/(1/1+r)2]}/r. To speed things up as taught in our lesson, one can turn to page 364 to find the Annuity Present Value factor. Since the period is over 10 years and we are plugging in 10% for both contracts, the Annuity PV Factor would equal 6.1446. If we wanted to stick with the initial formula for the first contract, we would say C=10,000,000. Therefore, C x {1-[1/(1.1)10]}/.1. This gets messy, so we should go back to the shortcut as described in our lecture. The Annuity PV Factor is 6.1446. the Annuity PV=$10 million times 6.1446. This would result in 61.446 million dollars. The second contract stipulates that 100 million will be paid in 10 installments, but the installments will increase 5% per year. In doing math we find should let x be the first installment in year one. Therefore, x(1+1.051+1.052+1.053+1.054+1.055+1.056+1.057+1.058+1.059)=100 million. In plugging in the formula, you would divide 100 by the parenthesis to separate x. X would result in

2. (Q. 6 in B) What is the present value of a four-year annuity of $100 per year

(a) According to this new plan, the investment is divided into six equal installment paid annually. As the equal payments are made at each period, this type of investment is regarded as an Ordinary Annuity.

1. Assume that at retirement you have accumulated $825,000 in a variable annuity contract. The assumed investment return is 5.5% and your life expectancy is 18 years. What is the hypothetical constant benefit payment?

We then get the annuity of the 1,200 semiannual PMTs at year 6, and then at Present Value

Assume that the annual payments in the sixth year is equal to the rental payment in the fifth year ( 112.9 and 86.0) and the remainder of the lump sum values (54.6 and 17.8) is due in the seventh year. With a discount rate of 5.4%, the present values of the rental payments for the years 2006 and 2007 are as follows:

     An ordinary annuity is a series of regular payments where each payment is made at the end of the payment period. The payment period is the length of time between payments. Payments are usually made annually, semiannually, quarterly,