Homework 2
Theory of Interest
Annuities immediate, due, deferred, continuous, perpetuities
1. Determine the present value of regular payments of $250 to be made at the end of each of the next 50 years. The annual effective interest rate is 5%.
A. 3598 B. 3975 C. 4136 D. 4564 E. 4973
2. Find the present value of 50 regular annual payments of $3000 at the beginning of each year, starting now. The annual effective interest rate is 6%. A. 50,000 B. 50,123 C. 50,234 D. 51,000 E. 51,234
3. Find the present value at time 0 of regular payments of $50 at times 25 years, 26 years, and so on, with the last payment at time 40 years. Use an annual effective interest rate of 12%
A. 22.97 B. 23.71 C. 24.27 D. 25.09 E.26.00
4.
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Calculate X.
A. 29999 B. 30272 C. 30889 D. 31098 E. 31112
9. Marilyn invests $3,500 at time 0 in order to receive payments of $450 at times 1 year, 2 years, 3 years, and so on, with the last payment at time 10 years. Determine the annual effective interest rate that Marilyn earns.
A. 4.35% B. 4.85% C. 5.15% D. 5.35% E. 5.65%
10. Tyler graduates from college today and turns 22 years old. Starting one year from today, Tyler makes level annual deposits into a savings account that pays 4% per year. How much would Tyler need to deposit at the end of each year to have $1,000,000 on his 65th birthday?
A. 9090 B. 9190 C. 9290 D. 9390 E. 9490
11. Starting today, Sandy sets aside $10,000 at the beginning of each year into a bank account that pays an annual effective interest rate of 5.5%. She makes 25 such deposits. Thirty years from today, Sandy uses the accumulated value in the account to purchase an annuity that pays $X at the beginning of each year for 25 years. Determine X.
A. 48134 B.48555 C. 48970 D. 49273 E. 49840
12. Jeff and John shared equally in an inheritance. Using his inheritance, John immediately bought a 10-year annuity-due with annual payments of 2500 each. Jeff put his inheritance in an investment fund earning an annual effective interest rate of 9%. Two years later, Jeff bought a 15-year annuity-immediate with annual payments of Z. The present value of both annuities were determined using an annual effective
academic year interest rate of 3.76 percent would pay a 5,032 dollars interest over 10 years,
Beverly and Kyle Nelson currently insure their cars with separate companies paying $450 and $375 a year. If they insure both cars with the same company, they would save 10 percent on the annual premiums. What would be the future value of the annual savings over ten years based on an annual interest rate of 6 percent?
Poor Dog, Inc. borrowed $135,000 from the bank today. They must repay this money over the next six years by making monthly payments of $2,215.10. What is the interest rate on the loan? Express your answer with annual compounding.
14. How close does the terminal value in part 2 get to the present value using the growing annuity formula in part 3?
9. What is the present value of an 8-year annuity that makes quarterly payments of $73 if
If the present is Year 0 and rates compound annually, in what year does the first outlay of $45,000 occur? Hint, you’re using the perpetuity approach to valuation.
1. If Mrs. Beach wanted to invest a lump sum of money today to have $100,000 when she retired at 65 (she is 40 years old today) how much of a deposit would she have to make if the interest rate on the C.D. was 5%?
A person deposited $500 in a savings account that pays 5% annual interest that is compounded yearly. At the end of 10 years, how much money will be in the savings account? (Bluman, A. G. 2005, page 230).
The future value equation is written as: Future Value= Present Value (1+ interest rate) ^years. The year value is written as an exponent. In this case, Granny wants to invest her $25,000 for 18 years at the 1.72 rate five year CD rate. For the purposes of this exercise, the grandchild will start school in eighteen years, but the assumption will be that the 1.72 rate is constant over that period.
b. What is the future value of this annuity if the payments are invested in an account paying
Using the appropriate interest table, compute the present values of the following periodic amounts due at the end of the designated periods.
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
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?
First we need to get the present value of the annuity for the 1,500 semiannual PMTs at year 14
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: