Week 3 Individual Assignment Fin/419 - Finance for Decision Making

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Week 3 Individual Assignments Finance for Decision Making FIN/419 January 30, 2012 Chapter 4: Problem 4-23 – Personal Finance Problem Funding your retirement - You plan to retire in exactly 20 years. Your goal is to create a fund that will allow you to receive $20,000 at the end of each year for the 30 years between retirement and death (a psychic told you would die exactly 30 years after you retire). You know that you will be able to earn 11% per year during the 30-year retirement period. a. How large a fund will you need when you retire in 20 years to provide the 30-year, $20,000 retirement annuity? $173,880 will be required to retire in 20 years to…show more content…
Chapter 4: Problem 4-48 – Personal Finance Problem Monthly loan payments - Tim Smith is shopping for a used car. He has found one priced at $4,500. The dealer has told Tim that if he can come up with a down payment of $500, the dealer will finance the balance of the price at a 12% annual rate over 2 years (24 months). a. Assuming that Tim accepts the dealer’s offer, what will his monthly (end-of-month) payment amount be? PMT = $4,000(PVIFA12%, 24) PMT = $4,000 / 21.243 PMT = $188.28 b. Use a financial calculator or Equation 4.15a (found in footnote 9) to help you figure out what Tim’s monthly payment would be if the dealer were willing to finance the balance of the car price at a 9% annual rate. PMT = $4,000(PVIFA0.75%, 24) PMT = $4,000 / 21.889 PMT = $182.74 Chapter 6: Problem 6-15 – Personal Finance Problem Basic bond valuation - Complex Systems has an outstanding issue of $1,000-parvalue bonds with a 12% coupon interest rate. The issue pays interest annually and has 16 years remaining to its maturity date. a. If bonds of similar risk are currently earning a 10% rate of return, how much should the Complex Systems bond sell for today? Bo = I x (PVIFAkd%,n) + M x (PVIFkd%,n) Bo = 120 x (PVIFA10%,16) + M x (PVIF10%,16) Bo = $120 x (7.824) + $1,000 x (0.218) Bo =

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