FUND.OF FINANCIAL MGMT:CONCISE-MINDTAP
10th Edition
ISBN: 9781337910972
Author: Brigham
Publisher: CENGAGE L
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Question
Chapter 5, Problem 40P
Summary Introduction
To calculate: Equal annual saving that will compound to the required amount.
Introduction:
It is an agreement under which a person pays the lump sum payment or the number of small transactions and in return he receives the amount at later date or upon annuitization. The purpose of the annuity is to not the break the flow of income after retirement.
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REQUIRED ANNUITY PAYMENTS A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and should graduate 4 years later. Currently, the annual cost (for everything—food, clothing, tuition, books, transportation, and so forth) is $12,000, but these costs are expected to increase by 6% annually. The college requires total payment at the start of the year. She now has $10,000 in a college savings account that pays 9% annually. Her father will make six equal annual deposits into her account; the first deposit today and the sixth on the day she starts college. How large must each of the six payments be? (Hint: Calculate the cost [inflated at 6%] for each year of college and find the total present value of those costs, discounted at 9%, as of the day she enters college. Then find the compounded value of her initial $10,000 on that same day. The difference between the PV of costs and the amount that would be in the…
2. A father is planning a savings program to put his daughter through university. His daughter
is now 13 year old. She plans to enroll at the university in 5 years, and it should take her 4
years to complete her education. Currently, the cost per year (for everything – her food,
clothing, tuition, books, transportation, and so forth) is GH¢ 12,000 per year.
This cost is expected to remain constant throughout the four-year university education. The
daughter recently received GH¢ 7,500 from her grandfathers, estate; this money will be
invested at a rate of 8% to help meet the costs of the daughter's education.
The rest of the costs will be met by money the father will deposit in a savings account
which also earns 8 percent compound interest per year. He will make 5 equal deposits into
the account, one deposit per annum starting one year from now until his daughter starts
university. These deposits will begin one year from now. (Assume that school fees are paid
at the beginning of the…
A parent is now planning a savings program to put a daughter through college. She is 13 and plans to enroll in college in 5 years, and she should graduate 4 years later. Currently, the annual cost for college is $15,000 and is expected to increase 4% each year. The college requires that the costs be paid at the start (hint: beginning) of each year. The child now has $7,500 saved for college in an account and is expected to have a return of 6% annually. The parent will make five equal payments starting today and where the fifth and final payment will be one year before she starts college and will make no more additional payments. How much must each of the payments be to fully fund the college cost?
Answer the following questions:
1. What is the expected cost of college in each of the 4 years?
2. How much will need to be in the account before the first payment to fully pay for college?
3. How much will the initial savings grow to before the first payment is…
Chapter 5 Solutions
FUND.OF FINANCIAL MGMT:CONCISE-MINDTAP
Ch. 5 - Prob. 1QCh. 5 - Explain whether the following statement is true or...Ch. 5 - If a firms earnings per share grew from 1 to 2...Ch. 5 - Would you rather have a savings account that pays...Ch. 5 - Prob. 5QCh. 5 - Prob. 6QCh. 5 - Banks and other lenders are required to disclose a...Ch. 5 - Prob. 8QCh. 5 - FUTURE VALUE If you deposit 2,000 in a bank...Ch. 5 - PRESENT VALUE What is the present value of a...
Ch. 5 - FINDING THE REQUIRED INTEREST RATE Your parents...Ch. 5 - TIME FOR A LUMP SUM TO DOUBLE If you deposit money...Ch. 5 - TIME TO REACH A FINANCIAL GOAL You have 33,556.25...Ch. 5 - Prob. 6PCh. 5 - PRESENT AND FUTURE VALUES OF A CASH FLOW STREAM An...Ch. 5 - LOAN AMORTIZATION AND EAR You want to buy a car,...Ch. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - GROWTH RATES Sawyer Corporations 2018 sales were 5...Ch. 5 - EFFECTIVE RATE OF INTEREST Find the interest rates...Ch. 5 - Prob. 13PCh. 5 - FUTURE VALUE OF AN ANNUITY Find the future values...Ch. 5 - PRESENT VALUE OF AN ANNUITY Find the present...Ch. 5 - Prob. 16PCh. 5 - EFFECTIVE INTEREST RATE You borrow 230,000; the...Ch. 5 - Prob. 18PCh. 5 - FUTURE VALUE OF AN ANNUITY Your client is 26 years...Ch. 5 - PV OF A CASH FLOW STREAM A rookie quarterback is...Ch. 5 - EVALUATING LUMP SUMS AND ANNUITIES Kristina just...Ch. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - PRESENT VALUE FOR VARIOUS DISCOUNTING PERIODS Find...Ch. 5 - Prob. 25PCh. 5 - PV AND LOAN ELIGIBILITY You have saved 4,000 for a...Ch. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 - REQUIRED LUMP SUM PAYMENT Starting next year, you...Ch. 5 - REACHING A FINANCIAL GOAL Six years from today you...Ch. 5 - FV OF UNEVEN CASH FLOW You want to buy a house...Ch. 5 - AMORTIZATION SCHEDULE a. Set up an amortization...Ch. 5 - AMORTIZATION SCHEDULE WITH A BALLOON PAYMENT You...Ch. 5 - Prob. 36PCh. 5 - PAYING OFF CREDIT CARDS Simon recently received a...Ch. 5 - Prob. 38PCh. 5 - Prob. 39PCh. 5 - Prob. 40PCh. 5 - Prob. 41SPCh. 5 - Prob. 42IC
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