1.( Ignore income taxes in this problem.) You have deposited $21,618 in a specia
ID: 2380105 • Letter: 1
Question
1.(Ignore income taxes in this problem.) You have deposited $21,618 in a special account that has a guaranteed interest rate of 18% per year. If you are willing to completely exhaust the account, what is the maximum amount that you could withdraw at the end of each of the next 9 years?
2. (Ignore income taxes in this problem.) How much would you have to invest today in the bank at an interest rate of 7% to have an annuity of $2,800 per year for 9 years, with nothing left in the bank at the end of the 9 years?
3. (Ignore income taxes in this problem.) Virani Corporation has entered into a 8 year lease for a piece of equipment. The annual payment under the lease will be $2,000, with payments being made at the beginning of each year. If the discount rate is 9%, the present value of the lease payments is:
Explanation / Answer
1. let maximum amount that you could withdraw = x
Present value of all amounts = 21,618
21,618 = x/1.18 + x/1.18^2 + x/1.18^3 + x/1.18^4 + x/1.18^5 + x/1.18^6 + x/1.18^7 + x/1.18^8 + x/1.18^9
x=$5,023.91
maximum amount that you could withdraw at the end of each of the next 9 years = $5023.91
2.Investment today = present value of annuity
Investment today = 2800/1.07 + 2800/1.07^2 + 2800/1.07^3 + 2800/1.07^4 + 2800/1.07^5 +...
Investment today =$18,242.65
3.present value of the lease payments = 2000 + 2000/1.09+ 2000/1.09^2 + 2000/1.09^3......2000/1.09^7=$12,065.91
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