Exercises 1/ You have a chance to buy an annuity that pays $550 at the beginning
ID: 2416452 • Letter: E
Question
Exercises
1/ You have a chance to buy an annuity that pays $550 at the beginning of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?
2/ Your uncle has $375,000 and wants to retire. He expects to live for another 25 years and to earn 7.5% on his invested funds. How much could he withdraw at the end of each of the next 25 years and end up with zero in the account?
4/ You are offered a chance to buy an asset for $7,250 that is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4. What rate of return would you earn if you bought this asset?
5/ Master Card and other credit card issuers must by law print the Annual Percentage Rate (APR) on their monthly statements. If the APR is stated to be 18.00%, with interest paid monthly, what is the card's EFF%?
6/
Your child’s orthodontist offers you two alternative payment plans. The first plan requires a $4,000 immediate up-front payment. The second plan requires you to make monthly payments of $137.41, payable at the end of each month for 3 years. What nominal annual interest rate is built into the monthly payment plan?
7/ Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years. How much would you still owe at the end of the first year, after you have made the first payment?
Explanation / Answer
Solution.
4.
Used excel formula.of IRR.
5.
APR = Nominal rate 18.00%
Periods/yr 12
EFF% = (1 + (rNOM/N))N - 1 = 19.56%
Used excel EFFECT formula.
Year Cash flow 0 (7,250.00) 1 750.00 2 1,000.00 3 850.00 4 6,250.00 IRR 6.05%Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.