Prudence purchases three municipal $30,000 bonds at a price of \'X). Tlirfromlx
ID: 2450814 • Letter: P
Question
Prudence purchases three municipal $30,000 bonds at a price of 'X). Tlirfromlx puy-mnMiwK^ interest at a rate of 2.76%. What is the annual yield for Prudence's bonds? Maggie Mac bought a two unit town house on Lime Street for $300,000 to use as a rental property for vacationers. She made a $50,000 down payment. Maggie's annual expenses on the house are mortgage interest of $20,499.53, depreciation of 2.5% of the purchase price, taxes of $6,000, and other miscellaneous costs, such as repairs, of $5,000. Assuming Maggie is able to keep each of her units rented out all 12 months of the year, what should she rent each unit for if she hopes to earn a 12% annual yield? Beethoven Lucielle began saving $2,000 per year in his Roth IRA at the age of 22. At the age of 35. he increased his savings rate to $3,500 per year. He invested the money in a variety of products including stocks, bonds, and CDs. When he was 50 years old. Beethoven made a $10,000 withdrawal to take a vacation. Now at the age of 75, Beethovens IRA has a fair market value of $343,930 and his life expectancy factor is 22.9. If he fails to take his distribution this sear, what will Beethoven's penalty be?Explanation / Answer
The answers are:
24) Annual yield on the bond = Interest in $ for a year/Price paid = 30000*.0276/30000*.9
= 828/27000=0.0306=3.07%
25) The Cash flows of Maggie of the two units are:
Out flows Inflows
Beginning of the year = $ 50,000
Rent to be received at the end
Of each month (Months 1 to 12) = ? $ to be found out
Mortgage Interest at the = 20,499.53
end of the year
Taxes presumed to be paid
At the end of the year = 6,000
Miscelleaneous costs presued
To be paid at the end of the
Year = 5,000
Depreciation is not to be taken into account as it is a non-cash expenditure
The Present Value of outflows
(Value at the beginning of the
Year) = 50000+(20,499.53+6000+5000)/1.12 = 28,124.58
This amount of 28,124.58 $, should be the present value of the annuity (monthly rent) discounted at 12% pa (1% per month)
Therefore, 28,124.58 = R * PVIFA1,12 , where R is the monthly rent and PVIFA1,12 is the present value interest factor of annuity for 12 months at 1%.
28,124.58 = R * 11.255; R =28,124.58/11.255 =2498.85 $ for two units.
Rent to be charged for 1 unit to get 12% annual yield = 2498.85/2 = 1249.42 $, say 1250 $
26) The minimum required distribution will be = $ 343,930/22.9 = 15,018.78 $
If, Beethoven does not take this distribution, he will have to pay penalty @ 50% = 15,018.78*.5 = 7509.39 $
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