Ken Francis is offered the possibility of investing $6,438 today and in return t
ID: 2470300 • Letter: K
Question
Ken Francis is offered the possibility of investing $6,438 today and in return to receive $14,500 after 12 years. What is the annual rate of interest for this investment? Flaherty is considering an investment that, if paid for immediately, is expected to return $158,000 five years from now. If Flaherty demands a 15% return, how much is she willing to pay for this investment? Cll, Inc., invests $700,000 in a project expected to earn a 9% annual rate of return. The earnings will be reinvested in the project each year until the entire investment is liquidated 11 years later. What will the cash proceeds be when the project is liquidated? Beene Distributing is considering a project that will return $240,000 annually at the end of each year for the next six years. If Beene demands an annual return of 12% and pays for the project immediately, how much is It willing to pay for the project? Fitch is planning to begin an individual retirement program in which she will invest $3,000 at the end of each year. Fitch plans to retire after making 30 annual investments in the program earning a return of 10%. What is the value of the program on the date of the last payment (30 years from the present)? Megan Brink is offered the possibility of investing $14,214 today at 5% interest per year in a desire to accumulate $20,000 How many years must Brink wait to accumulate $20,000? Joe is considering an investment that, if paid for immediately, is expected to return $142,000 seven years from now. If Joe demands a 8% return, how much is he willing to pay for this investment? Clare is planning to begin an individual retirement program in which she will invest $1,700 at the end of each year Fitch plans to retire after making 30 annual investments in the program earning a return of 9%. What is the value of the program on the date of the last payment (30 years from the present)?Explanation / Answer
Ken Francis:
6438(1+i)^12 = 14500; 14500/6438 = (1+i)^12 =2.25225
i = 2.2522^1/12 - 1 = 1.07 -1 = 0.07 = 7%.
Fisherty:
She is willing to pay $78,554 now for the future sum of 158000
FV - 158000, n = years, i = 15%
The PV = 158000/(1.15)^5 = 78,554
CII Inc.
It is the FV of $700000, compounded annually at 9% for 11 years.
=700000-1.09^11 = $1,806,298
Beene Distributing:
$240000 is an ordinary annuity for 6 years. The amount that Beene should be prepared to invest now is the PV of this annuity discounted at 12%.
So amount to be invested now (PV) = 240000[(1.12)^6-1](0.12*1.12^6) = $986,737
Fitch:
Value of the programme is the future value of the annuity of $3000 (annual payments) for 30 years compounded at 10%.
It is 3000[1.1^30 -1]/0.1= $493,482
Megan Brink:
14214 is the PV and 20000 is the FV. interest rate = 5%
n the no of years is to be found out by solving the following equation
14214*1.05^n = 20000; 1.4071 = 1.05^n
from the FV interest factor tables, 1.4071 is for 7 years.
Hence, Brink has to wait for 7 years.
Joe:
$142000 is the FV that Joe has to get. For it he has to invest 142000/1.08^7 = $82856
Claire:
Value of the program is the FV of the annuity of $1700 (annual) for 30 years at 9%
FVA = 1700*fvifa(9,30) = 1700*136.3075=$231,723
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