Clicker Question Preparation Guide: App. G and Ch. 10 Clicker questions will be

Question

Clicker Question Preparation Guide: App. G and Ch. 10 Clicker questions will be asked in class based on your completion of this preparation guide. You will not have time to complete this guide in class! 1) Janis Company signed a lease for a rental unit for 15 years. Under the lease agreement, a deposit of $6,000 is made. The deposit will be returned at the expiration of the lease with interest compounded at 4% per year, what amount will Jones Company receive at the time the lease expires? 2) Ross Gellar has an investment that pays him $35,000 every year for the next 20 years. However, he would like to sell his investment today to purchase a house. Assume the going market interest rate is 12%, how much would a wise investor be willing to pay for this investment? 3) Rachael Green wants to save up for a car which she will need when she graduates in 3 years. How much would she have to deposit today, if this amount would earn 10% per year, to have $23,000 when she graduates? 4) Joey and Phoebe decided to invest $2,000 every year for their daughter's college fund until she is 18 (starting on her 1 birthday and including her 18 birthday). How much will be in the savings account on her 18h birthday (after the last deposit) assuming an interest rate of 8%?

Explanation / Answer

1. Formula as well as manual calculation

2.

OR

Nper = 20 (indicates the period)

3.

4.

Nper = 18 (indicates the period)

Nper = 15 (indicates the period) MANUAL TOTAL Deposit made TOTAL CORPUS growing at 4% Year 1 6000 6240 Rate = 4% (indicates the rate of interest) Year 2 6489.6 year 3 6749.184 PV = 6000 (indicates the present value of deposit) Year 4 7019.151 Year 5 7299.917 FV = PV*(1+i)^n Year 6 7591.914 Year 7 7895.591 where PV is present value Year 8 8211.414 Year 9 8539.871 i = interest rate Year 10 8881.466 Year 11 9236.724 n in no of years Year 12 9606.193 Year 13 9990.441 FV = 6000*((1+(4%/100))^15) Year 14 10390.06 Year 15 10805.66 6000*((1.04)^15) 10805.661

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