List several personal financial problems for which you or other individuals migh

Question

List several personal financial problems for which you or other individuals might use the concepts from the Lectures to help you make this decision. Calculate the value in 5 years of $1,000 deposited in a savings account today if the account pays interest at a rate of 8% per year, compounded annually. Congratulations, you have just won the Publishers Corporation Sweepstake’s! Your winnings are $1,000,000 paid over ten years (end of year) annuity of $100,000 per year for ten years; your opportunity cost is 6%. Would you accept $600,000 in cash now or take the 10 year annuity, show your work. Suppose you wish to purchase a house 5 years from now and estimate that an initial down payment of $25,000 will be required at that time. What size annuity payment will result in a lump sum equal to $25,000 assuming you made equal annual end-of-year deposits in an account paying annual interest of 8% for 5 years, show your work.

Explanation / Answer

Answer) Various financial problems- calculating EMI of car, house purchased on loan, education loan etc

Calculating investment value over a period of time.

Effect of early payment of principle on net interest paid by individual on a loan.

retirement planning

Answer)1000 deposited for 5 years@8% compounded annually=1000*(1.08^5)=1469.33

Answer) PV of 100000 annuity for 10 years=100000*PVIFA*(6%,10)=100000*7.3601=736010

taking cash now gives you 600000 but the PV of annuity is higher hence annuity should be accepted.

Answer) house problem=25000/FVIFA(8%,5)=25000/5.8666=4261.41

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.