Lloyd is a divorce attorney who practices law in Florida. He wants to join the A

Question

Lloyd is a divorce attorney who practices law in Florida. He wants to join the American Divorce Lawyers Association (ADLA), a professional organization for divorce attorneys. The membership dues for the ADLA are $800 per year and must be paid at the beginning of each year. For instance, membership dues for the first year are paid today, and dues for the second year are payable one year from today. However, the ADLA also has an option for members to buy a lifetime membership today for $8,500 and never have to pay annual membership dues. Obviously, the lifetime membership isn't a good deal if you only remain a member for a couple of years, but if you remain a member for 40 years, it's a great deal. Suppose that the appropriate annual interest rate is 7.6%. What is the minimum number of years that Lloyd must remain a member of the ADLA so that the lifetime membership is cheaper (on a present value basis) than paying $800 in annual membership dues? 14 years 13 years 19 years 23 years In 1626, Dutchman Peter Minuit purchased Manhattan Island from a local Native American tribe. Historians estimate that the price he paid for the island was about $24 worth of goods, including beads, trinkets, cloth, kettles, and axe heads. Many people find it laughable that Manhattan Island would be sold for $24, but you need to consider the future value (FV) of that price in more current times. If the $24 purchase price could have been invested at a 5.75% annual interest rate, what is its value as of 2012 (386 years later)? $56,550,493,062.84 $48,067,919,103.42 $74,646,650,842.97 $65,033,067,022.28

Explanation / Answer

A. Since the question has been given as to choose the least of the terms cheaper than lifetime option, so it is better to proceed with the options given in the question.

For 14 years

Year                Cash Flow                  PVF@7.6%            DISCO.Cash Flow

0                      $800                         1                            $800

1-13                 $800                          8.0807                   $6464.56

                                                        Toatal                    $7264.56

For 13 years

Year                Cash Flow                  PVF@7.6%            DISCO.Cash Flow

0                      $800                         1                            $800

1-12                 $800                          7.6948                   $6155.83

                                                        Toatal                    $6955.835

For 19 years

Year                Cash Flow                  PVF@7.6%            DISCO.Cash Flow

0                      $800                         1                            $800

1-18                 $800                          9.6377                   $7710.16

                                                        Toatal                    $8510.16

since for 19 years option it is know that not feasable option to go with 19 years so it is clear that beyond 19 years also not feasable so for 23 years not solved.

from the above the least is available in 13 years so lloyd has to go for 13 years.

B.

The Future Value formula,

FV = PV(1+r)n

FV = Future Value

PV = Present Value

r = int rate per period

n = no. of periods

FV = $24(1+.0575)386

       = $56,550,493,062.83

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