You want to have $76,000 in your savings account 13 years from now, and you’re p

ID: 2762378 • Letter: Y

Question

You want to have $76,000 in your savings account 13 years from now, and you’re prepared to make equal annual deposits into the account at the end of each year. If the account pays 7.30 percent interest, what amount must you deposit each year? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

Annual deposit:

The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $26,000 per year forever. Suppose a sales associate told you the policy costs $471,000. At what interest rate would this be a fair deal? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Interest rate

Big Dom’s Pawn Shop charges an interest rate of 28 percent per month on loans to its customers. Like all lenders, Big Dom must report an APR to consumers.

What is the effective annual rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

1.0 Future Value of Annuity= FV= A*[(1+k)^n-1]/k A = required annual deposit k=7.3% pa n =13 years FV =76000 So, 76000= A*[1.073^13-1]/0.073 A =3700.70 So Annual deposit required is $3,700.70 2.0 Assume that the interets rate is k so PV of perpetuity = 26000/k for a fair deal : 26000/k= 471000 k= 5.52% 3.0 Big Dom's Pawn Shop Interest Rate per month = 28% APR =28%*12= 336% EAR = (1+3.36/12)^12-1 =1834.28% So EAR =1834.28%

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You want to have $76,000 in your savings account 13 years from now, and you’re p

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