8) What is the present value of $1,000 a month to be received for the next 50 ye
ID: 2774525 • Letter: 8
Question
8) What is the present value of $1,000 a month to be received for the next 50 years with an interest rate of 8.0% compounded monthly? Answer: _________________________
9) What is the present value of $12,000 a year to be received for the next 50 years with an interest rate of 8.0%? Answer: _________________________
10) You just won the Powerball, as a result you have the choice between taking $250 million today or taking a 20-year annuity. Interest rates are expected to hold at 3.75% over the next 20-years. How much would the annuity need to be annually for you to be indifferent between cash now or taking the annuity? Answer: _________________________
11) (Bonus Question – 5 points) What is the present value of $25,000 received in 10 years if interest rates are 6.5% with continuous compounding? Answer: _________________________
Explanation / Answer
the present value of $1,000 a month to be received for the next 50 years with an interest rate of 8.0% compounded monthly? Answer =$7,984,605.65
$1,000 a month
50 years with an interest rate of 8.0% compounded monthly
By using these figure if we calculate then figure would be $ 7984605.65
9) What is the present value of $12,000 a year to be received for the next 50 years with an interest rate of 8.0%? Answer: $6,885,241.88
Value = Pymt/ K ( 1-1/(1+k)n)
12,000 a year
50 years with an interest rate of 8.0% compounded yearly
By using these figure if we calculate then figure would be $6,885,241.88
10) You just won the Powerball, as a result you have the choice between taking $250 million today or taking a 20-year annuity. Interest rates are expected to hold at 3.75% over the next 20-years. How much would the annuity need to be annually for you to be indifferent between cash now or taking the annuity = $ 17.34
11) What is the present value of $25,000 received in 10 years if interest rates are 6.5% with continuous compounding = $ 13,051.14
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