When Marilyn Monroe died, ex-husband Joe DiMaggio vowed to place fresh flowers o
ID: 2776445 • Letter: W
Question
When Marilyn Monroe died, ex-husband Joe DiMaggio vowed to place fresh flowers on her grave every Sunday as long as he lived. The week after she died in 1962, a bunch of fresh flowers that the former baseball player thought appropriate for the star cost about $4. Based on actuarial tables, "Joltin' Joe" could expect to live for 39 years after the actress died. Assume that the EAR is 10.4 percent. Also, assume that the price of the flowers will increase at 4 percent per year, when expressed as an EAR. Assuming that each year has exactly 52 weeks, what is the present value of this commitment? Joe began purchasing flowers the week after Marilyn died.(Do not round your intermediate calculations.)
rev: 09_18_2012
A)$3,049.09
B) $2,986.22
C) $3,237.69
D) $3,300.56
E) $3,143.39
When Marilyn Monroe died, ex-husband Joe DiMaggio vowed to place fresh flowers on her grave every Sunday as long as he lived. The week after she died in 1962, a bunch of fresh flowers that the former baseball player thought appropriate for the star cost about $4. Based on actuarial tables, "Joltin' Joe" could expect to live for 39 years after the actress died. Assume that the EAR is 10.4 percent. Also, assume that the price of the flowers will increase at 4 percent per year, when expressed as an EAR. Assuming that each year has exactly 52 weeks, what is the present value of this commitment? Joe began purchasing flowers the week after Marilyn died.(Do not round your intermediate calculations.)
Explanation / Answer
Calculation of present value of Flowers to be purchased till 49 years:
Cost of Flower for a week
$4
Cost of Flower for a year = 52 *4
$208
Total number of years
49
EAR =
10%
Inflation rate =
4%
Hence Discount rate = ((1+10%) / (1+4%)) - 1
5.7692%
PVAF (49 years, 5.7692%)
16.223458
Present value
$3,374.48
Calculation of present value of Flowers to be purchased till 49 years:
Cost of Flower for a week
$4
Cost of Flower for a year = 52 *4
$208
Total number of years
49
EAR =
10%
Inflation rate =
4%
Hence Discount rate = ((1+10%) / (1+4%)) - 1
5.7692%
PVAF (49 years, 5.7692%)
16.223458
Present value
$3,374.48
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