3 a. If Hamidou invests $7500 today at 8 percent compounded semi-annually, how m
ID: 2791062 • Letter: 3
Question
3 a. If Hamidou invests $7500 today at 8 percent compounded semi-annually, how much would he accumulate at the end of 10 years?
b. If Victoria wants to have $1700 in seven years, how much money must she put in a savings account today? Assume that the savings account pays 6% and it is compounded quarterly
c. Winner Lei is thinking of buying a miniature golf course. It is expected to generate cash flows of $40,000 per year in years 1, $50,000 per year in year 2 and year 3. If the appropriate discount rate is 10%, what is the present value of these cash flows?
d. Suppose you win a lottery and under the terms of the lottery, you will receive $250,000 per year for the next 25 years. If the rate of interest is 12% per year, how much is the present value of your winnings?
e. What is the present value of $27 received at the end of each year for 5 years?Assume a discount rate of 9%. The first payment will be received one year from today ?
f. Tamika wins a lottery and under the terms, she will receive $100,000 per year forever. If the rate of interest is 20% per year, how much is the present value of her winnings?
Explanation / Answer
ANSWER A) F = 7500(F/P, 8/2%, 10) = $7500 X 1.4802 = $ 11101.5
b) $ 1700 / (1+0.015)28 = $ 1700 /28.42 = $ 59.82
Quarterly rate = 6% / 4 =1.5%
No of quarters in 7 years= 4 x 7 = 28
c)
ANSWER D) END mode PMT 250,000 N 25 I/Y 12 FV 0
= $ 250,000 X 7.84314 (USING PRESENT VALUE OF ORDINARY ANNUITY)
= $ 1960785
E) PRESENT VALUE OF ANNUITY @ 9% FOR 5 YEARS IS 3.88965
THEREFORE PRESENT VALUE= $ 27 X 3.88965 = $ 105
ANSWER F) PRESENT VALUE OF WINNINGS = $ 100000 / 0.20 = $ 500,000
YEAR CF PV @ 10% PRESENT VALUE OF CF 1 40000 0.90909 36363.60 2 50000 0.82645 41322.50 3 50000 0.75131 37565.50 TOTAL 115251.60Related Questions
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