Question 6
Your late Uncle Vern’s entitles you to receive $1000 at the end of every other year for the next two decades. The first cash flow is two years from now. at a 10% compound annual interest rate, what is the present value of this unusual cash-flow pattern? (try to solve this problem in as few steps as you can.)
a. What is the annual payment that will completely amortize the loan over four years?
b. Of each equal payment, what is the amount of interest? The amount of loan principal? (Hint: in early years, the payment is composed largely of interest, whereas at the end it is mainly principal)
d. Would your answer change if the rate of interest on the second plan were 7 percent?
Question 3
On a contract you have a choice of receiving $25000 six years from now or $500000 twelve years from now. at which compound annual interest rate should your be indifferent between the two contracts?
Question 4
Emerson Cammack wishes to purchase an annuity contract that will pay him $7000 a year for the rest of his life. The Philo life insurance Company figures that his life expectancy is 20 years, based on its actuary tables. The company imputes a compound annual interest rate at 6 percent in its annuity contracts.
b. Compute the present value of each stream if the discount rate is 14% (equation 4.4 on the same page)
Question 2
Muffin Megabucks is considering two different savings plans. The first plan would have her deposit $500 every six months, and she would receive interest at a 7% percent annual rate, compounded semiannually. Under the second plan she would deposit $1000 every year with a rate of interest of 7.5% percent, compounded annually. The initial deposit with Plan 1 would be made six months from now and, with plan2, one year hence.
a. How much will Cammack have to pay for the annuity?
b. How much would he have to pay if interest?
Question 5
You borrow $10000 at 14%compound annual interest for four years. The loan is repayable in four equal annual installments payable at the end of each year.
Question 1
The following cash flows streams need to be analyzed
End of year
1
2
3 45
W
$100 $200 $200 $300 $300
X
600 -
-
--
Y
ห้องสมุดไป่ตู้
--
-
- 1200
Z
200 -
500 - 300
a. Calculate the future value of each stream at the end of year 5 with a compound annual interest rate of 10%(equation 4.3 on P89)
a. What is the future value of the first plan at the end of 10 years?
b. What is the future value of the second plan at the end of 10 years?
c. What plan should Muffin use, assuming that her only concern is with the value of her savings at the end of 10years?