business finance

Project Description:

1. find the fv of $1,000 after 0, 1, 2, 3, 4, & 5 years using interest rates of 0%, 5%, and 20%. organize your
answer into a matrix with the each of 6 rows representing the number of compounding periods, and each of
3 columns representing the three different interest rates.

2. five banks offer nominal rates of 6% on deposits; but a pays interest annually, b pays semiannually, c pays
quarterly, d pays monthly, and e pays daily.
a) what effective annual rate does each bank pay?
b) if you deposited $5,000 in each bank today, how much will you have at the end of 1 year? 2 years?
c) what nominal rate will cause all of the banks to provide the same effective annual rate as bank a?
(hint: think of the ear formula, or use the functions on the financial calculator.)
d) suppose you don’t have the $5,000, but need it at the end of 1 year. you plan to make a series of
deposits – annually for a, semiannually for b, quarterly for c, monthly for d, and daily for e – with
payments beginning today. how large must the payments be to each bank to accumulate the $5,000
you need by the end of the year?

3. you want to retire in 30 years, and have a retirement income equal to $8,000 per month in current (2012
purchasing power) dollars. thus, assuming an inflation rate of 3.5% per year compounded annually for the
next 30 years, you need to determine what your monthly retirement income will need to be to have the
same purchasing power as $8,000 today. your actuarial life expectancy is anticipated to be 24 years at the
time of your retirement, thus you can buy an annuity from an insurance company at the time you retire that
time that assumes you will receive 288 (24*12) monthly payments, with payments occurring at the
beginning of each month. you have $85,000 in your 401k retirement savings account today. given a rate of
return of 6.5% for the foreseeable future, how much do you need to save each month for the next 30 years
(first savings deposit to be made in one month) if your are to afford to purchase an annuity contract that will
pay your retirement annuity for 288 months? (assume that you make the last monthly payment in 30 years
the same day that you receive your first retirement payment.)
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Price Type: Negotiable

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