Question

Use the appropriate table to compute the following:
1. You have always dreamed of taking a safari in Africa. What lump sum do you have to invest today to have the $22,000 needed for the trip in 5 years? Assume that you can invest the money at
a. 6%, compounded annually.
b. 10%, compounded annually.
c. 14%, compounded annually.
2. You are considering partial retirement. To do so you need to use part of your savings to supplement your income for the next 4 years. Suppose you need an extra $50,000 per year. What lump sum do you have to invest now to supplement your income for 4 years? Assume that your required rate of return is
a. 6%, compounded annually.
b. 10%, compounded annually.
c. 14%, compounded annually.
3. You just won a lump sum of $6,000,000 in a state lottery. You have decided to invest the winnings and withdraw an equal amount each year for 20 years. How much can you withdraw each year and have a zero balance left at the end of 20 years if you invest at
a. 4%, compounded annually?
b. 8%, compounded annually?
4. An NHL hockey player is offered the choice of two 4-year salary contracts, contract X for $2.85 million and contract Y for $2.72 million:


Which contract has the higher PV at 16% compounded annually? Show computations to support youranswer.


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  • CreatedNovember 19, 2014
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