1. you are offered an annuity of 12,000 a year for 15 years. The annuity payments start...
Question:
1. you are offered an annuity of 12,000 a year for 15 years. The annuity payments start after five years have elapsed. If the annuity costs 75,000, is the annuity a good purchase if you can earn 9 percent on invested funds?
2. You purchase a 1,000 asset for 800. It pays 60 a year for seven years at which time you receive the 1,000 principal. Prove that the annual return on this investment is not 9 percent.
3. You have an elderly aunt, Aunt Kitty, who has just sold her house for 165,000 and entered a retirement community that charges 30,000 annually. If she can earn 6 percent on her funds, how long will the funds from the sale of the house cover the cost of the retirement community?
4. A widower currently has 107,500 yielding 8 percent annually. Can he with¬draw 18,234 a year for the next 10 years? If he cannot, what return must he earn in order to withdraw 18,234 annually?
5. You want GHc100,000 after eight years in order to start a business. Currently you have GHc26,000, which may be invested to earn 7 percent annually. How much additional money must you set aside each year if these funds also earn 7 percent in order to meet your goal of GHc100,000 at the end of eight years? By how much would your answer differ if you invested the addi¬tional funds at the beginning of each year instead of at the end of each year?
6. You have accumulated 325,000 in a retirement account and continue to earn 8 percent on invested funds.
a) What amount may you withdraw annually starting today based on a life expectancy of 20 years? How much will be in the account at the end of the first year?
b) Suppose you only take out 1/20 of the funds today and the remainder continues to earn 8 percent. How much will be in the account at the end of the first year? Compare your answer to (a). Why are they different?
7. Your first child is now a 1-year-old. It currently costs a total of GHc60, 000 to attend a public college for four years. If these costs rise 5 percent annually, how much must you invest each year to cover the expenses after 18 years if you are able to earn 10 percent annually?
8. Which is the better choice when purchasing a 20,000 car:
a) a four-year loan at 4 percent,
b) an immediate rebate of 2,000 and a four-year loan at 10 percent?