1. An investment will pay $500 per year for the next 5 years. It will then pay $1000 per year for the following 5 years. All the payments are made at the end of the year. If you require a return of 10%, how much would you be willing to pay for this investment?
2. You are planning to model the kitchen and will need to borrow the $15,000 total cost. You have two options of financing:

(i) You can borrow the money from a bank with the following terms: 40 equal payments due at the end of each month with a quoted interest rate (APR) of 18%, compounded monthly.

(ii) You can borrow the money from a trust company with quarterly payments of $1,100 payable at the end of each quarter for 5 years.

a) Calculate the monthly payments required by the bank in (i).

b) Which loan is the better deal for you? Why?

3.Your 40-year aunt wants to start saving for her retirement. She expects to retire at 65. She thinks that she will have saved $500,000 by the time she retires. She expects to live to 90.

a) How much annual cash flow will your aunt have if she expects her retirement fund return to be 8% per year compounded annually. Assume she makes her first annual withdrawal at the end of the first year of retirement, and the last withdrawal when she turns 90.

b) Assuming a), at age 75, how much does she have left in her retirement account?

c) If she starts making twice per month deposits this year, how much will she have to deposit each period in order to exactly get to meet her retirement goal ($500,000 by the time she retires)? Effectively, your aunt still intends to earn 8% return annually.

Answer rating: 100% (QA)

1 Investment Value To determine the present ... View the full answer