Assume annulty payments are made at the end of each period. a) If you need $20,000...

 

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Assume annulty payments are made at the end of each period. a) If you need $20,000 at the end of five years to purchase an automobile, what lump sum must be invested now, assuming 6% percent interest compounded annually? b) In the question above, instead of a depositing a lump sum now to purchase the automobile you decided to make annual deposits for 5 years, beginning at the end of this year. Assume the same interest as above. How much must you deposit annually? c) If you were to deposit $2,000 every six months, starting six months from now, how much would you have six years from now assuming 8% interest compounded semi- annually (4% every six months)? d) Someone offers to give you $1.500 for old car (which is probably more than what your car is worth!). The catch is, they cannot pay you for two years. What is the present value of this offer assuming a 10% interest rate compounded annually? Somebody else wants your old car. They will pay you $500 now, $500 in twelve months, and $500 in eighteen months. What is present value of these payments assuming a 10% interest rate compounded semi-annually (5% every six months)? Assume annulty payments are made at the end of each period. a) If you need $20,000 at the end of five years to purchase an automobile, what lump sum must be invested now, assuming 6% percent interest compounded annually? b) In the question above, instead of a depositing a lump sum now to purchase the automobile you decided to make annual deposits for 5 years, beginning at the end of this year. Assume the same interest as above. How much must you deposit annually? c) If you were to deposit $2,000 every six months, starting six months from now, how much would you have six years from now assuming 8% interest compounded semi- annually (4% every six months)? d) Someone offers to give you $1.500 for old car (which is probably more than what your car is worth!). The catch is, they cannot pay you for two years. What is the present value of this offer assuming a 10% interest rate compounded annually? Somebody else wants your old car. They will pay you $500 now, $500 in twelve months, and $500 in eighteen months. What is present value of these payments assuming a 10% interest rate compounded semi-annually (5% every six months)?

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Answers to your annuity questions a Lump Sum Investment To calculate the present value PV of the future sum neededwe can use the formula for a future ... View the full answer