In three years you will pay the first of eight annual $100 payments. The current interest...

  

Transcribed Image Text:

In three years you will pay the first of eight annual $100 payments. The current interest rate is 14%, but after 5 years (by t-5) the rate will have dropped to 8%. What is the total value of your payments at the end of 10 years? Sol. $1,092 8. 7. Suppose you pay $403 per year for eight years (at year end) into a fund that promises to pay you $400 per year in perpetuity thereafter. At what interest rate is, this a fair deal? Sol. 9% 9. 6. 10. Your brother-in-law borrowed $1,000 from you 10 years ago and then disappeared. Yesterday he returned and expressed a desire to pay back the loan, including the accrued interest. Assuming that you had agreed to charge him 7%, and assuming that he wants to make five equal payments beginning in one year, how much would your brother-in-law have to pay you annually in order to retire the debt? (Assume that the loan continues to accrue interest at 7% per year). Sol. $480 You are saving for your retirement. You have decided that one year from today you will deposit 2% of your annual salary into an account, which will carn 8% per year. Your salary last year was $50,000, and it will increase at 4% per year throughout your career. How much money will you have for your retirement, which will begin in 40 years? Sol. $440,011 Pirate Finance will loan you money on a "five-for-six" arrangement; i.e., for every 5$ you borrow today, you pay $6 back on payday, which is two weeks from now. What is the annual percentage rate (APR) of this loan? What is the effective annual rate (EAR)? Sol. 520%, 11,348% What APR compounded semiannually allows you to triple your money in 10 years? Sol. 11.3% In three years you will pay the first of eight annual $100 payments. The current interest rate is 14%, but after 5 years (by t-5) the rate will have dropped to 8%. What is the total value of your payments at the end of 10 years? Sol. $1,092 8. 7. Suppose you pay $403 per year for eight years (at year end) into a fund that promises to pay you $400 per year in perpetuity thereafter. At what interest rate is, this a fair deal? Sol. 9% 9. 6. 10. Your brother-in-law borrowed $1,000 from you 10 years ago and then disappeared. Yesterday he returned and expressed a desire to pay back the loan, including the accrued interest. Assuming that you had agreed to charge him 7%, and assuming that he wants to make five equal payments beginning in one year, how much would your brother-in-law have to pay you annually in order to retire the debt? (Assume that the loan continues to accrue interest at 7% per year). Sol. $480 You are saving for your retirement. You have decided that one year from today you will deposit 2% of your annual salary into an account, which will carn 8% per year. Your salary last year was $50,000, and it will increase at 4% per year throughout your career. How much money will you have for your retirement, which will begin in 40 years? Sol. $440,011 Pirate Finance will loan you money on a "five-for-six" arrangement; i.e., for every 5$ you borrow today, you pay $6 back on payday, which is two weeks from now. What is the annual percentage rate (APR) of this loan? What is the effective annual rate (EAR)? Sol. 520%, 11,348% What APR compounded semiannually allows you to triple your money in 10 years? Sol. 11.3%

Answer rating: 100% (QA)

Answer 1 In three years you will pay the first of eight annual 100 payments The current interest rat... View the full answer