A) Your great aunt Tullula has left you a $1,000,000 in her will. You never met...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
A) Your great aunt Tullula has left you a $1,000,000 in her will. You never met your great aunt, but you know that she had a reputation for being cautious in how she spent her money. So it comes as no surprise that the will stipulates that the money is collectable in 10 yearly installments of $100,000 starting today. 1) Why is this inheritance not really $1,000,000? 2) What is it really worth today if money can be invested at 10% annual interest, compounded monthly? 3) Use a spreadsheet to construct a table showing the present worth of each installment, and the total present worth of the cash flow. Note: You cannot submit a spreadsheet file as part of your answer, you must type out or write out by hand your solution. Part B) You want to buy a house and decide to try to negotiate with the executors of your great aunt Tullula's will. You would like $300,000 today and the balance of your inheritance in five years' time. Assuming that annual interest remains the same at 10% compounded monthly, how much will the payment be in five years? Part C) As a backup plan, in case the executors will not agree to your alternative payment scheme you have been doing some research on two possible investments for your money. The first pays 1% per month, compounded monthly, and the second pays 6% per six months, compounded every six months. 1) What is the effective semiannual interest rate for each investment? 2) What is the effective annual interest rate for each investment? 3) Based on interest rates: i. ii. Which investment do you prefer? Does your decision depend on whether you make the comparison based on an effective six-month rate or an effective one-year rate? A) Your great aunt Tullula has left you a $1,000,000 in her will. You never met your great aunt, but you know that she had a reputation for being cautious in how she spent her money. So it comes as no surprise that the will stipulates that the money is collectable in 10 yearly installments of $100,000 starting today. 1) Why is this inheritance not really $1,000,000? 2) What is it really worth today if money can be invested at 10% annual interest, compounded monthly? 3) Use a spreadsheet to construct a table showing the present worth of each installment, and the total present worth of the cash flow. Note: You cannot submit a spreadsheet file as part of your answer, you must type out or write out by hand your solution. Part B) You want to buy a house and decide to try to negotiate with the executors of your great aunt Tullula's will. You would like $300,000 today and the balance of your inheritance in five years' time. Assuming that annual interest remains the same at 10% compounded monthly, how much will the payment be in five years? Part C) As a backup plan, in case the executors will not agree to your alternative payment scheme you have been doing some research on two possible investments for your money. The first pays 1% per month, compounded monthly, and the second pays 6% per six months, compounded every six months. 1) What is the effective semiannual interest rate for each investment? 2) What is the effective annual interest rate for each investment? 3) Based on interest rates: i. ii. Which investment do you prefer? Does your decision depend on whether you make the comparison based on an effective six-month rate or an effective one-year rate?
Expert Answer:
Answer rating: 100% (QA)
A 1 This inheritance is not really 1000000 because the money is not collectable all at once The will ... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
If money can be invested at 0.6% per month, which has the greater economic value: $5230 on a specific date or $5500 exactly five months later? At what rate (per month) would the two amounts be...
-
For any amount of money invested at 2.8% annual interest compounded continuously, how long, to the nearest tenth of a year, will it take to triple?
-
If money can be invested to earn 6.5% compounded annually, how much would have to be invested today to grow to $10,000 after: a. 10 years? b. 20 years? c. 30 years?
-
A person who is 6 feet and 3 inches tall and weighs 185 pound force (lbf) is driving a car at a speed of 65 miles per hour over a distance of 25 miles between two cities. The outside air temperature...
-
Use a change of numeraire and measure to verify that the value of a claim paying ST if ST
-
Rexford Company manufactures finger splints for kids who get tendonitis from playing video games. The firm had the following inventories at the beginning and end of the month of January. The...
-
The defendant, Sterile Technologies, Inc., purchased a sterilizer from the plaintiff, Troy Boiler Works, on an installment payment plan. The defendant was to make installment payments charged with
-
Selected accounts from the chart of accounts of Ayoade Company are shown below. 101 Cash 126 Supplies 112 Accounts Receivable 157 Equipment 120 Inventory 201 Accounts Payable 401 Sales Revenue 505...
-
In-kind contributions Group of answer choices should be included as part of the budget should be included only if the dollar value exceeds $800 should be included as part of the budget if the donor...
-
Consider the information for Evans, Inc. when the company entered bankruptcy proceedings: Account Balance per Books Dr (Cr) Cash $30,500 Accounts receivable 600,000 Inventory 100,000 Prepaid expenses...
-
In what ways do Confucianism and Daoism complement each other, and in what ways do they oppose each other? Compare and contrast the Confucian notion of Tian with the Christian concept of God. Having...
-
Martha and Marty Mertens are married and file a joint return. Marty started his own business at the beginning of the current tax year and reported net income of \(\$ 14,000\) for the year. Martha...
-
Shipyard Corp. acquired Boatworks Corp. in a Type A reorganization on July 1, 2018. On the date of acquisition, Boatworks had a deficit in its earnings and profits of \(\$ 30,000\). Although Shipyard...
-
What would be your answer to Problem 31 if Billy Bob's share of net income from Partnership A was \(\$ 9,000\) and his loss from Partnership B was \(\$ 25,000\) ? Problem 31 Billy Bob is at risk for...
-
Teri Frazier owned three businesses and rental properties in 2018. During the year, her hair salon business experienced a \(\$ 32,000\) net loss. She participated 200 hours in the hair salon...
-
Arnold and Barbara Cane were divorced in June 2018. Pursuant to the divorce decree, Arnold is obliged to perform as follows: a. Transfer title of their personal home to Barbara. They purchased the...
-
4. A monochromatic ligh goes normally through a grating of width of 2.25 cm and 10+ rulings. The first principal maximum appears at 0=11.5, and the 4th principal maximum is missing. (a) Find the...
-
What impact has the Internet had on the globalization of small firms? How do you think small companies will use the Internet for business in the future?
-
1. What happens to the portfolio standard deviation as the investor substitutes the foreign securities for the U.S. securities? What combination of U.S. and Japanese stocks and U.S. and Brazilian...
-
A high-yield bond has the following features: Principal amount....... $1,000 Interest rate (the coupon) ....... 11.50% Maturity....... 10 years Sinking fund....... None Call feature....... After two...
-
What is a cyclical industry? Is it undesirable to invest in firms in cyclical industries? Why may leading economic indicators be important to the analysis of a cyclical firm?
-
How might planning in a not-for-profit organization such as the World Wildlife Fund differ from planning in a for-profit organization such as Airbnb?
-
Provide examples of the sources of data a residential solar panel company might gather when engaging in environmental scanning. Exhibit 8-6 may be helpful when answering this question.
-
What advantages and disadvantages does Johnson Controls OpenBlue platform have over companies looking to develop solutions on their own?
Study smarter with the SolutionInn App