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Question 1 =You want tohave $903,801at age 56 when you plan to retire. If you invest $34,812 at age 30, what Rate of Return must you receive to achieveyour goal.

EXAMPLE

You want to have $853,563 at age 68 when you plan to retire. If you invest $29,670 at age 34, what Rate of Return must you receive to achieve your goal. 5.89 F = P(F/P, i, n) = P(1 +j) (1 + i)" = F/p 1 +i = (F / p) 1 i = [[F/p)1- 1)* 100Last year a town spent $43,274 to purchase water from an aqueduct. What would be the rate of return if they spent $395,562 to dig a well that lasts indefinitely (i.e. forever)? 10.93 Because the well lasts indefinitely this is an infinite horizon. i = A/P ROR = 100 * iWhat is the rate of return for the following incremental analysis. Investment 1 2 Initial Investment $94,292 $66,527 Annual Return $10,785 $5.436 Salvage Value $94.292 $66,527 11.45 Recall that if Present Value = Salvage Value /* = AV PV For the incremental analysis the rate of return is A/* = 4AV AV2 - AV1 APV PV2 - PV 1 Rate of Return = Ai*2 -1 x 100 * Note: rate of return can be negative too.A monument's annual maintenance cost is estimated to be $773. If a $44,350 fund is set up to pay for this maintenance, what interest rate must the fund earn to pay for maintenance indefinitely if interest is compounded quarterly. 2.54 RORa = AV / PV (1+ROR/4)4 - 1 = RORa (1+ROR/4)4 = 1 + RORa 1+ROR/4 = (1 + ROR )1/4 ROR/4 = (1 + ROR )1/4 - 1 ROR = 100 * (4 * (1 + ROR,)1/4 - 1)Compute the rate of return for the following cash flows: Year Cash Flow 1-5 $1,178 6-10 $13,857 14.45 NPW = AV, (P/A, i%, 5) + AV2 (P/A, 1%, 5)(P/F. 1%, 5) = 0, AV1 (P/A, 1%, 5) = AV2 (P/A, i%, 5)(P/F. 1%, 5) This reduces to the same solution above with no need for the complicated P/A formula