Financial Planning Assignment Chapter 14
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Rafay Ahmed
Chapter 14
21 – Mar - 23
Answer 1A)
Using the Appendix B, the annuity factor for 4 percent for 40 years is 95.026. Thus, investing
$3,000 per year will amount to $285,078 ($3,000 * 95.026). Using a financial calculator
Using the FV Excel function,
3,000 +/- PMT
40
N
=FV(.04,40,3000) = $285,077
4
I/YR
FV
$285,077
Answer 1B)
Using the Appendix B, the annuity factor for 10 percent for 40 years is 442.593. Thus, investing
$3,000 per year will amount to $1,327,779 ($3,000 * 442.593). Using a financial calculator
Using the FV Excel function,
3,000 +/- PMT
40
N
=FV(.10,40,3000) = $1,327,778
10
I/YR
FV
$1,327,778
Answer 1C)
Assuming funds earn 10%:
Brian will only be able to invest for 30 years. Using Appendix B,
the annuity factor for 10% for 30 years is 164.494. Thus, investing $3,000 per year will amount
to $493,482 ($3,000 * 164.494). Using a financial calculator
Using the FV Excel function,
3,000 +/- PMT
30
N
=FV(.10,30,3000) = $493,482
10
I/YR
FV
$493,482
Planning for Retirement
Page 1
Rafay Ahmed
Chapter 14
21 – Mar - 23
Assuming funds earn 4%:
Brian will only be able to invest for 30 years. Using Appendix B,
the annuity factor for 4% for 30 years is 56.085. Thus, investing $3,000 per year will amount to
$168,255 ($3,000 * 56.085). Using a financial calculator
Using the FV Excel function,
3,000 +/- PMT
30
N
=FV(.10,30,3000) = $168,255
4
I/YR
FV
$168,255
The ability to accumulate funds for retirement depends upon the amount you invest, the time
available to build the fund, and the return you can earn. Olivia has ten years more than Brian, so
she has a greater likelihood of building a larger retirement fund.
Answer 2)
The Excel PMT function may be used to determine the amount of annual savings they will need to make
to fund their retirement. The formula is PMT(.06,20,0,-1298063) = $35,287.
The worksheet computes the retirement funds needed in perpetuity, $51,922.50 / .04 = $1,298,063. If you
assume that their life expectancy is 20 years after retirement and that annually they will withdraw some
principal as well as income, the amount needed is PV(.04,20,-51922) = $705,637. Their heirs would
prefer that they accumulate the larger amount.
Planning for Retirement
Page 2
Rafay Ahmed
Chapter 14
21 – Mar - 23
Worksheet 14.1, Chapter 14, Exercise 2
Date
I.
A.
B.
$
C.
expenses, may be 100%.
125 %
D.
II.
E.
$
F.
$
G.
$
H.
I.
III.
J.
3 %
K.
Based on
20
years to
annual rate of inflation (J) of
3%
L.
IV.
M.
4 %
N.
O.
6 %
P.
Based on
20
on investments of
6%
Q.
years to retirement (A) and an expected rate of return
36.786
Annual savings required to fund retirement nest egg (N ÷ P)
35,287.00
$ Note: Parts I and II are prepared in terms of current (today’s) dollars.
Future value of an annuity interest factor (Appendix B)
Inflation Factor:
Expected average annual rate of
inflation
over the period to retirement
Inflation factor (in Appendix A):
retirement (A) and an expected average
1.806
Size of inflation-adjusted annual shortfall (I × K)
51,922.50
$ Funding the Shortfall:
Anticipated return on assets held after
retirement
Amount of retirement funds required—size of nest egg (L ÷ M)
1,298,063.00
$ Expected rate of return on investments prior
to retirement
Other sources, annual amounts
Total annual income (E + F + G)
65,000.00
$ Additional required income, or annual shortfall (D - H)
28,750.00
$ Company/employer pension plans, annual amounts
35,000.00
Estimated Household Expenditures in Retirement:
Approximate number of years to retirement
20
Current level of annual household expenditures, excluding savings
75,000.00
Estimated household expenses in retirement as a percent of current
Estimated annual household expenditures in retirement (B × C)
93,750.00
$ Estimated Income in Retirement:
Social security, annual income
30,000.00
PROJECTING RETIREMENT INCOME AND INVESTMENT NEEDS
Name(s)
Paul and Crystal Myer
Planning for Retirement
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Answer 3)
The worksheet reports that Lindsay will need $10,612.85 annually in order to fund her
retirement. The three factors that impact retirement funds are time, amount, and return. She has
allowed only 15 years to fund her retirement, thus she has started too late to comfortably fund the
amount she needs. Need to start earlier, that is at age 25.
As discussed in answer to problem 2, if she expects to live 20 years after retirement, the amount
she needs is at retirement is $179.556 [PV(.05,20,14400)] and the annual amount she needs to
save now is $6,613 [PMT(.08,15,179456)].
Planning for Retirement
Page 4
Rafay Ahmed
Chapter 14
21 – Mar - 23
Worksheet 14.1, Chapter 14, Exercise 3
Date
I.
A.
B.
$
C.
expenses, may be 100%.
80 %
D.
II.
E.
$
F.
$
G.
$
H.
I.
III.
J.
4 %
K.
Based on
15
years to
annual rate of inflation (J) of
4%
L.
IV.
M.
5 %
N.
O.
8 %
P.
Based on
15
on investments of
8%
Q.
years to retirement (A) and an expected rate of return
27.152
Annual savings required to fund retirement nest egg (N ÷ P)
10,612.85
$ Note: Parts I and II are prepared in terms of current (today’s) dollars.
Future value of an annuity interest factor (Appendix B)
Inflation Factor:
Expected average annual rate of
inflation
over the period to retirement
Inflation factor (in Appendix A):
retirement (A) and an expected average
1.801
Size of inflation-adjusted annual shortfall (I × K)
14,408.00
$ Funding the Shortfall:
Anticipated return on assets held after
retirement
Amount of retirement funds required—size of nest egg (L ÷ M)
288,160.00
$ Expected rate of return on investments prior
to retirement
Other sources, annual amounts
Total annual income (E + F + G)
32,000.00
$ Additional required income, or annual shortfall (D - H)
8,000.00
$ Company/employer pension plans, annual amounts
12,000.00
Estimated Household Expenditures in Retirement:
Approximate number of years to retirement
15
Current level of annual household expenditures, excluding savings
50,000.00
Estimated household expenses in retirement as a percent of current
Estimated annual household expenditures in retirement (B × C)
40,000.00
$ Estimated Income in Retirement:
Social security, annual income
20,000.00
PROJECTING RETIREMENT INCOME AND INVESTMENT NEEDS
Name(s)
Lindsay McCoy
Planning for Retirement
Page 5
Rafay Ahmed
Chapter 14
21 – Mar - 23
Answer 4)
Most people agree that if a participant’s Social Security taxes (including the employer portion)
were invested in a market fund, the return on investment would exceed that provided by social
Security. However, some argue that the return is higher than it would be if the recipient had
control of the funds because many people would spend the funds and not have any Social
Security by the time they retired. Earning more than the benefits provided by Social Security
requires discipline that the most people do not have. In addition, the Social Security program
provides more than just retirement benefits. It is a form of both life and disability insurance as
well, providing benefits to a participant’s dependents in the event of the participant’s death, as
well as disability if a participant becomes disabled before retirement.
Answer 5)
Average benefits for a retired couple are $2,448 per month or $29,376 per year. With the part-
time job and company benefit, their income would be $71,000 without Social Security. Current
tax law taxes 85 percent of Social Security for married taxpayers with income over $44,000.
This couple would have to report $24,970 (85% * 29,376) as Social Security income subject to
tax
Answer 6) As an average retired worker, Travis’s Social Security benefit is $1,461 per month or $17,532
per year. He is past full retirement age so there is no reduction of benefits from the part-time
job. Answer 7)
I personally think you should be able to retire at 25 for a 5-year period, and then work until you
are 70 so you can truly enjoy 5 years of retirement. Most people these days are working past 65
to at least full retirement age of 66 or 67. Some are working longer. Many retired people like to
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work part-time and do so either for money or as a volunteer. For planning, it is best to not plan
on money from a part-time job. Look at what it will take to live your current lifestyle adjusted
for inflation to the year you will retire, and use Worksheet 14.1 to determine how much you need
to save to retire. Then, any part-time income provides some extra “mad money”.
Answer 8)
Under the first plan,
the maximum contribution would be $10,000 by Holly plus $2,500 by
employer, total contribution of $12,500. The contribution vests immediately to Holly and it
looks like she can pick the investments. The second plan
has the employer matching contributions dollar for dollar, thus if Holly
contributed $10,000 the employer would contribute $10,000. But there is a five-year vesting
before the funds are locked it for her. For Holly to be able to contribute $10,000, her salary
would have to be $100,000 which most likely it is not. Also, most likely, the dollar for dollar
contributory plan of the second company is managed by the company and the company selects
the investments.
The first plan would add $12,500 per year or after four years it would total $50,000 before
considering investment returns. If Holly stays for five years the plan would amount to $62,500,
before investment returns.
The second plan will amount to $40,000 if Holly leaves after four years. If Holly stays for five
years, at the end of five years her contributions would amount to $50,000 and the company’s
contribution would be another $50,000 for a total of $100,000 before investment returns.
The deciding question becomes what is the probability that Holly will still be with the company
after five years. If she thinks that she will still be with the company, go with the second
company, all other things being equal.
Planning for Retirement
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Rafay Ahmed
Chapter 14
21 – Mar - 23
Answer 9)
The 401(k) maximum is $19,000 in 2019. For those over 50 years old, there is a “catch-up”
provision that allows them to contribute up to $25,000 in 2019.
Jared’s after-tax cost of his $19,000 contribution to 401(k) is $14,440 ($19,000 * (1 - .24)). The
contribution is made through a salary reduction agreement which makes it tax deferred. The tax
is deferred until he retires and receives the benefits.
Answer 10)
A defined contribution plan
specifies the amount of contribution that both the employer and the
employee must make. At retirement, the worker is awarded whatever level of monthly benefits
those contributions will purchase.
The benefits at retirement depend totally on investment results. Thus, the employee bears the risk
of funding retirement.
A defined benefit plan
, it’s the formula for computing benefits, not contributions, that is
stipulated in the plan provisions. These benefits are paid out regardless of how well (or poorly)
the retirement funds are invested.
If investment performance falls short, the employer must make up the difference in order to fund
the benefits agreed to in the plan. Thus, the employer bears the risk of funding the employee’s
retirement.
A cash-balance plan
is much like a traditional defined benefit plan, but it also has features that
are similar to those of defined contribution plans. As with traditional pension plans, the company
funds the pension (the employee pays nothing into the plan). The company guarantees a low rate
of return on the funds invested, similar to the rate paid on Treasury bills. The funds are invested
as desired by the employer and if they earn more than the guaranteed amount, the employer
Planning for Retirement
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Rafay Ahmed
Chapter 14
21 – Mar - 23
keeps the excess. The amounts vest immediately so they are portable and go with the employee
if they leave. The employer is responsible for the guaranteed return.
Answer 11)
Traditional IRA:
Key feature is the contributions are deductible, the earnings are not taxed
until withdrawn, and the distributions are fully taxable. At age 72, must take distribution of a
minimum distribution amount. Inherited IRAs must be distributed over 10 years.
ROTH IRA
: Key feature is the contributions are from after-tax income, the earnings are not
taxed and the qualified distributions are not taxed. The tax is paid in advance. Nondeductible IRA
Basically replaced by the ROTH IRA, but may still be around. Earnings
not taxed until distributed and contributions not deductible.
All three: The contribution is limited to $6,000 per year with a catchup of $1,000 for those over
50 years old.
Answer 12A)
Traditional
Roth
Amount available to contribute
$6,000
$4,680 [tax rate is 22%, after-
tax 78%]
Time money invested
25 years
25 years Return on the investment
10%
10%
Balance before distribution
$590,082
[98.347 * $6,000, or FV(.1,25,6000)]
$460,264
[98.347 * $4,680 or
FV(.1,25,4680)]
Distribution received after tax of 22%
$460,264
(1-.22) * $590,082
$460,264 (distribution is not taxable)
Answer 12B)
If the tax rate at the time of contribution and at the time of distribution is the same, it makes no
difference with a Roth or a Traditional account. With a Roth, you pay the tax up front; with a
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traditional IRA, you pay the tax on the back end when it is distributed. If the tax rate is lower at
time of distribution, the traditional IRA is better; if higher, the Roth IRA is better.
Answer 12c)
If the tax rate goes from 22% at the time of contribution to 32% at the time of distribution, the
ROTH IRA will be better. With a traditional IRA, the after-tax distribution will be 68% *
$590,082 = $401,226, a difference of $59,008 less than the after-tax distribution if a ROTH IRA
is used. Note the difference is the change in tax rate. The tax paid upon contribution to a ROTH
IRA is 22% and the tax paid on the distribution from a traditional IRA is 32%, a difference of
10%. 10% * 590,008 is $59,001 [a slight difference due to rounding]
Answer 12D)
Since I believe that the tax rates later will not be higher for Dustin, I still think that at Traditional
IRA is better than a ROTH. There is some chance that Dustin will die and therefore his heirs
will receive the IRA funds and they may have a lower tax rate. Dustin may decide to contribute
the IRA to a charity and never have to pay the taxes. The maximum contribution amount will be
the same for both, and thus is not an issue. Of course, the limit on the amount contributed to a ROTH is the after-tax amount. If the limit on
contributions is $7,000 and the tax rate is 32%, it will take $10,294 before tax dollars to make a
$7,000 contribution to the ROTH. It will only take $7,000 to make the contribution to the
traditional IRA. The other $3,294 available would have to be invested in a tax deferred account
in order to have equivalent results between the ROTH and Traditional.
Answer 13)
With a mutual fund, the investor gives money to the mutual fund, which in turn uses that money
to buy and sell stocks and other securities. The investor pays taxes on the gains, dividends, and
Planning for Retirement
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Rafay Ahmed
Chapter 14
21 – Mar - 23
interest each year. The gains and dividends are taxed as capital gains; the interest as ordinary
income.
With a variable annuity, the investor gives money to an insurance company which uses that
money to purchase stocks and other securities. The annual income is not subject to tax until
amounts are paid out. At that time, the portion received that are attributable to the amount
invested is not subject to tax. The earnings from an annuity are taxed as ordinary income when
received.
The investor in a variable annuity may be able to select the mutual funds the amounts are
invested in by the insurance company. The amount received is determined by the market.
Answer 14)
With annuities, you typically give money to an insurance company (or bank or other financial
institution). That entity will invest your money and then pay you a monthly amount for a period
of time that frequently is the rest of your life. The only taxable income you have is based upon
the amount you received and only the income portion, [1-(cost / expected proceeds)], is taxable.
So, tax on the earnings is deferred until they are paid out. If you receive distributions before you
are 59.5, there is an early withdrawal penalty of 10% of the taxable annuity.
Answer 15)
The annuity is a contract with an insurance company [typically]. If the insurance company
bankrupts, you are just one of the creditors. Thus, it is very important that you carefully chose
the insurance company from whom you purchase the annuity. It is best to stick with an A rated
company. If we have the ability to select the mutual fund for your variable annuity, we are in fact investing
in that mutual fund. The past does not guarantee the future, but it is a predictor of the future.
Thus, it is important.
Planning for Retirement
Page 11
Rafay Ahmed
Chapter 14
21 – Mar - 23
Answer 16)
In a fixed-rate annuity
, the insurance company safeguards your principal and agrees to pay a
guaranteed minimum rate of interest over the life of the contract—which often amounts to little
more than prevailing money market rates existing when you bought the contract.
With a variable annuity contract, the amount that’s ultimately paid out to the annuitant varies
with the investment results obtained by the insurance company—
nothing is guaranteed, not even
the principal! When you buy a variable annuity, you decide where your money will be invested.
Life expectancy for a 60-year-old male in good health is between 80 – 91. So, it is a long time
that you need to receive funds from the annuity. Over ten years, a variable annuity will out-
perform a fixed annuity, thus, for a 60 something annuitant, I suggest a variable annuity, if any.
An option is to hold the variable annuity until you retire. At that point switch to a fixed annuity
to provide a more secured amount for retirement.
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Related Questions
Question 4 of 5
Using Technological Tools: Future Value of a Single Sum - Knowledge Check
Knowledge Check
0.34/1
You deposit $600 today into a fund that you intend to leave invested for 6 years. The fund earns 4% interest compounded
annually. Indicate the inputs to be entered into the financial calculator keys. What is the value of the fund to be accumulated at the
end of year 6? (Round future value answer to two decimal places (e.g., 52.75) and interest rate to one decimal place (e.g., 527.5).)
Inputs
Calculator Keys
N
Future value
$
Save for Later
N/A
?
PV
PMT FV
Attempts: 0 of 3 used
Submit Answer
SUPPORT
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Chapter 10 Discussion Q2
A perpetuity will pay $900 per year, starting five years after the perpetuity is purchased. What is the present value (PV) at time 0, given that the interest rate is 11%? Show your steps.
A) $2695
B) $4312
C) $5390
D) $3234
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Vijay
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QUESTION 8
Keira wants to invest $4,300 in an account with an interest rate of 7.2% that is compounded MONTHLY. Which of the following choices
will correctly calculate the amount of money in Keira's account after 9 years?
9
O A. Amount = 4300x 7.2xe
B. Amount = 0.072x9xe4300
C.
12x9
7.2
Amount = 4300 1+ )
12
O D. Amount = 4300e0.072 x 9
12 x9
O E.
Amount = 4300 1+
0.072
12
O F. Amount = 4300e7.2x 9
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QUESTION 5
Katharine Bartle will receive an annuity of $4,090.00 every month for 23 years. How much is this cash flow worth to them today if the
payments begin today? Assume a discount rate of 5.00%.
Oa. $55,398.13
b. $2,119,880.47
c. $672,837.73
Od. $170,156.69
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question 15
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QUESTION 9
Norbert Chapa is saving for retirement by putting away $6,090.00 every day for 6 years. How much is this investment worth at the end of 6 years if payments begin today"
Assume an interest rate of 1.00%.
Oa. $35,295.42
b. $12,945,053.24
Oc. $13,745,519.33
O d. $37,466.80
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Question 14
Suppose for an annuity due, you want to have $30,000 in the bank after 20 years. Assuming you make deposits at the beginning of
each year at an interest rate of 4%, how much would you have to deposit at the start of each year, assuming that each deposit is the
same amount?
A) s968.70
B
$816.22
$625.00
$737.24
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Problem 5-26 Spreadsheet Problem: Number of Annuity Payments (LG5-10)
You realize that you can retire when you have $1 million in assets. You currently have $500,000 in retirement assets and contribute
$540 more each month? If your investment portfolio earns an 8 percent annual rate of return, how long will it be until you can retire?
Note: Do not round intermediate calculations and round your final answer to 2 decimal places.
Years
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QUESTION 7
You expect to receive $1,000 at the end of each of the next 3 years. You will deposit these payments into an account which pays 10 percent
compounded annually. What is the future value of these payments, that is, the value at the end of the third year?
O $3,000.00
O $3,310.00
O $3,318.01
O $3,400.96
16
O $3,438.27
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ques 15
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7How much more is a perpetuity paying $5000 at the end of year worth than an annuity paying the same annual amounts at the end of each year for 30 years? Assume an interest rate of 5%. a. $10,635.08 b. $21,976.29 c. $50,000.00 d. $23,137.74
8Miller's Hardware plans on saving $40,000, $50,000, and $58,000 at the end of each year for the next three years, respectively. How much will the firm have saved at the end of the three years if it can earn 6% by reinvesting its saving? a. $155,944.00 b. $169,004.13 c. $148,000.00 d. $148,078.15
9On the day you retire you have $500,000 saved. You expect to live another 30 years during which time you expect to earn 8% on your savings while inflation averages 3.5% annually. Assume you want to spend the same amount each year in real terms and die on the day you spend your last dime. What real amount will you be able to spend each year?
a. $61,931.78 b. $79,211.09 c. $79,644.58 d. $30,695.77
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please help with this practice problem
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pls answer and show cash flow diagram
I will invest $500 per quarter for my retirement at 7.3% compounding quarterly for 32 years. I have achoice of making that payment of $500 at the beginning or the end of the quarter (regular annuity orannuity due). In which account will I have more money and by how much? Which account will earn themost interest and by how much? Ans: Regular Annuity‐ $249981.20, Interest = $185981.20; Annuity Due‐ $254543.36, Interest =$190543.36
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QUESTION 42
Compute the missing variable for each of the following alternatives of investments to accumulate $1,000,000. for 30 years @ 6% annual interest rate:
Following are appropriate factors from tables:
Table
% / n
Present Value of annuity due $1
Present Value of ordinary annuity of $1
Present value of $1
Future Value of ordinary annuity of $1
6%/30
12.15812
13.76483
.17411
79.05819
$????????? invested annually at the end of the year. Required Computations:
$12,648.91
$72,648.92
$33,3333.33
$11,927.43
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4900
$585
PNG
se th
er ye
the
What is the present value of an annuity of
$4,000 received at the beginning of each
year for the next eight years? The first
payment will be received today, and the
discount rate is 9% (round to nearest $1).
Select one:
a. $36,288
b. $35,712
c. $25,699
d. $24,132 ✔
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QUESTION 42
Compute the missing variable for each of the following alternatives of investments to accumulate $1,000,000. for 30
years @ 6% annual interest rate:
Following are appropriate factors from tables:
Table
% / n
Present Value of
annuity due $1
6%/30
12.15812
$33,3333.33
O $72,648.92
Present Value of
ordinary annuity of $1
13.76483
Present value of $1
.17411
$????????? invested annually at the end of the year. Required Computations:
O $12,648.91
O $11,927.43
Future Value of
ordinary annuity of
$1
79.05819
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QUESTION 41
Compute the missing variable for each of the following alternatives of investments to accumulate $1,000,000. for 30 years @ 6% annual interest rate:
Following are appropriate factors from tables:
Table
% / n
Present Value of annuity due $1
Present Value of ordinary annuity of $1
Present value of $1
Future Value of ordinary annuity of $1
6%/30
12.15812
13.76483
.17411
79.05819
One single deposit of $???????? for 30 years. Required Computations:
$166,666.66
$174,110
$175,933.83
$126,489
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- Question 4 of 5 Using Technological Tools: Future Value of a Single Sum - Knowledge Check Knowledge Check 0.34/1 You deposit $600 today into a fund that you intend to leave invested for 6 years. The fund earns 4% interest compounded annually. Indicate the inputs to be entered into the financial calculator keys. What is the value of the fund to be accumulated at the end of year 6? (Round future value answer to two decimal places (e.g., 52.75) and interest rate to one decimal place (e.g., 527.5).) Inputs Calculator Keys N Future value $ Save for Later N/A ? PV PMT FV Attempts: 0 of 3 used Submit Answer SUPPORTarrow_forwardChapter 10 Discussion Q2 A perpetuity will pay $900 per year, starting five years after the perpetuity is purchased. What is the present value (PV) at time 0, given that the interest rate is 11%? Show your steps. A) $2695 B) $4312 C) $5390 D) $3234arrow_forwardVijayarrow_forward
- QUESTION 8 Keira wants to invest $4,300 in an account with an interest rate of 7.2% that is compounded MONTHLY. Which of the following choices will correctly calculate the amount of money in Keira's account after 9 years? 9 O A. Amount = 4300x 7.2xe B. Amount = 0.072x9xe4300 C. 12x9 7.2 Amount = 4300 1+ ) 12 O D. Amount = 4300e0.072 x 9 12 x9 O E. Amount = 4300 1+ 0.072 12 O F. Amount = 4300e7.2x 9arrow_forwardQUESTION 5 Katharine Bartle will receive an annuity of $4,090.00 every month for 23 years. How much is this cash flow worth to them today if the payments begin today? Assume a discount rate of 5.00%. Oa. $55,398.13 b. $2,119,880.47 c. $672,837.73 Od. $170,156.69arrow_forwardquestion 15arrow_forward
- QUESTION 9 Norbert Chapa is saving for retirement by putting away $6,090.00 every day for 6 years. How much is this investment worth at the end of 6 years if payments begin today" Assume an interest rate of 1.00%. Oa. $35,295.42 b. $12,945,053.24 Oc. $13,745,519.33 O d. $37,466.80arrow_forwardQuestion 14 Suppose for an annuity due, you want to have $30,000 in the bank after 20 years. Assuming you make deposits at the beginning of each year at an interest rate of 4%, how much would you have to deposit at the start of each year, assuming that each deposit is the same amount? A) s968.70 B $816.22 $625.00 $737.24arrow_forwardProblem 5-26 Spreadsheet Problem: Number of Annuity Payments (LG5-10) You realize that you can retire when you have $1 million in assets. You currently have $500,000 in retirement assets and contribute $540 more each month? If your investment portfolio earns an 8 percent annual rate of return, how long will it be until you can retire? Note: Do not round intermediate calculations and round your final answer to 2 decimal places. Yearsarrow_forward
- QUESTION 7 You expect to receive $1,000 at the end of each of the next 3 years. You will deposit these payments into an account which pays 10 percent compounded annually. What is the future value of these payments, that is, the value at the end of the third year? O $3,000.00 O $3,310.00 O $3,318.01 O $3,400.96 16 O $3,438.27arrow_forwardques 15arrow_forward7How much more is a perpetuity paying $5000 at the end of year worth than an annuity paying the same annual amounts at the end of each year for 30 years? Assume an interest rate of 5%. a. $10,635.08 b. $21,976.29 c. $50,000.00 d. $23,137.74 8Miller's Hardware plans on saving $40,000, $50,000, and $58,000 at the end of each year for the next three years, respectively. How much will the firm have saved at the end of the three years if it can earn 6% by reinvesting its saving? a. $155,944.00 b. $169,004.13 c. $148,000.00 d. $148,078.15 9On the day you retire you have $500,000 saved. You expect to live another 30 years during which time you expect to earn 8% on your savings while inflation averages 3.5% annually. Assume you want to spend the same amount each year in real terms and die on the day you spend your last dime. What real amount will you be able to spend each year? a. $61,931.78 b. $79,211.09 c. $79,644.58 d. $30,695.77arrow_forward
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