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1. The present value of a $25,000 perpetuity at a 14 percent discount rate is

1. The present value of a $25,000 perpetuity at a 14 percent discount rate is

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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1. The present value of a $25,000 perpetuity at a 14 percent discount rate is -2. Dan plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 10 years. If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year? 3. A college received a contribution to its endowment fund of $2 million. It can never touch the principal, but can use the earnings. At an assumed interest rate of 9.5 percent, how much can the college earn to help its operations each year? 4. Calculate the future value of an annuity of $5,000 each year for eight years, deposited at 6 percent. -5. The present value of an ordinary annuity of $350 each year for five years, assuming an opportunity cost of 4 percent, is _ 6./ Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent? 7. To pay for her college education, Gina is saving $2,000 at the beginning of each year for the next eight years în a bank account paying 12 percent interest. How much will Gina have in that account at the end of 8th year? 8. James plans to fund his individual retirement account, beginning today, with 20 annual deposits of $2,000, which he will continue for the next 20 years. If he can earn an annual compound rate of 8 percent on his deposits, the amount in the account upon retirement will be 9. You have been offered a project paying $300 at the beginning of each year for the next 20 years. What is the maximum amount of money you would invest in this project if you expect 9 percent rate of return to your investment? 10. A generous philanthropist plans to make a one-time endowment to a renowned heart rescarch center which would provide the facility with $250,000 per year into perpetuity. The rate of interest is expected to be 8 percent for all future time periods. How large must the endowment be?
Transcribed Image Text:1. The present value of a $25,000 perpetuity at a 14 percent discount rate is -2. Dan plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 10 years. If Dan can earn 10 percent on his contributions, how much will he have at the end of the tenth year? 3. A college received a contribution to its endowment fund of $2 million. It can never touch the principal, but can use the earnings. At an assumed interest rate of 9.5 percent, how much can the college earn to help its operations each year? 4. Calculate the future value of an annuity of $5,000 each year for eight years, deposited at 6 percent. -5. The present value of an ordinary annuity of $350 each year for five years, assuming an opportunity cost of 4 percent, is _ 6./ Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent? 7. To pay for her college education, Gina is saving $2,000 at the beginning of each year for the next eight years în a bank account paying 12 percent interest. How much will Gina have in that account at the end of 8th year? 8. James plans to fund his individual retirement account, beginning today, with 20 annual deposits of $2,000, which he will continue for the next 20 years. If he can earn an annual compound rate of 8 percent on his deposits, the amount in the account upon retirement will be 9. You have been offered a project paying $300 at the beginning of each year for the next 20 years. What is the maximum amount of money you would invest in this project if you expect 9 percent rate of return to your investment? 10. A generous philanthropist plans to make a one-time endowment to a renowned heart rescarch center which would provide the facility with $250,000 per year into perpetuity. The rate of interest is expected to be 8 percent for all future time periods. How large must the endowment be?
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