5-23. (Solving for Present Value with Annuities) Angus McDonald, a third-year accounting student studying in Scotland, receives a call from an insurance agent, who believes Angus is an older man ready to retire from teaching. He talks to him about several annuities that he could buy that would guarantee him an annual fixed income. The annuities are as follows: INITIAL PAYMENT INTO ANNUITY (AT = 0) AMOUNT OF MONEY RECEIVED PER YEAR DURATION OF ANNUITY (YEARS) ANNUITY $40,000 $7.500 12 $70,000 $8,500 25 C $80,000 $9,500 20 If Angus could earn 12 percent on his money by placing it in a savings account, should he place it instead in any of the annuities? Which ones, if any? Why? 5-24. (Loan amortization) Mr. Dayvos Bay has just purchased a new house for $300,000. He paid $30,000 down payment and agreed to pay the rest over the next 25 in 25 equal end-of-year payments plus 10 percent compound interest over years the unpaid balance. What will these equal payments be? 5-25. (Solving for PMT of an annuity) To pay for your child's education, you wish to have accumulated $15,000 at the end of 15 years. To do this, you plan on depositing an equal amount into the bank at the end of each year. If the bank is willing to pay 6 per- cent compounded annually, how much must you deposit each year to reach your goal?
5-23. (Solving for Present Value with Annuities) Angus McDonald, a third-year accounting student studying in Scotland, receives a call from an insurance agent, who believes Angus is an older man ready to retire from teaching. He talks to him about several annuities that he could buy that would guarantee him an annual fixed income. The annuities are as follows: INITIAL PAYMENT INTO ANNUITY (AT = 0) AMOUNT OF MONEY RECEIVED PER YEAR DURATION OF ANNUITY (YEARS) ANNUITY $40,000 $7.500 12 $70,000 $8,500 25 C $80,000 $9,500 20 If Angus could earn 12 percent on his money by placing it in a savings account, should he place it instead in any of the annuities? Which ones, if any? Why? 5-24. (Loan amortization) Mr. Dayvos Bay has just purchased a new house for $300,000. He paid $30,000 down payment and agreed to pay the rest over the next 25 in 25 equal end-of-year payments plus 10 percent compound interest over years the unpaid balance. What will these equal payments be? 5-25. (Solving for PMT of an annuity) To pay for your child's education, you wish to have accumulated $15,000 at the end of 15 years. To do this, you plan on depositing an equal amount into the bank at the end of each year. If the bank is willing to pay 6 per- cent compounded annually, how much must you deposit each year to reach your goal?
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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Transcribed Image Text:5-23. (Solving for Present Value with Annuities) Angus McDonald, a third-year
accounting student studying in Scotland, receives a call from an insurance agent,
who believes Angus is an older man ready to retire from teaching. He talks to him
about several annuities that he could buy that would guarantee him an annual fixed
income. The annuities are as follows:
INITIAL
PAYMENT INTO
ANNUITY
(AT I = 0)
DURATION
OF ANNUITY
(YEARS)
12
AMOUNT OF
MONEY RECEIVED
PER YEAR
ANNUITY
$40,000
$7.500
B
$70,000
$8,500
25
C
$80,000
$9,500
20
If Angus could earn 12 percent on his money by placing it in a savings account,
should he place it instead in any of the annuities? Which ones, if any? Why?
5-24. (Loan amortization) Mr. Dayvos Bay has just purchased a new house for
$300,000, He paid $30,000 down payment and agreed to pay the rest over the next
25 years in 25 equal end-of-year payments plus 10 percent compound interest over
the unpaid balance. What will these equal payments be?
5-25. (Solving for PMT of an annuity) To pay for your child's education, you wish to
have accumulated $15,000 at the end of 15 years. To do this, you plan on depositing an
equal amount into the bank at the end of each year. If the bank is willing to pay 6 per-
cent compounded annually, how much must you deposit each year to reach your goal?
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