5. Your great uncle recently died and left you $50,000 in his will. The lawyers tell you that thewill is complex and facing legal challenges and you cannot expect the money to be paid beforethe end of the next three years. They also warn that the money is invested in some funds thatcannot be cashed out until five years from now. Your great uncle's bank pays an interest rate of3% annually. What is the equivalent PV of that money today? What will it be worth at the endof five years? Why does the value change over time?

Money has time value because value of money decreases with time due to the interest rat and…

Answered: 5. Your great uncle recently died and…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Similar questions

Which of these situations would you prefer? Solve, a. You invest $2,500 in a certificate of deposit that earns an effective interest rate of 8% per year. You plan to leave the money alone for 5 years, and the general price inflation rate is expected to average 5% per year. Income taxes are ignored. b. You spend $2,500 on a piece of antique furniture. You believe that in 5 years the furniture can be sold for $4,000. Assume that the average general priceinflation rate is 5% per year. Again, income taxes are ignored.
a. You need $17,000 in five years but you only have $12,000 now. At what interest rate must you invest the money assuming the interest is compounded annually? b. You have a $20,000 note payable which is due in three years. How much money must you put into a savings account today in order to have enough money to pay off the debt on time assuming your savings account earns 3% interest compounded annually? c. You put $2,750 into an account earnings 4% interest compounded QUARTERLY. How much will be in this account at the end of 4 YEARS? d. In question “b." above, if you leave he money in the account for one more YEAR, how much more interest will you earn in that additional year (Year 5)? e. How long will it take to double $2,000 to $4,000 assuming you invest the $2,000 into an account earning 7% interest compounded annually?
3. Mr. H needs to borrow $13,000 for 3 years. He has a poor financial history, most lenders are willing to charge him a higher interest rate. He eventually finds a lender who would lend him the money at a rate of 15% per annum, compounded monthly. How much will Mr. H have to pay in compound interest to the lender? O O A) The compound interest Mr. H will have to pay is $7,331.22. The compound interest Mr. H will B) have to pay is $7,891.21. The compound interest Mr.H will C) have to pay is $5, 745.86. The compound interest Mr. H will D) have to pay is $6,777.07.
8.
You are selling your house. The Smiths have offered you $200,000. They will pay youimmediately. The Joneses have offered you $275,000, but they can not pay you until three yearsfrom today. The interest rate is 12 percent. Which offer should you choose?
Ten years ago Jim took a mortgage loan of $200,000 to be repaid in 20 equal annual installments of $30,197.34. The bank has told him that they would accept $145,000 today as payment in full for the remainder of the loan. What is the balance on this loan? If we assume that Jim has the money, what interest rate must he earn on alternative investments in order not to accept the bank offer?
Suppose you have $1,500,000 when you retire and want to withdraw an equal amount each year for the next 30 years. - How much can you withdraw each year if you earn 7% - What if you can earn 9%? - What if the market failed and your earnings dropped to -.5%. How long would it take to drain your account if you did nothing about this loss pattern?
= You would like to buy a house that costs $350,000. You have $55,000 in cash that you can put down on the house, but you need to borrow the rest of the purchase price. The bank is offering a 30-year mortgage that requires annual payments and has an interest rate of 7% per year. You can afford to pay only $23,060 per year. The bank agrees to allow you to pay this amount each year, yet still borrow $295,000. At the end of the mortgage (in 30 years), you must make a balloon payment; that is, you must repay the remaining balance on the mortgage. How much will this balloon payment be? The balloon payment is $ (Round to the nearest cent.)
am. 234.
Problem: Jino sold his house. In addition to cash, he took a mortgage on the house. The mortgage will be paid off by monthly payments of P12, 345 for 10 years. He decided to sell the mortgage to a local bank. The bank will buy the mortgage, but requires a 1% per month interest rate on their investment. How much will the bank pay for the mortgage?
Your uncle has $260,000 invested at 7.5%, and he now wants to retire. He wants to withdraw $35,000 at the end of each year, starting at the end of this year. He also wants to have $25,000 left to give you when he ceases to withdraw funds from the account. For how many years can he make the $35,000 withdrawals and still have $25,000 left in the end? O a. 6.71 years O b. 11.98 years Oc. 9.39 years Od. 11.26 years Oe. 10.50 years

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