blem #1: $10,000 is used to purchase an appropriate size annuity that has level annual payments for 18 years. The price ofthe annuity is based on an effective annual rate of 11.2%. As each payment is received, it is put into a fund thatearns an effective annual rate of 7%.(a) Determine the accumulated value of the investment at the end of 18 years.(b) If the $10,000 were put into a fund that was to produce the same final value after 18 years, what annualeffective rate would that fund have to offer?

Here, Purchase Amount (PV) is $10000 Time Period (Nper) is 18 years Effective Interest Rate for…

Answered: $10,000 is used to purchase an…

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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A fund is built with annual payments increasing by $1 from $1 to $10 and then decreasing by $1 to $0. The first payment of $1 is made today. If the fund is used to purchase a ten-year level annuity with the first payment at twenty years from today, what is the amount of the level payment? (Assume an annual effective rate of interest of 4%.) Possible Answers A B D <$16 c≥ $17 but < $18 E ≥ $16 but < $17 ≥ $18 but < $19 ≥ $19
A student will receive a $25,000 grant at the beginning of every year for the next five years. Assuming an annual interest rate of 4% is appropriate, the present value of an ordinary annuity is 4.4518 x $25,000 = $111,295, and the present value of an annuity due is 4.6299 x $25,000 = $115,748. What is the fair value of the grant payments according to the Financial Accounting Standards Board (FASB)? $130,000 $115,748 $125,000 $111,295
Bright Inc. will be receiving $5,500 at the end of every month for the next 2 years. If these payments were directly invested into a fund earning 6.00% compounded semi-annually, what would be the future value of the fund at the end of 2 years? Round to the nearest cent
The Cooper Foundation contributes $25,000 per year into an annuity fund for building a new zoo. The fund earns 7.5% interest. Find the amount in the fund at the end of 10 years. (Round your final answer to two decimal places.)
The State of Texas has a pension fund liability of $25 million, due in 10 years. Each year the legislature is supposed to set aside an annuity to arrive at this future value. This annuity is based on what the legislature believes it can earn on this money. Estimate the annuity needed each year for the next 10 years, assuming that the interest rate that can be earned on the money is 6%. $1,896,699 $3,657,129 $6,687,085 $4,675,987
Bright Inc. will be receiving $5,500 at the end of every month for the next 3 years. If these payments were directly invested into a fund earning 6.00% compounded semi- annually, what would be the future value of the fund at the end of 3 years? $0.00 Round to the nearest cent
2,500 is deposited into Fund X, which earns an annual effective rate of zero. At the end of each year, 10% of the balance is withdrawn from the fund. The annual withdrawals are deposited into Fund Y, which earns an annual effective rate of 10%. Determine the accumulated value of Fund Y at the end of year 10. a) 2,806 b) 2,252
If annual deposits of $1,000 are made into a fund paying 12% interest compounded annually, how much money will be in the fund immediately after the 5th deposit?
Theodore makes beginning of year deposits of 3000 for 10 years into a fund earning interest at an annual effective interest rate of 5%. At the end of each year, the interest earned is deposited into a second fund earning interest at an annual effective interest rate of 6%. Find the total accumulated value of his assets at the end of 10 years.
Annual deposits of $1000 are made at the end of each year for 25 years in a fund that pays 3% in the first 11 years and 4% in the remaining years. Find the AV of these deposits at the end of 25 years. Possible Answers A 36,002 B 37,391 C 38,105 D 39,420 E 40,471
Mr. Deneau accumulated $98000 in an RRSP. He converted the RRSP into a RRIF and started to withdraw $5400 at the end of every three months from the fund. If interest is 4.1% compounded annually, for how long can Mr. Deneau make withdrawals? State your answer in years and months (from 0 to 11 months).
Bright Inc. will be receiving $5,500 at the end of every month for the next 2 years. If these payments were directly invested into a fund earning 6.00% compounded semi-annually, what would be the future value of the fund at the end of 2 years? Round to the nearest cent

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