John and Mary as a couple wish to contribute a decent percentage of their earnings into individual retirement accounts (IRAS). The two options presente as below. Option A calls for a one-time deposit of $12,500. Option B calls for annual deposits of $800. What range of values for the minimum attractive rate of return (MARR) exists for which option B is the preferred alternative if a 30-year analysis period Year Option A 0 1 *** -$12,500 0 0 Option B 0 -800 -800 Option A- Option B $12,500 800 800

John and Mary as a couple wish to contribute a decent percentage of their earnings into individual retirement accounts (IRAS). The two options presente as below. Option A calls for a one-time deposit of $12,500. Option B calls for annual deposits of $800. What range of values for the minimum attractive rate of return (MARR) exists for which option B is the preferred alternative if a 30-year analysis period Year Option A 0 1 *** -$12,500 0 0 Option B 0 -800 -800 Option A- Option B $12,500 800 800

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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You are offered an investment that will pay •$200 in year 1, •$400 the next year, •$600 the following year, and •$800 at the end of the 4th year. •You can earn 14 percent on similar investments. What is the most you should pay for this one? Respuesta:
Tommy is retiring from his job soon at which time his employer willmake the following offer:1. A lumpsum amount of $200,0002. A sum of $15,000 at the beginning of each year for the next 25years.If the average interest rate is likely to be 5.5% p.a. for the next25 years, which option should Timothy choose?
Your retired client has accumulated investment and retirement assets totaling $5,981,000. Assume the client expects to live for another 15 years and that he assumes an annual inflation rate of 3.9 percent. To leave his heirs the future value of the $5,981,000 at the end of the 15 years, and maintain an inflation-adjusted lifestyle of $210,000 a year for all 15 years, the client’s investments would have to earn an average of ______ percent a year for the entire 15 years.
Matthew is considering several possible compensation alternatives for services he has provided as a consultant: Option A: Matthew could receive $8,000 today. Option B: Matthew could receive $2,500 at the end of each of the next four years. Option C: Matthew could receive $12,000 five years from now. Required: Calculate the present value for each option assuming that Matthew can earn 7 percent on any investment funds. Which option results in the greatest financial benefit to Matthew? If Matthew earns 10 percent, will that change your answer to # 2 above? Please explain.
3. Rico wants to buy a retirement annuity that will pay him the first of 50 semiannual payments of $10,000 ten years from now. How much must he pay to purchase the annuity today if the annuity issuer provides a return on Investment of 4.8% compounded semiannually? I will solve this problem as: an ordinary deferred annuity a deferred annulty due Timeline: Solution:
1) Today is your 30th birthday and you must choose between two retirement options. The first option will provide you with 10 equal annual payments of $100, 000 beginning on your 65th birthday. The second option will provide you with one payment of $1, 000, 000 on your 70th birthday. If the interest rate is 6 percent per year and you are assured of living to at least 80 years of age, which option is better? 2) A retirement home in Florida costs $200, 000 today. Housing prices in Florida are increasing at a rate of 4% per year. Joe wants to buy the home in 8 years when he retires. Joe has $25, 000 right now in a savings account paying 8% interest per year. Joe wants to make eight equal annual deposits into the savings account starting today. How much must each deposit be so Joe will have enough money in his savings account to buy the retirement home when he retires?
Jim Nance has been offered an investment that will pay him $860 three years from today. a. If his opportunity cost is 9% compounded annually, what value should he place on this opportunity today? b. What is the most he should pay to purchase this payment today? c. If Jim can purchase this investment for less than the amount calculated in part (a), what does that imply about the rate of return that he will earn on the investment?
Sarah will receive a perpetual annul income of $50,000 on her retirement, commencing in 3 years time. If the interest rate is 8% per annum, how much is this worth as a single sum today? Group of answer choices 535,837 675,236 550,655 223,000
9. Implied interest rate and period Consider the case of the following annuities, and the need to compute either their expected rate of return or duration. Ryan inherited an annuity worth $3,280.16 from his uncle. The annuity will pay him five equal payments of $800 at the end of each year. The annuity fund is offering a return of Ryan's friend, Sebastian, wants to go to business school. While his father will share some of the expenses, Sebastian still needs to put in the rest on his own. But Sebastian has no money saved for it yet. According to his calculations, it will cost him $30,044 to complete the business program, including tuition, cost of living, and other expenses. He has decided to deposit $4,200 at the end of every year in a mutual fund, from which he expects to earn a fixed 7% rate of return. It will take approximately for Sebastian to save enough money to go to business school.
1) In a few short years, you will graduate and enter the workforce. Let us suppose that you and a friend both start working at the age of 23 and decide on very different ways to fund your eventual retirement. In this exercise, we explore these decisions. Neither of you have any savings (P = 0), plan to retire at age 66, and expect to earn 8.4% annual interest, compounded monthly, on all your investments. a) Having taken this class, you decide to start immediately, investing $120 per month. How much money will be in your account in 20 years? b) At this point (you are now 43 years old), you will stop making monthly deposits into your account. Now, the amount you calculated in part (a) will accumulate interest for 23 years (until you are 66 years old). How much is in your account now? Indicoob selled pham
Suppose an individual at age 25 has an annual income of $50,000 and that this income is expected to grow at an annual rate of 2% a year over the course of her career. Assuming that she is expected to retire at the 60, what is the discounted value of her lifetime earnings? Use a discount rate of 3% when making your calculations.
A couple plans to purchase a house. The bank requires a 20% down payment on the $470,000 house. The couple will finance the rest of the cost with a fixed- rate mortgage at 3% annual interest with monthly payments over 30 years. Complete the parts below. Do not round any intermediate computations. Round your final answers to the nearest cent if necessary. If necessary, refer to the list of financial formulas (a) Find the required down payment. $ (b) Find the amount of the mortgage. $0 (c) Find the monthly payment. $

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