John's estate is to be divided into three equal parts and invested, to be paid out as follows: i. John's two children will each receive their share in 20 level annual payments, beginning one year after Joh ii. Charity Q will receive its share as equal annual payments in perpetuity beginning 21 years after John's deat Q's annual payment is twice the annual payment for one child. Determine the effective interest rate at which the estate is invested. Less than 5% B. At least 5% but less than 5.25% At least 5.25% but less than 5.50% At least 5.50% but less than 5.75% E At least 5.75%

John's estate is to be divided into three equal parts and invested, to be paid out as follows: i. John's two children will each receive their share in 20 level annual payments, beginning one year after Joh ii. Charity Q will receive its share as equal annual payments in perpetuity beginning 21 years after John's deat Q's annual payment is twice the annual payment for one child. Determine the effective interest rate at which the estate is invested. Less than 5% B. At least 5% but less than 5.25% At least 5.25% but less than 5.50% At least 5.50% but less than 5.75% E At least 5.75%

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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Calculating 'cash flows over the life' Bella’s Beer Company (BBC) is considering replacing its existing bottling machine with a new bottling machine. Debt repayments associated with the new machine are $12,000 per annum. The existing bottling machine has a current market value of $20,000. Depreciation expense associated with the existing bottling machine is $10,000 per annum. The existing machine has a remaining depreciable life of eight years at which time it will have zero book value. The new bottling machine costs $140,000 immediately. Internal management plan to depreciate the new machine using a ten-year effective life. The new machine is more efficient and will cause BBC’s yearly operating cash outflows to decrease by $45,000 from the current yearly figure of $150,000. The new bottling machine will result in BBC’s total annual sales increasing from $220,000 to $300,000. The tax office prescribes that the new bottling machine has an effective life of eight years. Assume the…
Ella has just retired and has received a lump sum pay-out of $1,800,000. She invests part of this pay-out in a perpetual investment which earns 4% per annum and provides a perpetual income to her of $30,000 per year (assuming end-of-year withdrawals). She puts the rest of the pay out in another investment in the form of a growing perpetuity (growth rate of 2% pa) which earns 4% pa. She wants to make annual withdrawals (starting in one year) from this growing perpetuity to fund some holidays. Required (i) Calculate how much Ella has invested in the perpetual investment. (ii) Show how much extra Ella can expect to spend each year (assuming end-of- year withdrawals), over and above the $30,000 from the perpetual investment, from the growing perpetuity. Note: ignore tax in your calculations.
Consider an inheritance that pays the beneficiary an annuity of $500 that begins immediately (an annuity due) and then annually in year 1 through year 17 (for a total of 18 years) with one exception - the payment in year 12, and only 12, is not $500 but $0. Using an interest rate of 3%, determine the present value of this cash flow stream.
A 13-year-old child received an inheritance of $8000 per year. This was to be invested in allowed to accumulate until the child reach 21 years of age. The first payment was made on the child's 13th birthday and the last on the 21st birthday. If the money was invested at 5.3%, compounded annually, what did the child receive at age 21?
Miranda and Henry plan to send their son to a university. To pay for this they will contribute 11 equal yearly payments into an account in interest at the APR of 8.8% compounded annually. Six years after their last contribution they will begin the first of five yearly withdraws of $58, 000 to pay for the university bills. How large Messer yearly contributions be?
SOLVE TO HAND LEGIBLE; When a father dies, he leaves his children an inheritance of $3,000,000.00. When the father dies, his children are 5,8,9,12 and 15 years old. Each of the children must receive exactly the same amount of money when they turn 18. The money is deposited in a trust that pays 16% annually, convertible every 8 months: How much money will each of the children receive?
Sunrise Industries wishes to accumulate funds to provide a retirement annuity for its vice president of research, Asia Omar. Ms. Omar by contract will retire at the end of exactly 15 years. During her retirement, she is entitled to receive an annual end-of-year payment of $50,000 for exactly 25 years. If she dies prior to the end of the 25-year period, the annual payments will pass to her heirs. Also, sunrise want to assure a stability life for Asia Omar and her family. Thus, they want to have a perpetuity which provide $15,000 each year (after the 25 year of retirement). During the 15-year “still working period” Sunrise wishes to fund the annuity by making equal annual end-of-year deposits into an account earning 9% interest. Once the 25-year “retirement period” begins, Sunrise plans to move the accumulated monies into an account earning a guaranteed 12% per year. After the 40th year, (after retirement) the interest rate will be 15%. Note that all transaction will happen at the end…
2. Trixy needs to accumulate 780,000.00 for her insurance investment for 5 years. She set up a sinking fund for the said amount that earns 7.5 % interest compounded semi-annually. Construct a sinking fund schedule for her investment.
On Sarah’s 18th birthday, she creates a trust fund to pay her a sequence of nine semiannual payments of 15,000; the first is due on her 23rd birthday. If the fund earns 6.5% compounded semiannually, find the present value of the deferred annuity.
A man intends to save up money for his retirement so that he can withdraw equal sums of P18,000 for his yearly needs from his 60th to 70th birthdays. For his 41st to 59th birthdays, he invests an equivalent amount in a fund that earns 12%. What should the amounts for each of them be?
James plans to receive a monthly annuity of $779 for the next 25 years as part of his inheritance. The interest rate is 10.78 per annum compounded monthly Calculate the present value (PV) of this annuity. $72.26 O$779.00 $867.16 $289.05 O $1.11
sonia which to establish a trust fund from which her son can withdrew $6000 every six months for 15 years , when he reach 16 years old.At the end of which time he will receive the remaining money in the trust,which you would like to be $25000. The trust will be invested at 6% per annum compounded semi-annual .How large should the trust be ?

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