Mike joins a savings program where he deposits $1000 at the begint he will earn a perpetuity paying $6300 per year with the first payment at the end of the 30th year. The effective interest rate is 5% for the first 20 years and 8% afterward a) Will Mike have accumulated enough to fund the perpetuity? • b) If your answer above is no, find the unique extra deposit X that Mike has to make at the end of the 28th year in order to fund the perpetuity

Mike joins a savings program where he deposits $1000 at the begint he will earn a perpetuity paying $6300 per year with the first payment at the end of the 30th year. The effective interest rate is 5% for the first 20 years and 8% afterward a) Will Mike have accumulated enough to fund the perpetuity? • b) If your answer above is no, find the unique extra deposit X that Mike has to make at the end of the 28th year in order to fund the perpetuity

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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Donna enters into an investment contract that will guarantee her 4% per year if she deposits $3,500 each year for the next 10 years. She must make the first deposit one year from today, the day she signs the agreement. How much will she have when she makes her last payment 10 years from now? Assume the same facts as in problem 1 above, except that Donna negotiates the chance to make her first payment now and continue to pay at the beginning of each year for the 10-year period. How much will she have accumulated?
You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $400,000 today or receive payments of $16,000 a year for 15 years. You can earn 6 percent on your money. Which option should you take and why?
Gary is planning for his retirement this year. One option that has been presented to him is the purchase of an annuity that would provide a $31, 000 payment each year for the next 18 years. Factor Table Appendix 9.1 Present value of $1 received in n periods = 0.1799 Appendix 9.2 Present value of an annuity of $1 per period= 8.2014 Calculate how much Gary should be willing to pay for the annuity if he can invest his funds at 10% ( For calculation purposes, use 4 decimal places as displayed in the factor table provided and round the final answer to 0 decimal places, e.g. 58,971)
An investor deposits $100 into his credit union account that pays interest at the rate of 3.25% per year (payable at the end of each year). He leaves the money and all accrued interest in the account for 7 years. How much will he have at the end of the 7 years?
Slick Sam has a special relationship with his banker. The nature of the relationship is as follows: • The bank owes Sam $100 per year forever. The 1st payment is due in 1 year. • The bank will borrow or lend money to Sam at a constant effective rate of i per year. Today, Sam calculated the present value of the payments that are due to him as X. Sam can receive his first 16 payments at the end of year 16 in a lump sum. If he does that, then the total value of the lump sum and future payments at the end of the sixteenth year is X + 2,000. Calculate X. A B с D E 3,330 3,350 3,400 3,450 3,500
20.
Jonathan is planning to retire on January 1, 2024. his goal is to have enough money in his savings account to be able to withdraw $2,000 per month beginning one month after retirement and continuing for 25 years after retirement. He earns an annual effective rate of interest of 10% on his account. Determine the minimum amount needed in his savings account on January 1, 2024, to accomplish his goal. Possible Answers $235,000 but $255,000
Ira Roth opens up a Roth IRA and places $4,500 in his retirement account at the beginning of each year for 20 years. He believes the account will earn 8 percent interest per year, compounded quarterly. How much will he have in his retirement account in 20 years?
To ensure his retirement income, a 40-year old man plans to purchase annuity when he turns 65. The annuity will pay $7,500 at the end of each month for 20 years, and the value is calculated at 5% interest, compounding monthly. To pay for this annuity, he starts making annual level deposits in a mutual fund, which earns 8% interest each year. He makes the first one right away, and makes deposits at the beginning of each year for 25 years. How much does he need to deposit each year in order to save enough to buy his annuity?
Sean plans to invest $10,000 in a savings account that pays 1.5% compounded quarterly. His friend suggests that he invest in an account paying the same interest rate but that pays interest compounded monthly. How much more interest will he earn at the end of 10 years if he follows his friend's advice?
Timothy is retiring from his job soon at which time his employer will make the following offer: 1. A lumpsum amount of $200,0002. A sum of $15,000 at the beginning of each year for the next 25 years. If the average interest rate is likely to be 5.5% p.a. for the next 25 years, which option should Timothy choose?
In December 2018, Eric puts $1600 into a bank account. He then deposits an additional $1000 each year thereafter. The account earns 4% interest, compounded annually. When Eric has a total of at least $50,000 in his account at the beginning of a year he will buy a house. In what year will this happen?

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