Question 1: I-SEE-U Inc., a maker of CCTV cameras, is considering a hardware marketing chain to sell its cameras. As per the deal, I-SEE-U will be paid $35,000 and $10,000 at the end of years 1 and 2 and to make annual year-end payments of $5,000 in years 3 through 9. A final payment of $20,000 would be due at the end of year 10. A second company has offered to market the cameras for a one-time payment of $80,000 right away. If I-SEE-U uses a 12% required return, which offer should it accept? Support your asnwer with relavent calculations. Question 2: You have decided to endow your favorite university with a scholarship. It is expected to cost $15,000 per year to attend the university into perpetuity. You expect to give the university the endowment in 5 years and will accumulate it by making equal annual (end-of-year) deposits into an account. The rate of interest is expected to be 8% for all future time periods. a) How large must the endowment be? b) How much must you deposit at the end of each of the next 5 years to accumulate the required amount? Question 3: Paul Atreides wants to save money to meet three objectives. First, he would like to be able to retire 20 years from now with retirement income of $15,000 per month for 20 years, with the first payment received 20 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of $100,000. Third, after he passes on at the end of the 20 years of withdrawals, he would like to leave an inheritance of $100,000 to Chani, his girlfriend. He can afford to save $3,000 per month for the next 10 years. If he can earn an 10 percent EAR before he retires and an 9 percent EAR after he retires, how much will he have to save each month in years 11 through 20? Note: To provide coherence and organization to your work, arrange your work for this question as follows: Step 1: Convert both EARS to annual nominal rates Step 2: Compute the amount needed at the 20-year mark from now Step 3: Compute the amount in hand at the 10-year mark from now Step 4: Compute the amount still required at the 10-year mark Step 5: Compute the shortage/surplus, if any, and compute the required monthly savings between years 11 through 20.
Question 1: I-SEE-U Inc., a maker of CCTV cameras, is considering a hardware marketing chain to sell its cameras. As per the deal, I-SEE-U will be paid $35,000 and $10,000 at the end of years 1 and 2 and to make annual year-end payments of $5,000 in years 3 through 9. A final payment of $20,000 would be due at the end of year 10. A second company has offered to market the cameras for a one-time payment of $80,000 right away. If I-SEE-U uses a 12% required return, which offer should it accept? Support your asnwer with relavent calculations. Question 2: You have decided to endow your favorite university with a scholarship. It is expected to cost $15,000 per year to attend the university into perpetuity. You expect to give the university the endowment in 5 years and will accumulate it by making equal annual (end-of-year) deposits into an account. The rate of interest is expected to be 8% for all future time periods. a) How large must the endowment be? b) How much must you deposit at the end of each of the next 5 years to accumulate the required amount? Question 3: Paul Atreides wants to save money to meet three objectives. First, he would like to be able to retire 20 years from now with retirement income of $15,000 per month for 20 years, with the first payment received 20 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of $100,000. Third, after he passes on at the end of the 20 years of withdrawals, he would like to leave an inheritance of $100,000 to Chani, his girlfriend. He can afford to save $3,000 per month for the next 10 years. If he can earn an 10 percent EAR before he retires and an 9 percent EAR after he retires, how much will he have to save each month in years 11 through 20? Note: To provide coherence and organization to your work, arrange your work for this question as follows: Step 1: Convert both EARS to annual nominal rates Step 2: Compute the amount needed at the 20-year mark from now Step 3: Compute the amount in hand at the 10-year mark from now Step 4: Compute the amount still required at the 10-year mark Step 5: Compute the shortage/surplus, if any, and compute the required monthly savings between years 11 through 20.
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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Transcribed Image Text:Question 1:
I-SEE-U Inc., a maker of CCTV cameras, is considering a hardware
marketing chain to sell its cameras. As per the deal, I-SEE-U will be
paid $35,000 and $10,000 at the end of years 1 and 2 and to make
annual year-end payments of $5,000 in years 3 through 9. A final
payment of $20,000 would be due at the end of year 10.
A second company has offered to market the cameras for a one-time
payment of $80,000 right away.
If I-SEE-U uses a 12% required return, which offer should it accept?
Support your asnwer with relavent calculations.
Question 2:
You have decided to endow your favorite university with a scholarship.
It is expected to cost $15,000 per year to attend the university into
perpetuity. You expect to give the university the endowment in 5 years
and will accumulate it by making equal annual (end-of-year) deposits
into an account.
The rate of interest is expected to be 8% for all future time periods.
a) How large must the endowment be?
b) How much must you deposit at the end of each of the next 5 years
to accumulate the required amount?
Transcribed Image Text:Question 3:
Paul Atreides wants to save money to meet three objectives. First, he
would like to be able to retire 20 years from now with retirement
income of $15,000 per month for 20 years, with the first payment
received 20 years and 1 month from now. Second, he would like to
purchase a cabin in Rivendell in 10 years at an estimated cost of
$100,000. Third, after he passes on at the end of the 20 years of
withdrawals, he would like to leave an inheritance of $100,000 to
Chani, his girlfriend. He can afford to save $3,000 per month for the
next 10 years. If he can earn an 10 percent EAR before he retires and
an 9 percent EAR after he retires, how much will he have to save each
month in years 11 through 20?
Note:
To provide coherence and organization to your work, arrange your work
for this question as follows:
Step 1: Convert both EARS to annual nominal rates
Step 2: Compute the amount needed at the 20-year mark from now
Step 3: Compute the amount in hand at the 10-year mark from now
Step 4: Compute the amount still required at the 10-year mark
Step 5: Compute the shortage/surplus, if any, and compute the required
monthly savings between years 11 through 20.
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