Suppose you deposit $1,000 today (t = 0) in a bank account that pays an interest rate of 7% per year. If you keep the account for 5 years before you withdraw all the money, how much will you be able to withdraw after 5 years? Calculate using formula. Calculate using year-by-year approach. Find the present value of a security that will pay $2,500 in 4 years. The opportunity cost (interest rate that you could earn from alternative investments) is 5%. Calculate using the formula. Calculate using year-by-year discounting approach. Solve for the unknown in each of the following: Present value Years Interest rate Future value $50,000 12 ? $152,184 $21,400 30 ? $575,000 $16,500 ? 14% $238,830 $21,400 ? 9% $213,000 Suppose you enter into a monthly deposit scheme with Chase, where you have your salary account. The bank will deduct $25 from your salary account every month and the first payment (deduction) will be made one month from now (so, what type of annuity is this?). If you are planning to maintain the account for the next 3 years, how much money will you have when you close your account 3 years from now? The appropriate interest rate is 6%. Use formula to calculate the future value of this annuity. Use financial calculator to compute the future value (clearly identify N, I/Y, PV, and PMT). What will be the future value if the first payment was made immediately? Use both approaches separately for this part. [Hint: what type of annuity is it now?] Assume that you will pay $60 a month at the end of each of the next 24 months. The future value of the annuity is $3000. Compute the appropriate rate of interest. You can use a financial calculator to solve this problem. The future value of an annuity is $3,000. There will be quarterly payments for the next 5 years. If the interest rate is 4%, how much money will you have to put every quarter so that you can receive $3,000 in five years from now? Given a discount rate of 8% per year, what is the value at year 5 of a perpetual stream of $2,350 annual payments that begins at year 15? You want to buy a new car from Executive Machines for $75,000. The contract is in the form of a 72-month annuity due at an APR of 8.5%. How much will your monthly payment be? Suppose you will receive $100, $265, and $315 in 1, 2, and 3 years from now, respectively. If the appropriate discount rate is 10%, what is the net present value of these cash flows? You have 30 years left until retirement and want to retire with $3,000,000. Your salary is paid annually, and you will receive $110,000 at the end of the current year. Your salary will increase at 2% per year and you can earn a return of 10.4% on the money you invest. If you save a constant percentage of your salary, what percentage of your salary must you save each year?

Suppose you deposit $1,000 today (t = 0) in a bank account that pays an interest rate of 7% per year. If you keep the account for 5 years before you withdraw all the money, how much will you be able to withdraw after 5 years? Calculate using formula. Calculate using year-by-year approach. Find the present value of a security that will pay $2,500 in 4 years. The opportunity cost (interest rate that you could earn from alternative investments) is 5%. Calculate using the formula. Calculate using year-by-year discounting approach. Solve for the unknown in each of the following: Present value Years Interest rate Future value $50,000 12 ? $152,184 $21,400 30 ? $575,000 $16,500 ? 14% $238,830 $21,400 ? 9% $213,000 Suppose you enter into a monthly deposit scheme with Chase, where you have your salary account. The bank will deduct $25 from your salary account every month and the first payment (deduction) will be made one month from now (so, what type of annuity is this?). If you are planning to maintain the account for the next 3 years, how much money will you have when you close your account 3 years from now? The appropriate interest rate is 6%. Use formula to calculate the future value of this annuity. Use financial calculator to compute the future value (clearly identify N, I/Y, PV, and PMT). What will be the future value if the first payment was made immediately? Use both approaches separately for this part. [Hint: what type of annuity is it now?] Assume that you will pay $60 a month at the end of each of the next 24 months. The future value of the annuity is $3000. Compute the appropriate rate of interest. You can use a financial calculator to solve this problem. The future value of an annuity is $3,000. There will be quarterly payments for the next 5 years. If the interest rate is 4%, how much money will you have to put every quarter so that you can receive $3,000 in five years from now? Given a discount rate of 8% per year, what is the value at year 5 of a perpetual stream of $2,350 annual payments that begins at year 15? You want to buy a new car from Executive Machines for $75,000. The contract is in the form of a 72-month annuity due at an APR of 8.5%. How much will your monthly payment be? Suppose you will receive $100, $265, and $315 in 1, 2, and 3 years from now, respectively. If the appropriate discount rate is 10%, what is the net present value of these cash flows? You have 30 years left until retirement and want to retire with $3,000,000. Your salary is paid annually, and you will receive $110,000 at the end of the current year. Your salary will increase at 2% per year and you can earn a return of 10.4% on the money you invest. If you save a constant percentage of your salary, what percentage of your salary must you save each year?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 3PB: Use the tables in Appendix B to answer the following questions. A. If you would like to accumulate...

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Question

Suppose you deposit $1,000 today (t = 0) in a bank account that pays an interest rate of 7% per year. If you keep the account for 5 years before you withdraw all the money, how much will you be able to withdraw after 5 years?

Calculate using formula.
Calculate using year-by-year approach.

Find the present value of a security that will pay $2,500 in 4 years. The opportunity cost (interest rate that you could earn from alternative investments) is 5%.

Calculate using the formula.
Calculate using year-by-year discounting approach.

Solve for the unknown in each of the following:

Present value	Years	Interest rate	Future value
$50,000	12	?	$152,184
$21,400	30	?	$575,000
$16,500	?	14%	$238,830
$21,400	?	9%	$213,000

Suppose you enter into a monthly deposit scheme with Chase, where you have your salary account. The bank will deduct $25 from your salary account every month and the first payment (deduction) will be made one month from now (so, what type of annuity is this?). If you are planning to maintain the account for the next 3 years, how much money will you have when you close your account 3 years from now? The appropriate interest rate is 6%.

Use formula to calculate the future value of this annuity.
Use financial calculator to compute the future value (clearly identify N, I/Y, PV, and PMT).
What will be the future value if the first payment was made immediately? Use both approaches separately for this part. [Hint: what type of annuity is it now?]

Assume that you will pay $60 a month at the end of each of the next 24 months. The future value of the annuity is $3000. Compute the appropriate rate of interest. You can use a financial calculator to solve this problem.

The future value of an annuity is $3,000. There will be quarterly payments for the next 5 years. If the interest rate is 4%, how much money will you have to put every quarter so that you can receive $3,000 in five years from now?

Given a discount rate of 8% per year, what is the value at year 5 of a perpetual stream of $2,350 annual payments that begins at year 15?

You want to buy a new car from Executive Machines for $75,000. The contract is in the form of a 72-month annuity due at an APR of 8.5%. How much will your monthly payment be?

Suppose you will receive $100, $265, and $315 in 1, 2, and 3 years from now, respectively. If the appropriate discount rate is 10%, what is the net present value of these cash flows?

You have 30 years left until retirement and want to retire with $3,000,000. Your salary is paid annually, and you will receive $110,000 at the end of the current year. Your salary will increase at 2% per year and you can earn a return of 10.4% on the money you invest. If you save a constant percentage of your salary, what percentage of your salary must you save each year?

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