Your rich uncle bequests to you a continuous, constant income stream of $9000 per year for the next 10 years. terms of the bequest require that this income stream be paid continuously into a specific savings account that will not be available to you for 10 years. This account earns 5% interest, compounded continuously. What is the present value of the bequest? How much money would the bequest be worth (including all interest accrued) after 10 years? You discover that a bank is offering 5.5% interest compounded continuously on a certificate of deposit (CD) that matures in 10 years. What is the cost of a CD at the above interest rate that would provide the same amount of money as the bequest after 10 years? Because the CD earns more interest than the savings account specified in the will, you feel that you are losing out on interest. So you ask the executor of the estate to use funds from the estate to buy a CD that will be worth the same as the bequeathed income stream in 15 years. You ask her to pay you today the difference between the present value of the original bequest and the amount invested in the CD. How much should she pay you today?

Your rich uncle bequests to you a continuous, constant income stream of $9000 per year for the next 10 years. terms of the bequest require that this income stream be paid continuously into a specific savings account that will not be available to you for 10 years. This account earns 5% interest, compounded continuously. What is the present value of the bequest? How much money would the bequest be worth (including all interest accrued) after 10 years? You discover that a bank is offering 5.5% interest compounded continuously on a certificate of deposit (CD) that matures in 10 years. What is the cost of a CD at the above interest rate that would provide the same amount of money as the bequest after 10 years? Because the CD earns more interest than the savings account specified in the will, you feel that you are losing out on interest. So you ask the executor of the estate to use funds from the estate to buy a CD that will be worth the same as the bequeathed income stream in 15 years. You ask her to pay you today the difference between the present value of the original bequest and the amount invested in the CD. How much should she pay you today?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 39P

See similar textbooks

Similar questions

You want to invest $8,000 at an annual Interest rate of 8% that compounds annually for 12 years. Which table will help you determine the value of your account at the end of 12 years? A. future value of one dollar ($1) B. present value of one dollar ($1) C. future value of an ordinary annuity D. present value of an ordinary annuity
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in one year and will be $2,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 3% larger than the last payment. This pattern of payments will go on forever. If the interest rate is 10% per year, a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? a. What is today's value of the bequest? Today's value of the bequest is $ (Round to the nearest dollar.) b. What is the value of the bequest immediately after the first payment is made? The value of the bequest immediately after the first payment is made is $ (Round to the nearest dollar.)
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $3,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 5% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 15% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made?
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $5,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 5% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 9% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made?
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 8% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 11% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? a. What is today's value of the bequest? Today's value of the bequest is $ (Round to the nearest dollar.)
Arich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $4,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 3% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 15% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? a. What is today's value of the bequest? Today's value of the bequest is $ (Round to the nearest doliar.)
Your uncle gives you $92,000 as a gift. Rather than give you a lump-sum, your uncle structures the gift as an annuity that pays $16,250 per year. You will receive the first payment one year later. If the annual interest rate is 12%, how many years does it take for you to receive all the payments for this gift?
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year andwill be $1,000. Each year after that, you will receive a payment on the anniversary of the last paymentthat is 8% larger than the last payment. This pattern of payments will go on forever. Assume that theinterest rate is 12% per year. What is today's value of the bequest?
A friend who owns a perpetuity that promises to pay $1,000 at the end of each year, forever, comes to you and offers to sell you all of the payments to be received after the 25th year for a price of $1,001. At an interest rate of 10%, should you pay the $1,000 today to receive payment numbers 26 and onwards? What does this suggest to you about the value of perpetual payments?
If you receive an inheritance of $10,000 today, how long do you have to invest it at 8% per year to be able to withdraw $2000 every year forever? Assume the 8% per year is a return that you can depend on forever.
An aunt gifts you with $12,000, but only after you invest it for one year. She givesyou two choices.1. Invest the entire sum at 4.2% compounded monthly.2. Invest $1000 at 7.1% each month in an annuity that pays every month.(a) What is the future value of the money invested with method 1?(b) How much interest is earned with method 1?(c) What is the future value of the money invested with method 2?(d) How much interest is earned with method 2?(e) Which method would you choose?
Answer the following problems. Show your solutions. Annuity 1. How much money will you accumulate by the end of year 10 if you deposit P 3,000 each for the next ten years in a savings account that earns 5% per year? 2. What deposit made at the beginning of each month will accumulate to P120,000 at 8% compounded semi-annually at the end of 10 years? 3. James deposited P150 at the beginning of each month for two years into his savings account. For the next four years he did not make any more deposits, leaving the money in the account. The bank charges 4% interest compounded monthly. What will the balance be after 12 years?