MyLab Finance with Pearson eText -- Access Card -- for Principles of Managerial Finance
15th Edition
ISBN: 9780134479903
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 5, Problem 5.55P
Subpart (a)
Summary Introduction
To calculate: Interest rate.
Subpart (b)
Summary Introduction
To discuss: Which
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Jill Chewwishes to choose the best of four immediate retirement annuities available toher. In each case, in exchange for paying a single premium today, she willreceive equal annual end-of-year cash benefits for a specified number of years.She considers the annuities to be equally risky and is not concerned abouttheir differing lives. Her decision will be based solely on the rate of returnshe will earn on each annuity. The key terms of each of the four annuities areshown in the following table.
Annuity
PremiumPaid Today
AnnualBenefit
Life(years)
A
$30,000
$3,100
20
B
25,000
3,900
10
C
40,000
4,200
15
D
35,000
4,000
12
a. Calculate to the nearest 1 percent the rateof return on each of the four annuities Jill is considering.b. Given Jill’s stated decision criterion, whichannuity would you recommend?
(Click on the
into a spreadsheet.)
Annuity
B
C
Premium paid today
$24.098.32
$22,274.30
$31,240.13
$30,150.95
Annual benefit
$3,200
$4100
$4,000
$4,200
Life (years)
20
10
15
On the basis of how long she has until retirement and her comfort with investment risk, Chelsea has decided that she wants to
allocate the money in her retirement account as follows: 75% to equities, 20% to fixed income, and 5% to cash. If Chelsea
assumes that each asset class earns the low end of the historical average rates of return provided below, what overall rate of
return would she expect to earn over the long term?
Equities: 8%-12%
Fixed Income: 4% - 7%
. Cash: 2% - 5%
.
O 6.90%
O 5.60%
O 10.65%
O 7.75%
4.67%
Chapter 5 Solutions
MyLab Finance with Pearson eText -- Access Card -- for Principles of Managerial Finance
Ch. 5.1 - What is the difference between future value and...Ch. 5.1 - Define and differentiate among the three basic...Ch. 5.2 - Prob. 5.3RQCh. 5.2 - Prob. 5.4RQCh. 5.2 - Prob. 5.5RQCh. 5.2 - Prob. 5.6RQCh. 5.2 - Prob. 5.7RQCh. 5.3 - What is the difference between an ordinary annuity...Ch. 5.3 - What are the most efficient ways to calculate the...Ch. 5.3 - How can the formula for the future value of an...
Ch. 5.3 - Prob. 5.13RQCh. 5.3 - What is a perpetuity? Why is the present value of...Ch. 5.4 - How do you calculate the future value of a mixed...Ch. 5.5 - What effect does compounding interest more...Ch. 5.5 - Prob. 5.21RQCh. 5.5 - Differentiate between a nominal annual rate and an...Ch. 5.6 - How can you determine the size of the equal,...Ch. 5.6 - Prob. 5.27RQCh. 5.6 - How can you determine the unknown number of...Ch. 5 - Learning Goals 2, 5 ST5-1 Future values for...Ch. 5 - Learning Goal 3 ST5-2 Future values of annuities...Ch. 5 - Prob. 5.3STPCh. 5 - Learning Goal 6 ST5-4 Deposits needed to...Ch. 5 - Assume that a firm makes a 2,500 deposit into a...Ch. 5 - Prob. 5.2WUECh. 5 - Prob. 5.3WUECh. 5 - Your firm has the option of making an investment...Ch. 5 - Joseph is a friend of yours. He has plenty of...Ch. 5 - Jack and Jill have just had their first child. If...Ch. 5 - Prob. 5.1PCh. 5 - Learning Goal 2 P5-2 Future value calculation...Ch. 5 - Prob. 5.4PCh. 5 - Prob. 5.5PCh. 5 - Learning Goal 2 P5- 6 Time value As part of your...Ch. 5 - Learning Goal 2 P5-7 Time value you can deposit...Ch. 5 - Learning Goal 2 P5-8 Time value Misty needs to...Ch. 5 - Learning Goal 2 P5- 9 Single-payment loan...Ch. 5 - Prob. 5.10PCh. 5 - Prob. 5.11PCh. 5 - Prob. 5.12PCh. 5 - Prob. 5.13PCh. 5 - Time value An Iowa state savings bond can be...Ch. 5 - Time value and discount rates You just won a...Ch. 5 - Prob. 5.16PCh. 5 - Cash flow investment decision Tom Alexander has an...Ch. 5 - Learning Goal 2 P5-18 Calculating deposit needed...Ch. 5 - Future value of an annuity for each case in the...Ch. 5 - Present value of an annuity Consider the following...Ch. 5 - Learning Goal 3 P5-21 Time value: Annuities Marian...Ch. 5 - Learning Goal 3 P5-22 Retirement planning Hal...Ch. 5 - Learning Goal 3 P5-23 Value of a retirement...Ch. 5 - Learning Goal 2, 3 P5-25 Value of an annuity...Ch. 5 - Prob. 5.26PCh. 5 - Prob. 5.30PCh. 5 - Learning Goal 4 P5-31 Value of a single amount...Ch. 5 - Value of mixed streams Find the present value of...Ch. 5 - Prob. 5.33PCh. 5 - Prob. 5.34PCh. 5 - Prob. 5.36PCh. 5 - Prob. 5.37PCh. 5 - Changing compounding frequency Using annual,...Ch. 5 - Prob. 5.39PCh. 5 - Prob. 5.40PCh. 5 - Compounding frequency and time value You plan to...Ch. 5 - Learning Goals 3, 5 P5-42 Annuities and...Ch. 5 - Prob. 5.43PCh. 5 - Prob. 5.44PCh. 5 - Prob. 5.45PCh. 5 - Prob. 5.46PCh. 5 - Prob. 5.47PCh. 5 - Loan amortization schedule Joan Messineo borrowed...Ch. 5 - Prob. 5.49PCh. 5 - Prob. 5.50PCh. 5 - Prob. 5.52PCh. 5 - Prob. 5.53PCh. 5 - Prob. 5.54PCh. 5 - Prob. 5.55PCh. 5 - Prob. 5.56PCh. 5 - Prob. 5.57PCh. 5 - Number of years needed to acccumulate a future...Ch. 5 - Prob. 5.59PCh. 5 - Prob. 5.60PCh. 5 - Time to repay Installment loan Mia Saito wishes to...
Knowledge Booster
Similar questions
- Your friend has a trust fund that will pay her the following amounts at the given interest rate for the given number of years. Calculate the current (present) value of your friends trust fund payments. For further instructions on future value in Excel, see Appendix C.arrow_forwardYour friend has a trust fund that will pay her the following amounts at the given interest rate for the given number of years. Calculate the current (present) value of your friends trust fund payments. For further instructions on present value in Excel, see Appendix C.arrow_forwardA policyholder wishes to annuitize the cash value of her insurance policy at retirement. She desires an annual payment of $97.8,000 per year and the cash value is expected to be $1.5 million at retirement. Approximately how many payments can she expect to receive if annuity interest rates are 5.739 percent? (Do not round intermediate calculations. Round your answer to a whole number.)arrow_forward
- Joy is nearing retirement and is considering buying an annuity product from Wagon Financial. However, she is considering adding a clause that says she will only receive the annual $80,000 payment if she is alive at the time of the payment (up to a maximum of 20 payments). Other than this clause, the specifications for the annuity she is considering are exactly the same as described above. Should Joy expect the price for this product to be cheaper or more expensive by adding this clause?arrow_forwardSolve manually using formulas. Xia has an inheritance in a trust fund left by her recently deceased mother thatwill pay 50,000 at the end of each year indefinitely into the future. She just turned 60years old and she believes that this perpetuity-immediate does not meet her retirementneeds. She wishes to exchange the value of her inheritance in the trust fund for a 5-yeardeferred annuity-immediate that provides annual payments for 20 years. If the trusteeagrees to her proposal, how much annual retirement income would she receive? Thetrust fund is earning an annual effective rate of interest of 5%.arrow_forwardConsider the case of the following annuities, and the need to compute either their expected rate of return or duration. Ryan inherited an annuity worth $3,280.16 from his uncle. The annuity will pay him five equal payments of $800 at the end of each year. The annuity fund is offering a return of . Ryan’s friend, Sebastian, wants to go to business school. While his father will share some of the expenses, Sebastian still needs to put in the rest on his own. But Sebastian has no money saved for it yet. According to his calculations, it will cost him $30,044 to complete the business program, including tuition, cost of living, and other expenses. He has decided to deposit $4,200 at the end of every year in a mutual fund, from which he expects to earn a fixed 7% rate of return. It will take approximately for Sebastian to save enough money to go to business school.arrow_forward
- Suppose that Kate is 45 years old and has no retirement savings. She wants to begin saving for retirement, with the first payment coming one year from now. She can save $20,000 per year and will invest that amount in the stock market, where it is expected to yield an average annual return of 5.00% return. Assume that this rate will be constant for the rest of her's life. In short, this scenario fits all the criteria of an ordinary annuity. Kate would like to calculate how much money she will have at age 60. Use the following table to indicate which values you should enter on your financial calculator. For example, if you are using the value of 1 for N, use the selection list above N in the table to select that value. Input Keystroke Output N Input Keystroke N Output I/Y Using a financial calculator yields a future value of this ordinary annuity to be approximately Kate would now like to calculate how much money she will have at age 65. Input Keystroke N Output Use the following table…arrow_forwardI need help working this problem out. Figuring out what table to use, whether to use: compound value, present value, amount of annuity, present value of annuity, sinking fund value? Please explain in detail each step. Nina deposits $3400 into a savings account earning simple interest at 6.3% annually. She intends to leave the money in the bank for three years. How much money, including both principal and interest, can she withdraw at the end of this time?arrow_forwardUsing the Time Value of Money for Retirement Planning. Carla Lopez deposits $3,400 a year into her retirement account. If these funds have an average earning of 9 percent over the 40 years until her retirement, what will be the value of her retirement account?arrow_forward
- Una Day is planning to retire in 11 years, at which time she hopes to have accumulated enough money to receive an annuity of $21,000 a year for 16 years of retirement. During her pre-retirement period she expects to earn 12 percent annually, while during retirement she expects to earn 14 percent annually on her money. What annual contributions to this retirement fund are required for Una to achieve her objective and sleep well at night? (Use a Financial calculator to arrive at the answer. Do not round intermediate calculations. Round the final answer to the nearest whole dollar.) Annual contribution $arrow_forwardThis is a classic retirement problem. A friend is celebrating her birthday and wants to start saving for her anticipated retirement. She has the following years to retirement and retire- ment spending goals: Years until retirement: Amount to withdraw each year: Years to withdraw in retirement: Interest rate: 30 $90,000 20 8% Because your friend is planning ahead, the first withdrawal will not take place until one year after she retires. She wants to make equal annual deposits into her account for her retirement fund. a. If she starts making these deposits in one year and makes her last deposit on the day she retires, what amount must she deposit annually to be able to make the desired withdrawals at retirement?arrow_forwardA friend is celebrating her birthday and wants to start saving for her anticipated retirement. She has the following years to retirement and retirement spending goals. Years until retirement: 30 Amount to withdraw each year: $120,000 Years to withdraw in retirement: 25 Interest rate: 7.5% Because your friend is planning ahead, the first withdrawal will not take place until one year after she retires. She wants to make equal annual deposits into her account for her retirement fund. Required: If she starts making these deposits in one year and makes her last deposit on the day she retires, what amount must she deposit annually to be able to make the desired withdrawals at retirement? Suppose your friend just inherited a large sum of money. Rather than making equal annual payments, she decided to make one lump-sum deposit today to cover her retirement needs. What amount does she have to deposit today? Suppose your friend’s employer will…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College