Reference no: EM132431292

Questions -

Q1. Calculate the amount that must be invested at the end of each year at 10.8% compounded annually in order to accumulate $680,000 after:

a. 25 years.

b. 30 years.

In each case, also determine what portion of the $680,000 represents earnings on the annual investments.

a. Earnings portion

b. Earnings portion

Q2. If money can earn 6% compounded monthly, how much more money is required to fund an ordinary annuity paying $320 per month for 30 years than to fund the same monthly payments for 20 years?

What is the present value of end-of-quarter payments of $4300 for seven years? Use a discount rate of 7.8% compounded quarterly.

Q3. A contract required end-of-month payments of $255 for another 6¼ years. What would an investor pay to purchase this contract if she requires a rate of return of 4.8% compounded monthly?    

Q4. This problem demonstrates the dependence of the present value of an annuity on the discount rate. For an ordinary annuity consisting of 25 annual payments of $1900, calculate the present value using an annually compounded discount rate of:

a. 3.8%

b. 8.8%

c. 9.8%

d. 13.8%

Observe that the present value decreases as you increase the discount rate. However, the present value decreases proportionately less than the increase in the discount rate.

Q8. This problem demonstrates the dependence of an annuity's present value on the size of the periodic payment. Calculate the present value of 25 end-of-year payments of:

a. $1200.

b. $2200.

c. $3200.

Use a discount rate of 5.2% compounded annually. After completing the calculations, note that the present value is proportional to the size of the periodic payment.