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This is a classic retirement problem. A time line will help in solving it. Your friend is celebrating her 35th birthday today and wants to start saving for her anticipated retirement at age 65. She wants to be able to withdraw $125,000 from her savings account on each birthday for 20 years following her retirement; the first withdrawal will be on her 66th birthday. Your friend intends to invest her money in the local credit union, which offers 7 percent interest per year. She wants to make equal annual payments on each birthday into the account established at the credit union for her retirement fund.
a. If she starts making these deposits on her 36th birthday and continues to make deposits until she is 65 (the last deposit will be on her 65th birthday), she must deposit $______ annually to be able to make the desired withdrawals at retirement.
b. Suppose your friend has just inherited a large sum of money. Rather than making equal annual payments, she has decided to make one lump sum payment on her 35th birthday to cover her retirement needs. This deposit will have to be in the amount of $_____ .
c. Suppose your friend's employer will contribute $3500 to the account every year as part of the company's profit-sharing plan. In addition, your friend expects a $175,000 distribution from a family trust fund on her 55th birthday, which she will also put into the retirement account. She must deposit $ annually now to be able to make the desired withdrawals at retirement.
Last year, $100 million in outstanding bank loans to a developing nation’s government were not renewed, and the developing nation’s government paid off $50 million in maturing government bonds that had been held by foreign residents.
Giant co. has issued preferred stock with a par value of $100 and an annual dividend rate of 8.53 percent. if your required rate of return is 7.18 percent, how much will you be willing to pay for one share of this preferred stock?
BHS Inc. determines that sales will rise from $510,000 to $680,000 next year. Current assets are 60% of sales and current liabilities are 40% of sales. BHS is not operating at capacity. BHS has an 11.5 % profit margin and a 40% dividend payout ratio...
What are the risks associated with using a large amount of short-term financing for working capital?
NYC Inc. has a current dividend of $3.00 per share (D0 = $3.00). Analysts expect that the dividend will grow at a rate of 25 percent per year for the next three years, and thereafter it will grow at a constant rate of 10 percent per year. The company..
"Earnings per share" (EPS) is the most featured, single financial statistic about modern corporations. Daily published quotations of stock prices have recently been expanded to include for many securities a "times earnings" figure that is based on..
Bond J is a 3 percent coupon bond. Bond K is a 9 percent coupon bond. Both bonds have 15 years to maturity, make semi-annual payments, and have an YTM of 6 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of ..
A project has an initial cost of $54,000 and a four-year life. The company uses straight-line depreciation to a book value of zero over the life of the project. The projected net income from the project is $2,000, $3,900, $4,500, and $4,500 a year fo..
Distinguish between the types of bonds. What factors determine their value? Explain three important relationships that exist in bond valuation. Distinguish between preferred stock and common stock. Compare valuing preferred stock and common stock.
Preston Inc.'s stock has a 25% chance of producing a 30% return, a 50% chance of producing a 12% return, and a 25% chance of producing a -18% return. What is the firm's expected rate of return?
Puck’s Company has a capital budget of $1.1 Million. Puck’s company desires to maintain a target capital structure which is 35% debt and 65% equity. Puck’s company forecasts that its net income this year will be $800,000. If Puck’s company follows a ..
Energy Tech company issued an 8% (semi-annual payment) 20 year bond 5 years ago. If the yield of similar bond today is 6%, what is the bond price? What is the current yield?
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