Reference no: EM132506121

Question 1: Jose just purchased some land which he, and his heirs, will lease to a cemetery association. The lease is a perpetual lease that provides for annual lease payments commencing next year. The first payment will be $4,000 with annual increases of 2.5 percent. What is the current value of this leasing contract at a discount rate of 7.5 percent?

$77,500

$78,049

$80,000

$82,000

$83,333

Question 2: American Retail Ltd. is loaning funds to a Chinese firm to build a new retail shopping plaza. The loan agreement calls for annual payments of $280,000 per year for 12 years. The first payment is due today. What is the amount of the loan given an annual interest rate of 7.75 percent?

$1,901,467

$1,908,316

$2,021,212

$2,137,710

$2,303,382

Question 3: You want to buy an annuity that will provide you with $50,000 at the end of each year for the next 25 years. What is the maximum amount you should pay for this annuity if you desire a 7 percent return on your investment?

$528,907

$533,333

$548,534

$582,679

$590,000

Question 4: Today, Cory is buying a 20-year annuity that pays $5,000 per year and Gail is purchasing a perpetuity that pays $5,000 a year. In both cases, payments begin one year from today. The appropriate interest rate is 8 percent. What is the value today of the payments Gail will receive beginning with year 21 and continuing onward?

$4,613.13

$4,821.11

$10,500.00

$12,748.10

$13,409.26

Question 5: In order to help you through college, your parents just deposited $10,000 into a bank account paying 4 percent interest. Starting tomorrow, you plan to withdraw equal amounts from the account at the beginning of each of the next four years. What is the most you can withdraw annually?

$2,547

$2,649

$2,755

$2,808

$2,847