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What discount rate would make you indifferent

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Reference no: EM132376688

Part One:

  1. What discount rate would make you indifferent between receiving $3,438.00 per year forever and $5,703.00 per year for 28.00 years? Assume the first payment of both cash flow streams occurs in one year.
  2. Today is Derek's 25th birthday. Derek has been advised that he needs to have $3,486,473.00 in his retirement account the day he turns 65. He estimates his retirement account will pay 4.00% interest. Assume he chooses not to deposit anything today. Rather he chooses to make annual deposits into the retirement account starting on his 26.00th birthday and ending on his 65th birthday. How much must those deposits be?
  3. Derek can deposit $11,000 on each birthday beginning with his 26th and ending with his 65th. What will the rate on the retirement account need to be for him to have $3,000,000 in it when he retires on his 65th birthday?
  4. Derek can deposit $11,945.00 on each birthday beginning with his 30.00th and ending with his 68.00th. What will the rate on the retirement account need to be for him to have $3,490,754.00 in it when he retires?
  5. If Derek plans to deposit $11,489.00 into his retirement account on each birthday beginning with his 26th and the account earns 11.00%, how long will it take him to accumulate $3,205,276.00?
  6. Assume the real rate of return is 1.77% and the inflation rate is 7.06%. Find the nominal rate of return using the exact formula.

Part 2:

  1. Derek decides that he needs $177,160.00 per year in retirement to cover his living expenses. Therefore, he wants to withdraw $177160.0 on each birthday from his 66th to his 85.00th. How much will he need in his retirement account on his 65th birthday? Assume a interest rate of 5.00%.
  2. Derek plans to retire on his 65th birthday. However, he plans to work part-time until he turns 74.00. During these years of part-time work, he will neither make deposits to nor take withdrawals from his retirement account. Exactly one year after the day he turns 74.0 when he fully retires, he will wants to have $2,586,642.00 in his retirement account. He he will make contributions to his retirement account from his 26th birthday to his 65th birthday. To reach his goal, what must the contributions be? Assume a 10.00% interest rate.
  3. Derek plans to retire on his 65th birthday. However, he plans to work part-time until he turns 71.00. During these years of part-time work, he will neither make deposits to nor take withdrawals from his retirement account. Exactly one year after the day he turns 71.0 when he fully retires, he will begin to make annual withdrawals of $151,410.00 from his retirement account until he turns 87.00. He he will make contributions to his retirement account from his 26th birthday to his 65th birthday. To reach his goal, what must the contributions be? Assume a 10.00% interest rate.
  4. Derek plans to retire on his 65th birthday. However, he plans to work part-time until he turns 71.00. During these years of part-time work, he will neither make deposits to nor take withdrawals from his retirement account. Exactly one year after the day he turns 71.0 when he fully retires, he will begin to make annual withdrawals of $109,218.00 from his retirement account until he turns 92.00. After this final withdrawal, he wants $1.09 million remaining in his account. He he will make contributions to his retirement account from his 26th birthday to his 65th birthday. To reach his goal, what must the contributions be? Assume a 4.00% interest rate.
  5. A bank offers 10.00% on savings accounts. What is the effective annual rate if interest is compounded semi-annually?
  6. Derek has the opportunity to buy a money machine today. The money machine will pay Derek $30,020.00 exactly 7.00 years from today. Assuming that Derek believes the appropriate discount rate is 9.00%, how much is he willing to pay for this money machine?
  7. Assume the nominal rate of return is 6.00% and the inflation rate is 1.47%. Find the real rate of return using the exact formula.

Reference no: EM132376688

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