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What is the approximate value

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1a) What is the total future value six years from now of $80 received in 1 year, $300 received in 2 years and $700 received in 6 years if the interest rate is 7% per year 

1b) You have been offered a Perpetuity of $1500 per month and a 25-year Annuity which also pays you $1500 per month.  Assume a 5% interest rate for both and they are both offered to you for $275,000.  Which one should you purchase and why? (5 points)

1c) Your company is offering you a pension which will pay you and your family for the next 100 years $1000 per month and they will guarantee this payment to grow by 4% annually. 

  1. What is the approximate value of this pension plan, assuming current interest rates are 6%? 
  2. What is this pension worth if they do not offer to increase the payments by 4%?

1d) Complete the table below for the cashflows which currently have a Present Value of $26,730.07:

Year

Rate (%)

Cashflow

Present Value

1

1.50

$1000

 

2

2.25

 

$4,782.37

3

 

$7,000

$6,341.08

4

 

$8,000

 

5

5.00

$10,000

 

Reference no: EM133033989

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