Explore BrainMass
Share

Explore BrainMass

    Future Value of an annuity

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    For Bill's tuition expenses, his rich uncle has agreed to loan him $8,000 as he begins college, and increase it by $2,000 for the remaining 3 years (amounts $10,000, $12,000 and $14,000). Being a businessman, his uncle would at least like to have 5% on his money. Bill is to begin paying back the amount immediately after graduating, in the best possible way.

    Bill finds a part time job in his final year and pays $5,000 to his uncle at the end of the 4th year. On graduating Bill finds a full time job and gets married. As a result he is able to pay only $2,000 at the end of the fifth year to his uncle. His uncle is upset that Bill is not making every effort to pay his loan, and wants to get back his money in the next four years. What equal payment per year should he demand from Bill to get back his entire amount in the next four years? (Hint: create a cash flow diagram for amounts mentioned, and calculate the FV for year 5. Next, calculate the AW which is equivalent to the calculated FV at 5% over 4 years).

    © BrainMass Inc. brainmass.com October 9, 2019, 5:17 pm ad1c9bdddf
    https://brainmass.com/business/annuity/future-value-of-an-annuity-53049

    Solution Preview

    Please see the attached files for a better formatted solution

    For Bill's tuition expenses, his rich uncle has agreed to loan him $8,000 as he begins college, and increase it by $2,000 for the remaining 3 years (amounts $10,000, $12,000 and $14,000). Being a businessman, his uncle would at least like to have 5% on his money. Bill is to begin paying back the amount immediately after graduating, in the best possible way.

    Bill finds a part time job in his final year and pays $5,000 to his uncle at the end of the 4th year. ...

    Solution Summary

    The solution includes a word document that explains the steps needed to answer the problem as well as an excel sheet with all necessary calculations

    $2.19