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# Annuity

### Marcia Stubern is planning for her golden years. She will retire in 20 years, at which time she plans to begin withdrawing \$60,000 annually.

Marcia Stubern is planning for her golden years. She will retire in 20 years, at which time she plans to begin withdrawing \$60,000 annually. She is expected to live for 20 years following her retirement. Her financial advisor thinks she can earn 9% annually. How much does she need to invest each year to prepare for her financial

### Time value of money

John is saving for his retirement. Today is his 40th birthday. John first started saving when he was 25 years old/ on his 25th birthday; John made the first contribution to his retirement account; he deposited \$2,000 into an account which paid 9 percent interest, compounded monthly. Each year on his birthday, John contributes an

### Cash Budget, Compound Interest, Present Value, Compound Annuity, Present Value of Annuity

Problem: 4-6A (Cash budget) The Sharpe Corporation's projected sales for the first eight months of 2004 are as follows: January \$ 90,000 February 120,000 March 135,000 April 240,000 May \$300,000 June 270,000 July 225,000 August 150,000 Of Sharpe's sales, 10 percent is for cash, another 60 percent is collected in th

### Rate of Return

What is the rate of return on an investment of \$10,606 if the company will receive \$2,000 each year for the next 10 years? (show work)

### Present and future values

Problems: 1.Given the following data, solve for the number of years in each case. (Use a financial calculator). Present Value Interest rate Future Value Years \$1,200 8% \$2,590.71 \$16,310 12% \$20,459.26 \$75,000

### The three basic patterns of cash flow

I need a little bit of assistance with the attached questions. I have been able to answers others, but need help with these. Chapter 4 4-2 Define and differentiate among the three basic patterns of cash flow: (1) a single amount, (2) an annuity, and (3) a mixed stream. A single amount cash flow refers to an individual,

### Compound Interest: Amount of Money After 5th Deposit in 5 Years

You want to buy a condo 5 years from now, and you plan to save \$3,000 per year, beginning one year from today. You will deposit the money in an account that pays 6% interest. How much will you have just after you make the 5th deposit, 5 years from now?

### How much must Janice deposit annually to send her parents on the cruise?

Janice would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at \$15,000 and she has 5 years to accumulate this money. How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents on the cruise?

### Calculating Present and Future Value and Loan Amortizations

Please see the attached file. Complete problems 2, 4, 13, 17, 26, 30, 37, 38, & 40 on text pp. 207-211 of Ch. 6. 2. If you require a 9 percent return on your investments, which would you prefer? a. \$5,000 today b. \$15,000 five years from today c. \$1,000 per year for 15 years 4. The Mutual Assurance and Life Company i

### Calculating the Present Value of a Perpetuity

You are willing to pay \$15,625 to purchase a perpetuity which will pay you and your heirs \$1,250 each year, forever. If your required rate of return does not change, how much would you be willing to pay if this were a 20-year, annual payment, ordinary annuity instead of a perpetuity?

### New project: NPV, opportunity cost, abandonment value

We are examining a new project. We expect to sell 500 units per year at \$20 net cash flow a piece for the next 10 years. In other words, the annual operating cash flow is projected to be \$20 x 500 = \$10,000 per year. The relevant discount rate is 20%, and the initial investment is \$55,000. a) What is the NPV? b) After the

### Jazzmaster vs. Discmaster Sound Mixer: Computer EAC

You are evaluating two different sound mixers. The Jazzmaster costs \$45,000, has a three-year life, and costs \$5,000 per year to operate. The Discmaster costs \$65,000, has a five-year life, and costs \$4,000 to operate. The relevant discount rate is 12%. Ignoring depreciation and taxes, compute the EAC for both. Which do you pref

### Annuities Due, Number of Periods, Interest Rates, Future Values

Calculating Annuities Due You want to buy a new sports car from Muscle Motors for \$32,000. The contract is in the form of a 72-month annuity due at a 7.75 percent APR (compounded monthly). Your monthly payment will be \$? . (Round your answer to 2 decimal places, e.g. 32.16.) Calculating the Number of Periods At 12 perce

### Finance: Risk premium, Magnolia beta, nominal rate of interest, EAC, NPV,

10.33 The risk-free rate is 7.6 percent. Potpourri Inc. stock has a beta of 1.7 and an expected return of 16.7 percent. Assume the capital-asset-pricing model holds. 1. What is the expected market risk premium? 2. Magnolia Industries stock has a beta of 0.8. What is the expected return on the Magnolia stock? 3. Suppose you

### Price of dividend paying stock

The corporation projects to pay a dividend of \$0.75 next year and then have it grow at 12% for the next 3 years, before growing at 8% indefinitely thereafter. the equity has a required return of 10% in the market. What should the price of the stock be?

### Multiple Choice - Time Value of Money

1. What is the value of a share of a firm's stock when the firm is expected to pay \$2.80 per share dividend at the end of each year and the annual discount rate is 7.5 percent? 2. What is the present value of a lease on a warehouse, where the tenants have a lease that goes into perpetuity and have agreed to pay \$300 at the en

### Calculating Future Value of Annuity

An employee works at the local hamburger restaurant for 40 years and never earns more than minimum wage, which is \$12,000 a year. However, this employee is able to save 6% per year, or \$720 per year. Over the 40 year period, the employee's investments average 8% interest per year. How much will the employee have in his or her re

### Comparing Future Value of an ordinary and annuity due

For each case in the table, answer the questions that follow. Case-- Amt. of Annuity-- Int. Rate-- Deposit(yrs)-- A-- \$2500-- 8%-- 10-- B-- 500--

### Monthly Loan Payments

Tim Smith is shopping for a used car. He has found one priced at \$4,500. The dealer has told Tim that if he can come up with a down payment of \$500, the dealer will finance the balance of the price at a 12% annual rate over 2 years (24 months). 1. Assuming that Tim accepts the dealer's offer, what will his monthly (end-of-mon

### Calcuating present/future values

As winner of a breakfast cereal competition, you can choose one of the following prizes: a. \$100,000 now. b. \$180,000 at the end of five years. c. \$11,400 a year forever. d. \$19,000 for each of 10 years. e. \$6,500 next year and increasing thereafter by 5 percent a year forever. If the interest rate is 12 percent, which i

### Settlement options for wrongful death of Allison Boone, M.D.

Case Allison Boone, M.D. Allison Boone had been practicing medicine for seven years. Her specialty was neurology. She had received her bachelor's degree in chemistry from Kent State University and her M.D. from Washington University in St. Louis. She did her residency at Columbia Presbyterian Hospital in New York. Allison

### Lottery winnings taken as a lump sum or over a period of time

Lottery winnings to be taken as a lump sum of \$112,000 cash or \$35,000 plus \$6000 for the next 40 years. What issues are considered when weighing the options? You have to consider the PV of the annuity and also FV for the payment over the years, is that an approach to figure out the best option? If you took the sum of \$112,

### Archie's Retirement account is short: calculate additional amount needed to retire

Today is Archie's 50th birthday and his retirement account totals \$237,000. He plans to retire in 12 years and is confident that his nest egg will earn 8% annually between now and that time. When he retires, Archie wants to purchase a 20-year annuity from the Gold Star Insurance Company. The annuity carries an interest rate o

### How does an annuity due differ from an ordinary annuity?

How does an annuity due differ from an ordinary annuity?

### PV calculations: single cash flow, mixed stream, FV, annuities, EBIT, leverage

See attached file. P4-4 For each of the cases shown in the following table, calculate the future value of the single cash flow deposited today that will be available at the end of the deposit period if the interest is compounded annually at the rate specified over the given period. Case Signgle Cash Flow Intere

### Finance multiple choice: EPS, stock price, leverage, annuity, ratios, conversions

Can you help me with the following financial questions (multiple choice)? *Investor in 40% tax bracket owning a tax emempt bond yielding 6% realizes an equivalent before tax yield of which of the following? 12%, 10%, 8%, 6% *Optimal capital structure is achieved when? When a firm's expected profits are maximized, when a

### Present value of future cash flows

Rusty Steele will receive the following payments at the end of the next 3 years: \$4,000, \$7,000 and \$9,000. Then from the end of the 4th year through the end of the 10th year, he will receive an annuity of \$10,000. At a discount rate of 10%, what is the present value of all future benefits?

### Calculate growth rates, future value, present value, amortization

Five questions: Please explain the answers. 2. Last year Toto Corporation's sales were \$225 million. If sales grow at 6% per year, how large (in millions) will they be 5 years later? 3. Ten years ago, Levin Inc. earned \$0.50 per share. Its earnings this year were \$2.20. What was the growth rate in Levin's earnings per s

### Interest Rate, Values, and Business Organizational Forms

1. You have just taken out a 10-year, \$12,000 loan to purchase a new car. This loan is to be repaid in 120 equal end-of-month installments. If each of the monthly installments is \$150, what is the effective annual interest rate on this car loan? a. 6.5431 B. 7.8942 C. 8.6892 D. 8.8869 E. 9.0438 2. Describe the o

### Your grandfather gives you three options for an inheritance. Which is best?

Your grandfather wants to award to you the portion of his estate allocated to you as an inheritance. He gives you three options to receive your cash: 1) \$5,000 today; 2) \$1,000 per year for the next eight years; or 3) \$12,000 at the end of eight years. The intermediate-term money market is currently paying 11%. Which inherit