Purchase Solution

Present and future value

Not what you're looking for?

Ask Custom Question

In computing your answers to the cases below, you can round your answer to the nearest dollar. Present value tables are provided on the next page.

Case A: On January 2, 2004, Notson Company loaned $50,000 to Pine Company. The terms of this loan agreement stipulate that Pine is to make 5 equal annual payments to Notson at 10% interest compounded annually. Assume the payments are to begin on December 31, 2004. Compute the amount of each of these payments.

Case B: Rex Jeter, a lawyer contemplating retirement on his 65th birthday, decides to create a fund on an 8% basis which will enable him to withdraw $30,000 per year beginning June 30, 2007, and ending June 30, 2011. To provide this fund, he intends to make equal contributions on June 30 of each of the years 2002 through 2006.

(a) How much must the balance of the fund equal after the last contribution on June 30, 2006 in order for him to satisfy his objective?
(b) What are each of his contributions to the fund?

Purchase this Solution

Solution Summary

This solution is comprised of a detailed explanation to answer how much must the balance of the fund equal after the last contribution on June 30, 2006 in order for him to satisfy his objective and what are each of his contributions to the fund.

Solution Preview

In computing your answers to the cases below, you can round your answer to the nearest dollar. Present value tables are provided on the next page.
Case A: On January 2, 2004, Notson Company loaned $50,000 to Pine Company. The terms of this loan agreement stipulate that Pine is to make 5 equal annual payments to Notson at 10% interest compounded annually. Assume the payments are to begin on December 31, 2004. Compute the amount of each of these payments.
PVA = PMT(PVIFAi,n) where i is the interest rate
n is the period.
50,000 = PMT(PVIFA10%, 5)
50,000 = PMT(3.79079)
PMT = $13,190
Case B: Rex Jeter, a lawyer contemplating retirement on his 65th birthday, decides to create a fund on an 8% basis which will enable him to withdraw $30,000 per year beginning June 30, 2007, and ending June 30, 2011. To provide this fund, he intends to make equal contributions on June 30 of each of the years 2002 through 2006.
(a) How much must the ...

Purchase this Solution


Free BrainMass Quizzes
Motivation

This tests some key elements of major motivation theories.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.