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Finance: Annuities, Time Value of Money, PV, FV, PVA, FVA Bonds

1. Lyle O 'Keefe invests $30,000 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years. At the end of the 8 years, Lyle withdrew the accumulated amount of money.

A) Compute the amount Lyle would withdraw assuming the investment earns simple interest.

B) Compute the amount Lyle would withdraw assuming the investment earns interest compounded annually. (Round to 2 decimal places, e.g. 25,250.25. Hint: Use tables in text.)

C) Compute the amount Lyle would withdraw assuming the investment earns interest compounded semiannually. (Round to 2 decimal places, e.g. 25,250.25. Hint: Use tables in text.)

2. Stephen Bosworth, a super salesman contemplating retirement on his fifty-fifth birthday, decides to create a fund on an 8% basis that will enable him to withdraw $25,000 per year on June 30, beginning in 2014 and continuing through 2017. To develop this fund, Stephen intends to make equal contributions on June 30 of each of the years 2010-2013.

A)What are each of Stephen's contributions to the fund?

3. (Computation of Bond Prices)

What would you pay for a $100,000 debenture bond that matures in 15 years and pays $10,000 a year in interest if you wanted to earn a yield of: (Round computations to 2 decimal places, e.g. 15,250.25 and use the rounded amounts to calculate the final answer. Round the final answer to 2 decimal places, e.g. 30,250.25. Hint: Use tables in text.)

A) 8%?

B) 10%?

C) 12%?

Solution Preview

1. Lyle O 'Keefe invests $30,000 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years. At the end of the 8 years, Lyle withdrew the accumulated amount of money.

A) Compute the amount Lyle would withdraw assuming the investment earns simple interest.

Simple interest of $2,400 ($30,000 X 8%) per year X 8 $19,200
Principal 30,000
Total withdrawn $49,200

B) Compute the amount Lyle would withdraw assuming the investment earns interest compounded annually. (Round to 2 decimal places, e.g. ...

Solution Summary

Annuities and the time value of money is examined.

$2.19