After a protracted legal case, Joe won a settlement
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Question A:
After a protracted legal case, Joe won a settlement that will pay him $11,000 each year for the next ten years. If the market interest rates are currently 5%, exactly how much should the court invest today, assuming end of year payments, so there will be nothing left in the account after the final payment is made?
Question B:
Mary just deposited $33,000 in an account paying 7% interest. She plans to leave the money in this account for eight years. How much will she have in the account at the end of the seventh year?
Question C:
Mary and Joe would like to save up $10,000 by the end of three years from now to buy new furniture for their home. They currently have $1500 in a savings account set aside for the furniture. They would like to make equal year end deposits to this savings account to pay for the furniture when they purchase it three years from now. Assuming that this account pays 6% interest, how much should the year end payments be?
Show all work for each assignment and explain each step carefully.
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Solution Summary
This solution is comprised of a detailed explanation to answer exactly how much should the court invest today, assuming end of year payments, so there will be nothing left in the account after the final payment is made.
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Question A:
After a protracted legal case, Joe won a settlement that will pay him $11,000 each year for the next ten years. If the market interest rates are currently 5%, exactly how much should the court invest today, assuming end of year payments, so there will be nothing left in the account after the final payment is made?
C = $11,000
r =5%
n =10 years
The formula for PV of annuity is
= 11000 * [1 - 1/(1 + 0.05)^10]/0.05
= ...
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