Question

4-1 Rose recently graduated in engineering. Her 5 employer will give her a raise of $6500 per year if she passes the FE exam (Fundamentals of Engineering) (a) Over a career of 45 years, what is the present worth of the raise if the interest rate is 4%? (b) What is the future worth at Year 45? (c) Incentive pay systems can create ethical dilem- mas in the workplace. Describe one each from the perspective of the employer and the employee. A man wants to help provide a college education for his young daughter. He can afford to invest $600 yr for the next 4 years, beginning on the girl's 4 birthday. He wishes to give his daughter $4000 on her 18th, 19th, 20th, and 21st birthdays, for a total of $16,000. Assuming 5% interest, what uniform annual investment will he have to make on the girl's 8th through 17th birthdays? 4-30 th Tameshia deposits $5500 in her retirement account every year. If her account pays an average of 6% interest and she makes 38 deposits before she retires, how much money can she withdraw in 20 equal payments beginning one year after her last deposit? Contributed by Paul R. McCright, University of South Florida 4-27 Jennifer Creek is saving up for a new car. She wants to finance no more than $10,000 of the $26,000 esti- mated price in two years. She deposits $5000 into a savings account now and will make monthly d for the next two years. If the savings account pays a nominal interest rate of 3% per year with monthly compounding, how much must she deposit each month? Contributed by Gillian Nicholls, Southeast 4-23 eposits Missouri State University

Answer 1

If one consider the raise as an annuity, one could easily find the required values. In (a) present values is to be calculated, and in (b) future value is to be calculated. (a) To calculate the PV from an annuity flow, use the following formula or you can use excel for the calculation of the same: PV = PMT [1 - (1 + i)^-pi/i] For excel = PV (rate, years, PMT, 0) = PV (0.05,40.6500,0) Where. PV is the present value. PMT is the annuity, and i is the interest rate. Now substitute the values in the above formula, PV = PMT [1 - (1 + i)^-pi/i] = $6500 [1 - (1 + 0.05)^-40/0.05] = $ 111,534.06 Hence, the present worth of the raise is $111,.531.06. (b). To calculate the FV from an annuity flow, use the following formula or you can use excel for the calculation of the same: FV = PMT [(1 + i)^pi - 1/i]