Question

1. What's the present value of a perpetuity that pays $200,500 per year if the appropriate interest rate is 5%?

2. Mr. Nieto has $3,431,712 and wants to retire. He expects to live for another 15 years and to earn 5.0% on his invested funds. How much could he withdraw at the end of each of the next 15 years and end up with $500,000 in the account?

3. Nicholas of Derme has $200,000 invested in a Bitcoin bank that pays 38.4% annually. How long(N) will it take for his funds to quadruple?

4.Discuss why a dollar tomorrow cannot be worth less than a dollar the day after tomorrow. Briefly explain the concept of risk.

Answer 1

1.

Present Value = 200,500/0.05

Present Value = $4,010,000

2.

Calculating Annual Payment,

using TVM Calculation,

PMT = [PV = -3,431,712, FV = 500,000, N = 15, I = 0.05]

PMT = $307,447.84

3.

Calculating Time Period,

using TVM Calculation,

N = [PV = -200,000, FV = 800,000, I = 0.384, PMT = 0]

N = 4.27%